I hope this article can help you sleep better at night as I seek to give you clarity on how the Singapore property market works and what are the pillars that stabilize it.
I would be upfront that we will definitely see price corrections in some segments due to a slow down in the global and domestic economy. As a real estate agent who receives real-time price updates from developers, I am already seeing some new launches giving discounts which would not be possible before Covid 19 hit our shores.
At the same time, I also see some other new launches selling almost every day. The following are the TOP 30 projects sold during the Circuit Breaker.
That being said, I seek to give a balanced view of the market with this article and hope it can help you with your investment acumen.
Recently a client called me from overseas, he told me, Chantel good news, I have received the green light from my board members and we would like to sell our Grade A office building. I hope to sell my assets in this country so that I can invest them in Singapore and China.
He went on to share with me his strategy of how he is going to place his money in the domestic airlines in China and also his desire to shift more capital into Singapore because he has confidence in the governance of Singapore in the long run and think it will be a good place to shift his funds here.
At the same time, I am also in the midst of finalizing a 2-year lease for a British Expat who is currently still in the UK. Due to travel restrictions, he is still not able to fly to Singapore, but he wants to tie down the lease first and hope to be here with his wife for the next 2 years if possible.
So why do these well-heeled foreigners want to be in Singapore?
I believe the key idea is that Singapore is stable.
It’s timely that at this point of writing, Prime Minister Lee just delivered a speech to address the nation. The headlines on CNA goes
Listening to the speech made me recognize 2 key points.
A Less Prosperous World
The term a less Prosperous World really struck me that there is an imminent economic challenge ahead of us. There will be businesses that will fold, people losing their jobs and limitations to international travels.
But at the same time, I also see new businesses thriving. Businesses in the technology and essential services are doing very well. I hear of news of people around making job switches to jobs with better pay and opportunities.
A Nation With A Plan
PM Lee also mentioned, “Singapore is well-placed to connect itself to new opportunities and create new jobs because of the country’s economic strengths...”
It helped me recognize that despite the challenges there is a way out and more importantly we are as a nation is ready to take on this challenge and have a good chance of making it work.
For me, this portion of the speech is important because it highlights a government that is frank about the challenging times and at the same time have a plan to deal with these challenges.
In times of crisis, I believe good governance is a key to recovery and good governance is supported by tenets of accountability, transparency and competence.
With The Looming Global Recession, Will Singapore Property Market Crash?
While it’s impossible to look into a crystal ball to project the actual movement of prices, there are some data and facts that will give us some clues to how the market will likely pan out.
After looking at the data and the measures in place, I believe, there will be a price correction in some segments of the market, but the market as a whole is unlikely to crash to prices seen in 2007 and here is why.
The following are 3 Key Reasons why current data, points to a resilient Property Market in Singapore
The Government’s role in regulating the market
Domestic Demand
International Demand
1. The Government’s Role In Regulating The Market
The illustration below will give you an idea of how the Singapore government balances the various influences on the property market and the measures (market stabilizers) that were put in place.
The Singapore government’s approach in balancing the property market can be likened to a man walking on a tightrope. There are various measures put in place to stabilize the market to ensure a market that allows asset growth and minimal risk of property bubbles.
The Pillars That Stabilize The Property Market In Singapore
Total Debt Servicing Ratio (TDSR)
TDSR dictates the amount of loan a borrower can loan from a bank based on his/her income. The current TDSR rate is at 60%.
Additional Buyer Stamp Duty (ABSD)
This is an additional stamp duty a residential property buyer has to pay based on their nationality and property count.
Seller Stamp Duty (SSD)
This measure helps to reduce property flipping and property speculation. The seller has to pay a stamp duty for selling a property within a different period of holding period.
Loan to Value limits (LTV)
This is the amount of loan a borrower can loan base on the value of the house. Currently the LTV for 1st home loan is at 75%
That means, if you purchase a home at $1 million, the maximum loan you can get for the property is $750,000.
Government Land Sales (GLS)
There are land parcels that the government set aside for development of private property. This is one way that the government can use to monitor prices and control the supply of new private residential units.
Effectiveness Of These Market Stabilizers
This is an example of the various market stabilizers introduced at various stages to impact the property prices. As you can observe from the graph the measures introduced had been effective in moving the prices in a desired direction.
It is also important to note that the TDSR was introduced in 2013 when the market was heating up and the 2 round of ABSD was not able to bring down the price index. With the introduction of TDSR the property price index began to taper again.
What this means is that the property purchasers who enter into this market, has a much lower tendency to be in a position of being over-leveraged as compared to property purchasers before the Global Financial Crisis period who were not restricted by this borrowing ratio and borrowed more aggressively resulting in a lower ability to finance the property during a financial crisis.
Besides these market stabilizers that are in place, there are also other methods that property owners can use to stay afloat during this storm through creative financing and making use of mortgage deferment schemes, these methods will further strengthen property owners' ability to hold property and reduce the situation of panic selling.
2. Strong Domestic Demand
There will be strong demand for private residential properties from property owners who just went through Enbloc and HDB Upgraders.
Enbloc Owners
We have just experienced the end of an en-bloc cycle.
During this cycle, we saw approximately $18 billion of payout to these happy owners.
What this means is that there are a good number of cash-rich property owners who have benefitted from their previous property purchase who will need a replacement or are looking to put their money back into the real estate market to invest in another property.
HDB Upgraders
2019 to 2022 will see an average of about 30,000 BTO flats per year reaching their MOP.
This will provide a fresh wave of HDB upgraders who want to make use of the gains from selling their newly MOP flats to upgrade to either a bigger HDB due to needs, or Private property for an upgrade in lifestyle or upgrade in their property investment.
A look at the historical data has shown that nearly half of private home sales is made up of property purchases with HDB address. The data shows a high percentage of HDB upgraders moving into OCR properties. This is likely due to the lower prices in OCR properties which makes it more accessible for the masses.
3. Foreign Demand For Singapore Real Estate
The fact that the additional buyer stamp duty for foreigner buyers is at 20% really speaks volumes of high demand for residential property in Singapore for foreigners.
What this means is that with every $1 million property that was purchased, the foreign buyer has to fork out an additional $200,000 for stamp duty.
In 2019 OrangeTie and Tie released a report that listed 12 reasons why “Singapore Remains An Attractive Investment Destination”
The 12 reasons are based on Singapore ranking among the Top 5 In the following areas
The following chart also shows a strong demand for Singapore property from foreign ownership. Despite the introduction of 20% ABSD in 2018, there is still an uptick of transactions in 2019.
With global unrest and shifts in the economy, Singapore will be an attractive location for foreigners who are seeking a stable environment to raise their children and safe haven for assets.
Final Thoughts
So, with this data in mind, where can one still find property with a good discount?
The following are 2 areas that I think one is likely to see a higher margin of price correction.
New Launches With Slow Sales That Is Nearing TOP or have TOP
An example is a project that I shared at the start of my article that is giving up to 100k worth of discount for a project that is located in the CCR.
Another example is 38 Jervois that made headlines by giving 13% - 24% to clear it’s remaining 16 units.
If you like a list of such discounted properties, you may drop me a note/whatsapp and I will share with you the updated list.
For projects that are selling well during the circuit breaker period, there will be less probability of high correction like 24% that you see in Jevois 38, this is due to an already narrow profit margin or the good sales momentum does not warrant for huge discounts.
Resale HDB / Resale Condo
There will likely be pockets of fire sales from individuals who have overleveraged and need to urgently dispose of their property. But given the option to defer mortgage payment and also a relatively stronger rental demand (due to lower vacancy rate from the tearing down of many residential projects from the enbloc cycle that just ended) the likelihood of such firesales is low.
For newly MOP HDB, prices are likely to still transact within market value with a low likelihood of huge dips due to the higher demand for such properties for buyers who need an affordable place to move in immediately. The existing CPF housing grant also makes it affordable and appealing for first-timer HDB buyers.
From previous data, the area where one can find the most correction in a secondary market is likely from the CCR segment.
Discounts are great! More importantly focus on value
A final tip for property buyers, while all of us (myself included) enjoy the thrill of a good discount due to its perceived value, it is important to base your purchase on actual value rather than getting a huge discount.
A hugely discounted property may not always be a good value property.
"Price is what you pay. Value is what you get." - Warren Buffett
The principle of value investing is to pay a low price relative to the value that you will receive.
The value of residential property is a combination of science and art.
The Science (measurable) aspect of the potential value can be gauge by
The entry price
The potential for capital appreciation
The rental yield
The Art (non-measurable) aspect of the potential value can be gauged by
The exterior and interior of the property
The views and facing
The layout
A more expensive property that can tick all the boxes of these criteria might be a better purchase compared to a discounted property that is inferior in some of the criteria.
Lastly, I like to end this article with my favorite quote from PM Lee’s address.
“Working as one, we can take Singapore safely through this crisis, and keep Singapore exceptional: a fair and just society where everyone can chase their dreams” Prime Minister, Lee Hsien Loong.
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About The Author
Chantel Teo is fiercely loyal, insatiably curious and always hungry.
A licensed real estate broker based in Singapore. She has transacted properties with a combined value of more than $60 million, from Tanjong Pagar to Orchard to SengKang to Bukit Panjang. In the journey of helping her clients, buy, sell, lease and manage their properties, she has collected many stories and life lessons.
She writes as a form of catharsis and connection. Through her writing, she hopes to share practical and useful insights as well as stories that can enrich her readers.
Buildings and houses is her passion and she has a special love for walk-up apartments and buildings built before the 90s, probably because of the character, charm and history that comes with these buildings. Besides buildings that can stand the test of time, she also appreciates the cultivation of personal substance and character that endures.
One of her favourite quote goes
“Character, in the long run, is the decisive factor in the life of an individual and of nations alike” - Theodore Roosevelt. Her belief is that good character will be a solid foundation in which she builds her career and the people around her.
When she is not hustling at work, she enjoys nice coffee, hearty meals, long walks and a good read. She also has a soft spot for all things furry.
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