Business Times published a property feature yesterday that highlights ‘the seven year itch’ of Singaporeans to invest in properties. The property itch is in the DNA of Singaporeans who like new launches and equate owning properties with being rich.
Properties represent a significant portion in the wealth of Singaporeans. The performance of the local property market is a key indicator for the health of our economy. It is the pride of the nation and the self-esteem of the citizens.
What is the Singapore property dream?
The Singapore property dream goes far beyond housing and having a roof over our head. To many of us, property is the source of motivation to toil from dawn till dusk – to save for the down payment of the first flat, to pay off the 30-year mortgage , or to reward ourselves after years of hard work.
While Singapore has evolved from an emerging market to a developed country, there is no significant change in the Singapore property dream.
What exactly is the Singapore property dream?
It is applying for that government-subsidized new flat, and years later, selling it to the resale market for a handsome profit.
It is upgrading from an HDB flat to a condominium unit, with a high Cash-Over-Valuation from the buyer of the flat.
It is buying a private property for investment that can provide good passive income or high capital appreciation.
It is putting the bet on an old property with the hope that one day it will attract a high bid from a developer and bag the windfall from the en bloc sale.
If we ask people joining the long queue to buy TOTO or Big Sweep what they will do if they strike the jackpot, 9 out of 10 will say that they are going to buy a nice home or a big house. Try asking people outside Asia the same question and 9 out of 10 will say that they are going to take a long vacation to travel around the world.
Is the Singapore property dream still relevant?
In my book No B.S. Guide to Property Investment, I raise the question whether exponential growth in the Singapore property market can repeat itself.
Thanks to the stable government and exhilarating foreign direct investment. In the last 50 years, Singapore’s infrastructure and economy has experienced exploding growth. The average GDP growth between 1965 and 1978 is 10 percent.
Prices of landed properties in Singapore have jumped 75 to 100 times. Many dream of history repeating itself when they buy properties in the Little Red Dot with limited supply of land.
But in the last few years, the property markets in developed countries around the world are supported by money printing and cheap financing, with little to do with real economic growth and market demand.
How sustainable is this in the long term?
In the Business Times article, Knight Frank’s Head of Residential Services Tay Kah Poh has this to say,
“Singapore’s economy is projected to grow at only one percent to 3 percent in 2017 and the annual average overall unemployment rate in Singapore rose to 2.1 percent in 2016 from 1.9 percent in 2015. These factors will curtail property buying interest.
All these considered, it may therefore make more sense to view real estate investment from a yield rather than a capital gains perspective.”
“Going forward, real estate capital appreciation is likely to mirror the growth trajectory of GDP and household income. Against this backdrop, investors would need to adopt a disciplined approach, apply yield-based valuation methods to price their entry points into any deal and leverage wisely.”
What today’s property buyers should know?
Time has changed.
Home buyers and property investors should wake up to the fact that buying properties, in terms of risk and return, is now no different from buying stocks and bonds.
Investors are expecting to earn a realistic ‘yield’ in a low digit percentage similar to dividends and interests. Forget about property investment in the past that offer ‘capital gains’ in multiples of your initial investment.
Investments that demonstrated a record of high growth in the past do not guarantee high performance in the future. On the contrary, it may signal that the boom is over. Afterall, similar to the stock market, the real estate industry has a cycle. Once the fundamentals have changed, the trend will be reversed.
Although history often repeats itself and we can expect ups and downs through the cycles, there are things in life that, unfortunately, do not work like that. Once they are gone, they are gone forever.
There is no point regretting opportunities we have missed decades ago and wish we had bought properties at a certain time. Similarly, it is unrealistic to say that property prices can grow many times just like it had happened before.
Remember what Jim Rogers says in his book A Gift to My Children: A Father’s Lessons for Life and Investing?
“Do not cling to anything that will eventually cease to exist. No matter how much time or energy or money you invest in it, once something is gone, it is gone forever.”
What happen when dreams become nightmares?
A study conducted by The Edge Property using URA caveat data shows that there were 837 unprofitable non-landed residential property transactions in 2016, amounting to $236 million of loss.
Owners of properties in Sentosa Cove, the high-end market, big penthouses and larger units purchased near the peak of the market were hit the hardest.
For this month alone, half of the 72 properties put up for auction were mortgagee sale.
Sharon Lee, Knight Frank’s Head of Auction, says that some owners who lost their jobs have defaulted on their mortgages. Some struggling business owners are trying hard to hold onto their assets.
Many investors entered the market during the property upturn between 2011 and 2013 before the introduction of TDSR. When the market is due for a correction, they are caught unprepared. As Lee says, the properties on mortgagee sale may have been vacant for a prolonged time or the monthly rents are unable to cover the mortgage payments.
The market is far from bottoming out. It is just a matter of time before mortgagee sale spreads to properties bought after 2013, and smaller-size properties outside the central region.
Unemployment rate keeps going up. Expatriates leave faster than import of foreigners. Fed indicates three key interest rate raise this year. Yet more new projects are waiting for TOP or their turn to launch this year.
Where can we find enough demand to catch up with excess supply? Is demand ever going to catch up with supply?
Here’s to the ones who dream
On the other hand, according to the property agencies, there is still ‘healthy interest’ and ‘sizeable-than-expected crowd’ at recent new launches due to ‘pent-up demand’ for new projects in the neighborhood. Tiny units are dissected into 2 or 3-bedrooms selling at $1,350 to $1,700 psf.
“I don’t think anything is going to happen in the next one or two years, so I decided to buy the unit,” said one buyer.
Do you know that Singapore is known as La La Land? Sorry lah but this is the way we end our sentences.
No. Singaporeans are not living in our dreams. We dream because we still have hope. Every buyer who picks up a property at the new launch believes that lady luck will shine on him.
“City of Stars, are you shining just for me?”
Foolish as they may seem
Here’s to the hearts that ache
Here’s to the mess we make
She told me:
“A bit of madness is key
To give us new colors to see
Who knows where it will lead us?
And that’s why they need us”
(La La Land – Audition/The Fools Who Dream)