Sluggish property market the culprit behind Singapore’s lacklustre local demand

Why are Singaporeans spending less in spite of steady wage gains?

A baffling contradiction is surfacing in Singapore, where citizens are spending less in spite of consistent wage gains and steadily climbing incomes.

Data released by the government showed that total trade contracted by 4.7% in August, an unsurprising drop considering that domestic demand has contracted on a sequential basis in both of the past two quarters.

According to a report by JP Morgan, the softness is striking against the backdrop of sustained wage growth and a persistently tight labor market, where the unemployment rate has held at roughly 2% over the past two years.

The report points to cooling property prices as the culprit behind flagging domestic demand.

“Negative wealth effects associated with slowing property price gains may be one factor exacerbating the recent sluggish trend in private consumption. After climbing steadily since the 2008-09 financial crisis, property prices and rental incomes have softened through the past several quarters. A cooling real estate market could damp sentiment and curb private spending, even if Singapore’s labor market stays tight and wage growth remains stable,” the report stated.