Private Home Prices Fell in 3Q 2024, but Don’t Expect Price Decline to Continue into 2025
Written by Nicholas Mak
Tuesday, 1 October 2024
Summary
(1) The overall private housing price index declined 1.1% qoq in 3Q 2024 due to weak housing demand in both the primary and secondary markets.
(2) The main causes of the weak housing demand is the property cooling measures, slow economic growth and uncertainties in the job market.
(3) The residential property price decline is not expected to extend into next year. For the whole of this year, the private housing price index could remain unchanged to a small rise of 1% year-on-year. It is expected to recover next year and could end with a 4% to 6% increase by the end of 2025.
Introduction
The overall private housing price index declined 1.1% quarter-on-quarter (qoq) in the third quarter of 2024 (3Q 2024), based on the flash estimates of the residential property price index released today. The previous time that the property price index decreased was in 2Q 2023 after the government implemented a round of property cooling measures in April 2023.
Biggest drop in property price index since 3Q 2016
The magnitude of this decline in the third quarter is larger than previous contractions in the residential property price index in the past eight years. The last time that the property price index decreased by more than 1% was in 3Q 2016, when the index declined by 1.5% qoq.
Weak housing demand leading to buyer’s market
Private housing demand has been weak in the third quarter of 2024. The total number of private residential property units (excluding EC units) transacted in 3Q 2024 in the primary and secondary markets decreased by 10.9% qoq to 4,347 units.
The weakness is felt not just in the primary market. The number of private resale housing units sold in 3Q 2024 contracted 19.1% qoq. This has turned the private housing market into a buyer’s market.
Some property sellers have to soften their asking prices to entice buyers to open their cheque books.
Underlying cause
The main underlying cause of the weak housing demand is the property cooling measures, slow economic growth and uncertainties in the job market. The higher Additional Buyer’s Stamp Duty (ABSD), coupled with tighter loan requirements has stifled homebuying demand, especially from investors and foreigners.
The number of private residential units sold by developers this year is estimated to be the lowest since the financial crisis of 2008. With low sales volume, prices would usually decrease. Some market watchers are waiting for the other shoe to drop. This decline in the property price index has ended the wait.
Working its way through the market
In the past 11 years, any decline in private housing prices was usually preceded by government-imposed property cooling measures or a global pandemic. However, this property price drop in 3Q 2024 occurred about five quarters after the April 2023 property curbs. It shows that the cooling measures required more time to work its way through the property market as the measures gradually weaken housing demand before it softens property prices.
Market outlook
The October to December quarter is usually a lull period in the property market. Parents are concerned about their children’s school examinations in October. This is followed by overseas vacations and year-end festivities in November and December. Furthermore, real estate developers would avoid launching their major projects in the fourth quarter. Hence, housing transaction volume could remain subdued in 4Q 2024, resulting in continuing price weakness in this quarter.
However, the private property price index could recover in early 2025 as the market condition changes. Developers is expected to launch more residential projects next year. In addition, homebuyers who are waiting for the new launches or for home prices to drop would be drawn to the market, which will contribute to higher housing demand.
Furthermore, the US Federal Reserve could reduce interest rates once or twice before the end of the year, which will have a positive impact on investment sentiment.
In addition, the prices of public housing resale flats continue to increase this year, which will contribute to demand for private housing from upgraders from HDB flats.
Therefore, the residential property price decline is not expected to extend into next year. For the whole of this year, the rate of change in the private housing price index could range from 0% to a small rise of 1%. It would then recover next year and could end with a 4% to 6% increase by the end of 2025.
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