The dilemma faced by Singapore property investor

By Ryan Khoo / Alpha Marketing, The Edge Property | July 10, 2015 10:00 AM SGT
Real estate investment is quite a touchy subject now in Singapore. As the property market is fairly weak, investing in property has somewhat fallen out of favour. There is some apprehension in the market on what the future holds. We examine some of the trends that investors face today.
Property prices have fallen, but have they fallen enough?
The Singapore private property price index has fallen 4% in year 2014. As of Q1 2015, this index has fallen by another 1% so all in about a 5% drop. In comparison, HDB prices dropped 6% in 2014 and another 1% in Q1 2015.
Has prices fallen enough and are property buyers attracted to come back into the market? Well we have seen the number of resale transactions climb back up in late May but delving into the transactions, a significant number was in prime districts 9, 10 and 11 so it is still too early to say that it is a broad based recovery.
And if you ask the average person on the street, chances are that they will answer that property prices are still too high. And that's not surprising considering from a property index perspective, we are back to the 2011/2012 prices and even back then, affordability was already a concern for many.
Existing home owners are not a happy bunch
If you own a property in Singapore today be it a private condominium or a HDB flat, you're probably not very happy right now. Prices are trending down and the capital gains on your property has dropped from over a year ago. Rental values are also falling across the board as there is more property supply now and with tightening immigration (less foreigners working here) and rising interest rates, your rental yields are getting squeezed and is not as good as before. The property cooling measures have also made it difficult to sell or buy or refinance.
Interest rates a big concern
Interest rates in Singapore are low but rising. 3 month SIBOR rates have about doubled from a year ago and at June 2015 is at 0.83% from 0.36% in June 2014. With the US economy showing signs of growth and expectations that the US Federal Reserve will raise rates in September this year, the expecation is that interest rates can only go up. And with rental yields in Singapore hovering around 3-4%, this doesn't give much room for property owners to make a positive spread. On the other hand, keeping cash is also a poor option as with savings rates at sub 0.3% for major banks, even a rising interest rate is not going to help you fight inflation.
Immigration into Singapore is still kept low
The Manpower Minister has recently stressed that the foreign worker policy will not be relaxed and foreign worker levies will not be reduced. Singapore has enjoyed a population boom in the past decade that has played well for the property market but with slowing incoming immigration, this positive factor has subsided. The government is committed to take Singapore's economy through a productivity transformation and this will take time and there will be some short term pains to endure. And this will be felt in the property market if not so already.
Incoming Supply is High till 2018
There are more than 180,000 units of residential property coming into the market from 2015 to 2018. To even out the future supply numbers, the Urban Redevelopment Authority (URA) has only 4 confirmed sites in the private residential list for the H2 2015 Government Land Sales program, one of the lowest in recent years.
Overseas property investments have been discouraged
There has been a concerted effort through the media recently to discourage overseas investments. Singaporean investors have been affected by several high profile investment failures in Brazil, United Kingdom and United States. Iskandar Malaysia has received a torrid media bashing and warnings all round. The Council of Estate Agencies (CEA) has felt compelled to release an advisory to the public on what to look out for when investing overseas. Also as the Singapore Dollar has remained relatively strong, investing overseas has caused foreign currency losses especially in the popular markets of Australia, United Kingdom and Malaysia where the currencies in these countries have all fallen against the Singapore Dollar in recent times.
Underlying property demand is still very high but fear remains
Despite all the prevailing negative factors, Singapore remains a preferred investment destination and the underlying demand to buy properties in Singapore remains high. Everybody still wants to own a home in Singapore. The reasons that are stopping people from buying is still "affordability" as cash downpayments are still too big particularly with ABSD in place and financing is restrictive with the TDSR regime. Even if you have the cash for the downpayment and can secure the loan, people are afraid to commit for fear of catching a falling knife, if prices continue to fall. No one is sure if we are at the bottom yet because a 5% drop doesn't constitute a significant fall and factors such as the high supply and interest rates still hang over the head as potential dampeners. Making a wrong move can be financially detrimental especially when the sums involved are so high.
No sign on when cooling measures will be relaxed. Maybe 2016?
There is some hope that a relaxation of cooling measures will give the market the boost it needs and turn a buyer's market into a seller's market. However the Ministry of National Development (MND) has been non-committal about it and says that it is still monitoring the market. There are 2 conflicting pressures here as allowing property prices to drop further and letting this weak market persist may have a detrimental effect to the economy. On the other hand, prices are still too high for comfort and the incoming supply is still too significant to turn the tap back on. It is indeed a difficult situation to resolve.
Hence this is the dilemma that the Singapore property investor finds himself in. Inaction and a wait and see approach has been the common response. All the signs point clearly that we are in the bear stage of the property cycle and there are no easy answers. Bargain hunters are still waiting for the time to make a killing, but where the property cycle moves from here is still anyone's guess.
This article appeared in The Edge Property Pullout of Issue 684 (July 6) of The Edge Singapore.
Ryan Khoo is co-founder of Alpha Marketing. The views expressed here are his own.