By Getty Goh (guest contributor)

2011 has been quite an eventful year for properties. With the year drawing to a close, it is timely for us to look back on how property prices have performed in the last 12 months and for me to share my views of how I see the market in 2012.

Overview of the Singapore Private Property market

The URA Private Property Price Index (PPPI) is presently at an all time high. This indicates that private property prices across the board have been rising in spite of the numerous rounds of property anti-speculation measures. The good news is that most of those who bought a private residential property several quarters ago will likely be sitting on decent profits right now. The not so good news is that those who are looking to buy a private property have been having a hard time finding something that is affordably priced.

On 8 Dec 11, the government introduced yet another round of anti-speculation measures – Additional Buyer’s Stamp Duty (ABSD). Under the new regulations, foreign buyers will have to pay an additional 10% stamp duty for their property purchase, while PRs buying a second property and Singaporeans buying a third property will have to pay an additional 3% stamp duty.

I have been suggesting to those who are looking to invest in the Singapore property market to stay away as the price growth has reached a point where it was starting to be unsustainable. In the last few quarters, price appreciation has been slowing down and my company’s indicator, the AAI, suggests that the time is ripe for the index to come down from its peak (see Figure 1).

Without going into the math behind the graphs and by simple observation, do you notice that the URA PPPI index in the yellow zone after each green zone is always contracting (see the red boxes in Figure 1)? Looking at trends that have occurred during the last 2 downturns, is it not reasonable to expect the URA PPPI to behave in a similar way as before? We suspect that the latest measures will be the straw that breaks the camel’s back and cause prices to start dropping.

Figure 1: Ascendant Assets Indicator (correct as at 2011Q3)

Source: URA and Ascendant Assets Pte Ltd

Overview of the Singapore Non-Residential Property market

With more measures in place to dampen the demand for private residential properties, investor’s interest has shifted to the non-residential property market. When we compare the URA Index for Private Residential Properties with Office Properties in Figure 2 and Industrial Properties in Figure 3, we can tell that prices for non-residential properties have also risen. However, it can be seen from the charts that there is still much scope for non-residential property prices to catch up with residential property prices.

Figure 2: Comparing URA Index for Private Residential Properties with Office Properties (1975Q1 to 2011Q2)

Source: URA and Ascendant Assets Pte Ltd

Figure 3: Comparing URA Index for Private Residential Properties with Industrial Properties

Source: URA and Ascendant Assets Pte Ltd

So what is going to happen in 2012?

Many analysts have predicted that 2012 will be a challenging year for the global and Singapore economy. Even the Singapore government has warned that Singapore’s GDP is expected to be between 1% and 3% for the next few years and unemployment rates will likely increase in the near term.

How well the markets will perform will depend a lot on how the European Union and United States handle their mounting debt. Due to less demand from the Western countries, China’s economy is also showing signs of a slowdown. Compounding the concerns that the slowdown would be severe, China’s efforts to cool the country’s property market are taking effect and property prices in China have started to drop. When we put all these factors together, the property outlook for 2012 seems highly precarious. There are many permutations on how 2012 would pan out; however, this is how I envisage the best- and worst-case scenario to be…

Best-Case Scenario: Private Property Prices remain stable while Non-residential Property Prices increase

Under the best-case scenario, countries affected by the sovereign debt crisis will flood the global financial system with huge bouts liquidity to avert any potential crisis. This will be akin to actions taken during the 2008 Global Financial Crisis. If that happens, it is foreseeable that much of these funds would find its way to Singapore as the country is internationally recognised as an investment safe-haven.

With excess liquidity in the Singapore financial system, mortgage rates will remain low and homeowners will be able to hold on to their properties without having to off load them at fire-sale prices. As a result of the anti-speculation measures already in place (and even more that could come to prevent irrational price escalation for private properties), most of the new funds flowing into the Singapore market will find their way into the non-residential property market, i.e. commercial and industrial properties. As prices in the non-residential markets have not risen as much in the recent recovery, the government will likely not take any drastic action to cool those markets down. This will cause assets in those markets to see a significant increase in prices, making 2012 the year for commercial and industrial properties.

Worst-Case Scenario: Singapore property prices for all sectors tank

In today’s world, all markets are closely connected and no sector or country will be unscathed. Under this scenario, it is envisaged that the major economies are not able to solve the financial issues and negative sentiments tailspin out of control. Akin to what happened in 2008, it is envisaged that lending from financial institutions (FIs) slow to a trickle as FIs do not want to increase their risk exposures by making non-performing loans.

As a result, even though the demand for property is still there, purchasers are unable to proceed as they are not able to secure financing. In addition, a drop in commercial asset valuation would likely be triggered by a drop in rental income from the slow down of business activities while the drop in residential valuation would be triggered by a sizable exodus of foreigners and PRs who are not able to find work. When a severe recession hits Singapore, no property sector will be unaffected. This can be inferred from the high correlation between the URA indexes for private property, industrial property, office space and shop space (see Figure 4).

Figure 4: Correlation

Source: URA and Ascendant Assets Pte Ltd


When the ABSD was announced, some property analysts had forecasted that prices could drop by as much as 30%. This is not an entirely outrageous projection as the URA PPPI dropped by about 25% during the 2008 Global Financial Crisis while prices dropped by 45% during the 1997 Asian Financial Crisis. Investor concern is palpable after the recent round of cooling measures was announced.

However, if we look past the doom and gloom, it means that there are opportunities in the horizon. Warren Buffett famously commented, “I simply attempt to be fearful when others are greedy and greedy when others are fearful.” With so much uncertainty in the air, perhaps it is timely for those holding on to excess liquidity to start shopping around.

By guest contributor Getty Goh, Director of Ascendant Assets, a real estate research and investment consultancy firm.

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