By Property Soul (guest contributor)
In October, seven property investors and four industry experts joined the Property Investor Roundtable Luncheon jointly organized by Knight Frank and Property Club Singapore. The property investors were interested to pick the brains of industry experts, compare notes with our peers and find out what’s on the mind of fellow investors.
How we qualify the savvy property investors
Property investors at the roundtable were my acquaintances and members of Property Club Singapore. They were invited based on their long experience with investing in the property market.
Another prerequisite is that they must hold (or have held) a portfolio of at least five to dozens of private properties in Singapore. Their property portfolio must have shown good capital appreciation and positive cashflow. Property speculators or co-owners with many investors did not qualify.
Given the group’s breadth of experience, lots of valuable knowledge, insider insights and inspiring thoughts were shared at a roundtable that lasted almost three hours. Below are five of the popular topics discussed that I would like to share here.
(Disclaimer: The views of the property market in this blog post are personal opinions of the roundtable participants. They do not represent the position of the blogger or Property Club Singapore.)
- What are the experts currently seeing in the rental market?
According to the URA, the vacancy rate of private residential properties is between 10 to 12 percent.
“My friends are having a 20 percent decrease in rent,” said Investor A.
“Mine are seeing a 30 to 50 percent cut. At one of my properties the rent dropped from $18,000 to $10,000,” echoed Investor H. “Many MNCs are moving their staff out of Singapore because of cost. No market can rely only on investors without real demand. Investors need rental income.”
“Rentals between $8,000 and $10,000 are the most competitive. High-end projects in prime districts suffered the most these few years because of a lot of supply, a cutback of expatriate housing budget, tightening of immigration, etc.,” explained Tay Kah Poh, Executive Director & Head of Residential Services at Knight Frank.
Investor D shared a personal experience: “In this market, you need to have a strategy. For example, I decided to take back one unit to do some renovation. Some tenants are willing to pay a bit more for that. I even managed to increase the rent.”
“When I see more young expatriates and more foreigners coming to Singapore without their families. I do room rental instead of leasing the whole unit. That property has a 20 to 30 percent increase in yield,” added Investor D. “Location is also very important. My properties are in the town area and near MRT stations. So the rental is quite stable.”
- What will happen to the Singapore housing market?
Tay noticed that, unlike the older generation, young people are unwilling to be bound by a 30-year mortgage. Many millennials (about one million of them in Singapore) prefer renting to buying.”
Alice Tan, Director and Head of Consultancy and Research at Knight Frank, agreed with the statement. “Not only foreigners are renting. Some locals are renting too. They are waiting for prices to bottom out. The URA data has been showing a healthy leasing volume.”
Debbie Lam, Consultancy and Research Manager at Knight Frank, added that there are currently over 21,000 unsold units. Given buyers can clear about 7,000 homes a year, it will take at least three years for the market to absorb all the unsold units. “The questions we need to ask are: What is the rate the market is buying these unsold units? Who is going to rent or buy them? At what price? Every year Singapore takes in 20,000 to 30,000 non-residents. There are 30,000 vacant units next year. The average household size in Singapore is 3.4. We need 100,000 people to occupy these units. Let’s assume the locals are staying in HDBs flats. We need another three years for 100,000 PMETs and their families to come here.”
- Are cooling measures here to stay?
Property Soul admitted that there are members of Property Club Singapore asking her to urge the government to relax the cooling measures. They have been waiting for too long. She said, “Compared with the people who can afford private properties, there are far more who don’t have the money to buy. And it is easy to put the blame on the government. And our government will react whenever people complain.”
Investor D shared her views about the Singapore property market: “The government wants to see a market correction because many Singaporeans are unhappy about the rise of property prices over the last couple of years. But on the other hand, the government does not want to see the property market crash because that shows the government manages housing badly in this country. As an investor, I am still holding a sizable investment in properties. Frankly, I prefer the government to come up with some cooling measures than not because you don’t want it to form a bubble.”
Investor A agreed with the thought. “Ravi Menon, Managing Director of the Monetary Authority of Singapore, recently pointed out that high property prices are unhealthy for our economy. That signals to us that even if property prices were to appreciate, it would have to be at a sustainable place. It just sucks up too much capital. When all the disposable income goes into properties, our retail suffers. The younger generation also can’t venture into entrepreneurship.”
- What are the rich are doing with their money?
Property Soul wanted to find out from the participants their current strategy of property investment and asset allocation.
Tay shared what the super rich are doing in Singapore: “Where is the smart money? The UHNWI (Ultra High Net Worth Individuals) buy companies and businesses. They invest offshore. For the vast majority, they are holding cash and are not jumping in yet. But some are still buying. They will bargain hunt for something they like and give an offer on the low side.”
Banker D echoed Tay’s comments: “A lot of investors are keeping their powder dry. There’s a lot of liquidity just waiting for what they think could be the right moment. They are still hunting. You see people going to the showflats but they are not signing the cheque yet.”
Investor H said, “I see some landed properties moving. Singaporeans somehow feel that they have waited long enough.”
“Many are buying overseas. Foreign properties can give you a much better yield. Most properties in Singapore today are at 2 to 2.5 percent yield,” said investor K. “But you must have high appetite for risk when buying overseas. Anything can happen.”
Lam added: “In a high risk market, people are hunting for safe assets. Investors are still buying high-end condos and offices. They know that prices are high now. They can tolerate low yields in the short to mid-term and bet for capital appreciation in the long term.”
- Where are the next property hotspots and hot potatoes?
Lam continued: “But there are always outperformers in any market. Properties close to MRT stations are more resilient. I personally like the mid-tier market near Redhill, Commonwealth and Paya Lebar MRT. They are just a few stops away from Raffles Place. Two-bedroom units are quantum-friendly and very rentable.”
Investor E warned that some of these areas have rental problems and high vacancy rates. Empty strata title shops in Alexandra Central are a good example.
Tan shared the findings from her research: “Prices in Jurong Lake District are likely to rally beyond 2020 after the High Speed Rail is ready in 2025. But during the construction period, prices are likely to fall because of the nose and dust. The relocation of the Paya Lebar Air Base will create a lot of space for development and enhancement of land value, translating to price increase. If you buy into Paya Lebar early, you can enjoy medium to long term upside.”
Lam added, “Woodlands is the weakest in market potential. Unlike Jurong and Paya Lebar which will be new commercial centres, it is still not clear what trades will be in the new Woodlands, and whether there will be high income jobs to attract foreigners to stay there.”
Investor K shared with the group his property investment in Geylang. For easy management, he only signed corporate leases with companies that use his unit as staff quarters. “For Geylang, if you can overcome the stigma, the rental yields are high in those small-size properties.”
However, the commercial property sectors will remain tough for some time. According to Knight Frank, there is oversupply in the industrial market, with 5 million square feet of current supply in industrial space. Next year, there will be another 15 million square feet added to the market.
Tan noticed that industrial properties sold in the heydays of 2012 and 2013, which agents promised an attractive rent of $3 psf, can’t even be rented out at $2 psf. In general, the rents are falling.
“There is decline in office demand too because of the new supply of 7 million square feet of office space coming up in the next four years. Now the situation is like musical chairs. Tenants are moving from older offices to newer ones. And everyone is taking a very cautious stand in expanding their office footprint.”
Tay reminded investors to be very careful when investing in commercial properties. The market can be very competitive and is more volatile compared with the residential sector.
Do you agree with what our property investors and industry experts said?