By Property Soul (guest contributor)
I read with bewilderment an article published on 16 May 2018 in Today titled “New private homes to cost up to S$2,900 psf on average by 2030: DBSreport”. The five projections made by two DBS property analysts on Singapore’s property projections in 2030 caught my attention:
- Singapore’s population to hit 6.3 million to 6.5 million
- Homeowners’ incomes and property prices to grow at compound growth rate of 1.5 percent to 3.2 percent
- New private homes to cost between S$2,300 and S$2,900 psf by 2030
- Demand for private property to be between 12,000 and 16,000 units per year
- Average size of private units to shrink to 840 sq ft
With no intention of pouring cold water on the optimism of DBS, l would like to throw four questions back to the two analysts writing the DBS property report.
Question #1: Can Singapore reverse an aging population to reach 6.5 million by 2030?
I have covered this topic in my earlier blog post “Singapore’s latest demographics: what it means for housing”.
Remember the controversial Population White Paper Back released in January 2013? The Singapore government set an ambitious target to reach a total population of 6 million by 2020 and 6.9 million by 2030.
But the reality is: Our latest population of 5.61 million shows a humble growth of merely 0.1 percent in a year. If we inch at this rate, we can only hit 5.69 million by 2030. Do you think our government will ignore public outcry to import the balance of 1.21 million foreigners and make up the magic number of 6.9 million?
Exactly five years later at the announcement of Singapore Budget 2018, Josephine Teo, Minister in the Prime Minister’s Office in charge of population matters, admitted that “Singapore is not expected to change its immigration policy, and its population is likely to be significantly below 6.9 million by 2030”.
To encourage couples to have babies before they get their flats, Mrs Teo told us that we “need a very small space to have sex”, without demonstrating how. Maybe the two DBS analysts can share with her their personal tips (to hit 6.5 million by 2030), even when the government has already given up their target?
China’s one-child policy that stretched over 36 years has created an unhealthy demographic with serious imbalance in age and gender. The rapidly aging population results in an elder-care crisis. China’s age group of 60 or above as a percentage of the population stands at 17.3 percent (Singapore total residents stands at a higher 19.7 percent in that age group).
The one-child policy was finally ended in 2016. Couples living in the cities with one parent as the only child are allowed to have two children. An estimated 15 to 20 million couples are eligible and expected to have a second baby in 2017.
But to everyone’s surprise, instead of seeing an increasing birth rate, the number of newborns in 2017 dropped 630,000 or 3.5 percent compared with the previous year (while Singapore’s fall is 4 percent in the same year). High costs of living, housing prices and education expenses are cited as the reasons why eligible couples are hesitant to have a second child.
China will be having a negative population growth in the future. If the country with the world’s largest population cannot solve their low birth rate and aging population problem, how confident is Singapore to get the same problem under control? Are we sure we can beat China with higher fertility rate and a younger population? What optimism drives DBS to conclude that Singapore’s population can hit 6.5 million by 2030?
Question #2: Can Singapore’s income growth keep pace with S$2,900 psf?
The DBS property report said the current average private home prices is S$1,500 psf and will go up to between S$2,300 psf and S$2,900 psf in 2030.
Wait, have we reached S$1,500 psf yet?
Well, it depends on which region or district we are talking about, and whether they are new projects or resale properties.
A check on all the non-landed private homes transacted last month shows big gaps in average price psf in different districts.
It won’t be surprising to see non-landed private properties in District 1 and District 9 to go back to S$2,900 psf at least once in the next 12 years. In fact, many luxury homes could have already reached there at their peak in 2007.
What about OCR (Out of Central Region) districts like 22, 23 and 25? With average psf prices still hovering between S$700 and $1,000, do you think they will also go up to S$2,300 or S$2,900 psf by 2030? Will our government sit there doing nothing to cool the market, while happily collecting revenue from land sales and stamp duties?
DBS claims that the steady rise in property rises is supported by steady income growth, with homeowners’ incomes climbing at a compound growth rate of 1.5 percent to 3.2 percent.
According to Singstat’s latest Key Household Income Trends report, the median monthly income of Singapore residents increases 2 percent or 1.5 percent after factoring in inflation. Mind you, this happens when Singapore’s economy is performing well these few years with unemployment rate at ±2 percent and retrenchments near 7-year low.
The Singstat report also points out that, as a developed country, Singapore is experiencing slower pace of income growth, especially for the bottom 50 percent of households.
And could I check with any economics or finance teachers whether it is possible for Singapore wage earners to enjoy salary growth at that rate for 12 years, even while going through potential economic downturns and a global crisis?
Can our income growth keep pace with the rise in private home prices?
URA’s Property Price Index for non-landed private residential properties in 2009 1Q is 100. Last quarter in 2018 1Q, the number goes up to 141.6. The compound annual growth rate is 3.94 percent, which has gone up twice as fast as our income growth (1.5 to 2 percent).
DBS said private home prices will increase from S$1,500 psf now to S$2,900 psf in 2030. That is an annual compound growth rate of 5.65 percent. Wage earners will be overjoyed if this “steady rise in property rises” can be supported by “steady income growth”.
But wait, do we want our labor force to enjoy high wages that are commensurate with a rise in property prices, or a labor force with competitive wages comparable with other countries’to survive in the global labor market?
Question #3: Can we depend on HDB upgraders and foreigners to buy units averaging 840 sq ft?
The DBS report expects annual transaction volume for private homes to reach between 12,000 and 16,000 units, mainly due to demands by HDB upgraders and foreigners. And the average size of private units will shrink to 840 sq ft by 2030.
The low population growth of 0.1 percent last year is mainly due to the negative growth of -1.6 percent for non-residents. The current size of PRs hasn’t changed much for the last four years. Our government is not granting many permanent resident approvals for foreigners staying here. Once their employment is terminated, they must leave the country.
Besides, foreigners must pay 15 percent Additional Buyers Stamp Duty for private properties. No wonder only 6 percent of last year’s total sales transactions are by foreign buyers.
- HDB Upgraders
According to SRX, HDB Resale Price Index is 131.8 in April, down by 13.5 percent compared to its last peak of 152.4 in April 2013. For transaction volume, only 1,850 HDB resale flats were sold last month, down by 49.3 percent from the last peak of 3,649 units in May 2010.
The SRX T-O-X for HDB is negative S$1,000, meaning buyers are underpaying S$1,000 of the HDB flat’s estimated market value. The days when selling HDB flats can make a generous sum from Cash-Over-Valuation as down payment for condos are over.
How many HDB upgraders are preparing to sell their flats at zero or negative COV, and pay S$1,500 psf now, or $$2,300 to S$2,900 psf in 2030to upgrade to a condo?
- Average size of private units
Unlike cities such as Hong Kong or Tokyo, 80 percent of Singapore’s population are benefiting from subsidized HDB flats with very decent living space.
According to the Housing Development Board, the size of an older 4-room flat is between 914 and 1,129 sq ft, while a 5-room flat is about 1,322 sq ft. The new 4 and 5-room flats built are 968 sq ft and 1,183 sq ft respectively. Note that these measurements are strictly internal living space, excluding unusable spaces such as planter boxes and aircon ledges as counted into the floor area of condo units.
Does that make sense for HDB owners to give up their current HDB home, top up a few hundred thousand dollars from their savings, only to “downgrade” (I mean downsize) to an 840 sq ft private home?
Question #4: Can we trust the DBS property report is unbiased?
I own private properties and I live in my private home too. I don’t have problem seeing a rise in private home prices. But I have a problem seeing any party predicting the rise of private home prices without full disclosure of their vested position.
Has DBS declared somewhere in their property report the bank’s interests in the housing and construction sector, except a long disclaimer at the end emphasizing that they cannot be held responsible if their projections do not materialize?
According to the DBS First Quarter 2018 financial data, the bank lent a total of S$140 billion to the housing and construction sector (S$66 billion to building and construction, S$73 billion to housing loans).
It adds up to 42 percent (20 percent in building and construction; 22 percent in housing loans) out of total customer loans of DBS. And S$140 billion is a 14.5 percent increase in construction and housing loans compared with a year ago (S$122 billion in 1st quarter 2017).
DBS Bank is no doubt heavily vested in the property industry. No wonder the bank is so bold in its estimates and so optimistic in its projections for Singapore’s property market.
According to RHB Research, UOB has 27.6 percent and OCBC has 26 percent of its total loans in the housing segment. UOB KayHian confirmed that “housing loans and building & construction accounted for 40 – 50% of total loans for the three banks”.
When the researchers commented that Singapore banks are “best-placed to cash in on the property boom”, the opposite is also true. By lending heavily to a single industry sector, the banks are making themselves vulnerable to any possible property downturn in the future.
In January, the Monetary Authority of Singapore (MAS) said it is monitoring closely how the banks are financing property projects. MAS is collecting data on the size of banks’ exposures and details of the loan facilities granted for each project.
To coincide with its 50th year anniversary, DBS is spending S$30 million across Asia on their new rebranding campaign. The advertising tagline is ‘Live more, Bank less’. Maybe they can change it to ‘Say less, Trust more’?
Just because Morgan Stanley speculates “Singapore’s property prices to double by 2030” doesn’t mean that DBS should follow suit, especially when DBS is positioning itself as the leader in Asia banking.
As I mentioned before, trust is a rare commodity in properties. The same applies to banking. In this digital world, trust is more valued than ever. Unfortunately, trust is increasingly rare to be found with industry stakeholders and in the mass media.
We have no choice but rely on our own judgement to tell the truth.