Singapore Property Market Outlook for 2012 and 2013

March 7, 2012

Singapore Property Market Outlook for 2012 and 2013

By Dennis Ng (guest contributor)

In 2011, buyers from China are the biggest group of foreign property buyers in Singapore. But if you are counting on foreigners to continue buying properties in Singapore in 2012 and 2013, I am afraid to say that you may be disappointed.

The following factors are worthy of our consideration when studying the prospects of the property market in the next two years.

Factors that determine Singapore’s property market

Since interest rates are at a historical low now, it can only go up from here, and not down. In fact, interest rates on home loans can shoot up to 3% to 4%. In my opinion, this could probably take place in 2013 when US interest rates start to climb due to the threat of rising inflation.

In the next two years, more than 30,000 condominium units will be completed. With a huge supply of new condominiums, do you think rental rates would go up or down? So when rental rates indeed go down and interest rates go up, would this make property investments more attractive or less attractive? With rental yield now at 3% to 4%, what would the revised rental yield be when rental rates drop? Would some properties go from yielding positive cashflow, where monthly rental income exceeds monthly housing loan installment, to having a negative cashflow?

In addition, HDB built 8,000 units in 2008. But in 2011 and 2012, HDB is going to build 25,000 units in each year, totaling 50,000 units in the span of two years. With supply of both condominiums and HDB flats expected to surge in the next two years, coupled with an economic slowdown as a result of the next global financial crisis, do you not think that the demand for properties would drop?

Singapore aside, given that the US and Europe, each constituting 23% of the global economy, are likely to experience an economic slowdown in 2012, the rest of the world seems to be headed for another recession. And when that happens, would a global recession, coupled with global sovereign debt problems, especially in the Euro zone and US, not trigger a global financial crisis?

By considering all the above using an upside / downside analysis, do you think Singapore’s property market presents more upside potential or downside risks? And what will your decision be as to whether you should invest in condominiums now?

We should not just look at Singapore’s property market alone

Apart from casting our sights on the local economic situation, we must also track closely the activities in Hong Kong. Why is this so? Well, this is because Singapore and Hong Kong are always closely linked in terms of property market trends and movements.

With respect to this, most market players have the impression that property prices in Singapore are slightly lower than prices in Hong Kong. So if Hong Kong’s property prices fall, Singapore’s property prices might fall as well.

So, with the latest land sales in Hong Kong fetching prices that are below market expectations, could this be a possible sign that the Hong Kong property market is beginning to go downhill?

As it is, Hong Kong’s government—which is boosting the supply of land to try and curb a more than 70% surge in home prices since early 2009—has already sold two sites in August 2011 that missed estimates as home price gains have stalled. This is due to concerns that the economy is sliding into recession. Hang Seng Index (HSI) also fell 23% since its November 2010 peak to below 18,000 points in September 2011.

According to figures released by Hong Kong Land Registry, August 2011 home transactions experienced the biggest drop since February 2009. An index tracking home prices, compiled by Centaline, fell in June and July—the first consecutive monthly drop since December 2008.

Vincent Lo, chairman of Shui On Land Ltd. had reportedly said, “The last few weeks, the property market has come down a little and transactions have virtually stopped.”

Echoing similar sentiments, Yu Kam-hung, a Hong Kong-based senior managing director for valuation and advisory services in Greater China at CB Richard Ellis Group Inc. said, “Property prices will start to decline soon and we are likely to see that in the rest of the year.” He reportedly added that “Prices will trend down by about 10% in the next two years and I don’t rule out the chance that they may fall as much as 20% in the worst case scenario.”

In 2011, buyers from China are the biggest group of foreign property buyers in Singapore. But if you are counting on foreigners to continue buying properties in Singapore in 2012 and 2013, I am afraid to say that you may be disappointed. As it is, I am beginning to hear from some Chinese business owners that there is increasing difficulty for them to obtain loans in China. And some of them already know of friends who are starting to have cashflow problems in China. So if China business owners have cashflow problems, do you think they will have the ability or willingness to continue snapping up properties in Singapore in 2012 and 2013? Probably not.

In my opinion, the global financial crisis has already started, but most people just do not feel it yet. In fact, they would not find anything amiss until things become very ugly. When that happens, market sentiments can make a 180 degree flip within a very short time.

Many people, especially the middle-class Singaporeans are still happily buying properties. That said, my millionaire mentors and I are least interested in buying properties, especially condominiums, because the proposition simply failed our rule that upside must be at least double the potential downside.

But it must be said that I could always be wrong. When it comes to investing, we cannot afford to be overly confident. We must be mindful of the possibility of being wrong. So even if property prices rise instead of fall, I would only make less money by not buying more properties now, which is fine by me.

Personally, the number one investment question that I always ask is, “What if I’m wrong, will I be financially okay?” Next, I would do a simple upside / downside analysis and only invest when the upside is at least double the downside.

While these two investment rules may seem too simple to be true for some people, they have indeed helped me made millions of dollars and prevented me from suffering substantial losses thus far.

In this respect, it seems like I am able to see the future not because I have some supernatural abilities, but because I train myself to be logical and rational when analysing information and drawing my own conclusions.

In my books and seminars, I share this thought process that I personally go through, before making any investment. Since this thought process is made based on hard facts, anyone can arrive at the same conclusion by going through this process, unless he or she already has a biased view of the market.

And if you think that instead of investing in condominiums, you would be better off investing in commercial properties, as some seminar trainers are now advocating, do think again. Recently, I spoke with two multi-millionaires who specialize in investing into commercial properties. And they shared with me that the upside / downside is not working in the investors’ favor. In fact, they are also not considering buying more commercial properties, but may sell if the price is attractive enough.

I also have a friend who bought a commercial property near Tai Seng MRT station in 2010, where its location is obviously rather convenient. The property’s temporary occupation permit (TOP) was in May 2011, but even after a few months, he still has not found a tenant. This is in spite of the theoretical rental yield of about 5% to 6% based on current property prices.

With all above information provided, you should be in a position to decide for yourself the prospect of Singapore’s property market. At all times, do remember that hope is not an investment strategy. Every investment can only be taken into consideration after doing your homework. Only after doing your research based on the available information, would you be able to take a calculated risk.

By guest contributor Dennis Ng, Director of Leverage Holding and Master Your Finance.

Abridged from his latest book, What Your School Never Taught You About Money. For a limited time our readers can buy the hardcopy book at just $23 including free delivery (within Singapore), more than 20% off the usual price of $28.90. Click here to get it now

by Propwise.sg on March 7, 2012 · 27 comments

Posted in Singapore Property Market

{ 24 comments… read them below or add one }

zilly May 14, 2012 at 4:59 pm

mostly, i agree with you . Take look at the euro debt crisis which is in the highlight again and it could trigger a world wide crisis.
But one thing may should be taken into consideration. Recently , the china political issue triggered more rich people go aboard, some of them may also come to singapore. how big no. of new imigrations could be? How could that affect the market?

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Propwise.sg May 18, 2012 at 4:07 pm

Hi Zilly, I think while a number of Chinese do want to come to Singapore, the government is clamping down on foreign purchases of properties in 2 ways: 1. Slowing the rate of immigration 2. Implementation of the 10% ABSD on foreign buying. We’ve already seen a reduction in the number of foreigners buying.

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rakesh vasu August 28, 2012 at 10:16 pm

guys chill out. millionaire friends or not. prices not going down. does not look so. pick favourites. district 9, 15. 16, and even 17. govt surging with developments. wondered why . who has a better r&d than them. so chill, do your home work and play monopoly

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roy June 8, 2012 at 9:30 am

Dennis, in face of the potential financial crisis and economic downturn, all countries now only use one single method to resolve the problem, print money. Given this trend, asset prices will be inflated. Holding on money seems no longer a wise choice. From this perspective, property seems a safe investment and that’s the reason why its price is holding up. If this factor is taken into your consideration, will you have a different view?

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Kyra July 11, 2012 at 7:59 pm

Then is it wise to go into real estate sales full time now?

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Propwise.sg July 14, 2012 at 4:03 pm

Hi Kyra, agents make the most money from selling properties when transaction volumes are high, and that’s usually during bull markets. If we are entering a bear market, life as an agent will be tougher unless you find yourself a niche.

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MMP July 30, 2012 at 4:23 pm

A massive bubble in the SG property market. Leveraged local and Chinese money in every condo…and when China can no longer maintain its own bubble (which it can for only so long..). Well, figure it out.

Just look around SG. Every new development is at least half “empty”. High end rentals can no longer hold..recently 17k flat went for 10k after few months of wrangling. In the process, the landlord only lost 40k (as is so often the case). Stubborn and not very clever landlords clearly. But hey, with all the leverage it’s hard to keep up payments when no one is willing to pay.

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Ric August 4, 2012 at 11:31 pm

So much news about aging population of Singapore. It is definite that Singapore is preparing to open the floodgates to foreigners to come in again. Without this, Singapore could never sustain. Don’t forget how Singapore come to this stage without any natural resources but depends on human talent. I don’t believe prices will move much down or up too much. Having said all inflation will always remain. $1 in the bank today will worth much less year on year. I am a firm believer that interest rate remains absolute low for a couple mor years. This is obvious due to US government is on so much debt. Increasing interest rate will cost their current debt more while they aim to reduce the debt. And Singapore interest rate follows closely to the Fed. Furthermore western countries are
so busy printing more money to payoff government debt which I think this is stealing from the public by accelerating the money to worth much less, hence higher inflation is inevidable. Take loan, buy assets.. Be it gold, property/land or anything.. This resources will get scarer with world population the rise. Human labour/time put into job/work means the human effort is converted to cash. This means more cash or money just grow or liquidity grows. This also means inflation again.

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Benny August 19, 2012 at 3:22 pm

If the prognosis is bad due to macro factors such as western economies stalling and china landing hard, what can one do? Buy property also die cos supply n demand is against buyers due to oversupy n lower inflow of FT.
Buy shares also scared mkt crash. Hold cash scared inflation will erode the value due to artificial liquidity from government printing money and propping up the euro. Hence lower value per dollar. On the other hand, hot money will flow to places like Asia where the climate is at least healthier. So with the hot money, the above scenario will not happen. After having said all these, I realised one thing. History is written by the winners(victors). There will never be a crystal ball nor can anyone guarantee because information flow is unequal. My point is this —I am f@@king confused abt what to do also

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Propwise.sg September 4, 2012 at 11:17 am

Hey Benny, thanks for your comment – I think a rule of thumb is that if you do not know what to do, don’t do anything!

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Ling August 31, 2012 at 12:57 am

Hi, No one know what happen next. But if nothing un usual happen, like WAR. Singapore property will continuous to raise but at a slower pace of no more then 3%. The gov had put in place many measure to ensure no bubble in the property market, the worst in Euro is behind us, huge liquidity is flowing into Asia as Developed economic is still licking the worn, China and Indonesia and new economic like Myanmar, Vietnam , Philippine are the new engine to drive grow in Singapore. Always remember that Singapore is only so small and land is limited and gov can’t use too many land for residential . And last but not least construction cost is escalating. The dollar you hold is shrinking fast each year.

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Laoseow November 3, 2012 at 3:56 pm

If buying for own use,living it yourself,slightly higher in price at your beloved location,so be it..buy now.
But if buying to invest and rent to supplement with rent to pay instalments,pls be very careful..
I’ve been in that situation,lower rent with higher interest ,few months not rented out,repairs to appliances,broker’s fee,maintenance fees,property taxes to name a few,is quite a strain to our finances.
The worst feeling after buying at HIGH prices,is the minus equity,when the prices of your prized property is LESS THAN WHAT YOU OWE TO THE BANK. !!
That was not including the 20 per cent you put in as down payment..

PLS BE CAREFUL

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Propwise.sg November 4, 2012 at 12:18 pm

Thanks for sharing your experience!

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Albert November 4, 2012 at 3:43 pm

I agree with Laoseow. If you are buying for your own stay or you are changing house now, don’t worry, just go ahead. Even if prices should drop in the future, you are not going to sell because you need a roof over your head. In fact when property prices are down, this is the best time to upgrade. The most critical factor is you must buy within your means. You must also be able to withstand economic downturns.
If you are thinking of investing your money in property, I agree with Dennis Ng to be mindful of property cycles. People who made it rich in property investments or in shares are usually those who ride the property or shares cycles. I can see that there are signs that we are probably at the peak of the boom cycle. You might want to go to http://www.candh.com.sg and click ‘Regulations’ to see an article about “Property cycles”. Another rule of investment is “don’t buy when everybody is buying; buy only when everybody is selling”.

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edwin November 18, 2012 at 1:33 pm

there’ll be way too many 1-br units!?

Hi Mr Propwise, I’d really like to seek expert advice from you, as well as perhaps, from experience of other people.

i’m not an investor, but i need to pay ridiculous rent if i don’t own a property; yet with my home in oz, i need 40% down payment; that leaves me no other choice but only 1 br; it’s still good as i’m single;

now the problem is, I may be relocated to HK – which means if I do, I need to rent out this. I found a unit in Geyland, top 2015, 1 br, seems good rental return, and free hold (my preference), and price around 1.3k psf, reasonable;

then I freaked out when I saw almost all in a sudden from mid Nov, there’ve been so many smaller projects around with 1 br unit came up for sale. (I knew this would happen as result of max 60% loan regulation – but I did not feel the real threat until I saw them in advertisement, only then did I know it’s ‘real’.)

I can sense the danger of lengthy occupancy in a couple of years, when that area is oversupplied with 1 br units, if I do need to live in HK; it can be worse if price do start to drop…

after losing 55% of my asset in shares and funds previously, now I find absolutely nowhere to hide from inflation for my hard earned & saved $ while i don’t even have my own home in sg.

any suggestions, insight appreciated!

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edwin November 18, 2012 at 10:20 pm

sorry – just some correction to my previous post:

“I can sense the danger of lengthy occupancy in a couple of years, when that area is oversupplied with 1 br units, if I do need to live in HK; it can be worse if price do start to drop…”

=>

“I can sense the danger of lengthy empty occupancy in a couple of years’ time, when that area is oversupplied with 1 br units (if I’m relocated to hk) ; it’s even worse if price do start to drop as expected after I purchase…

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Propwise.sg November 26, 2012 at 8:44 pm

Hi Edwin, there are lots of 1 bedroom units in Geylang because of: 1. The small land plot sizes 2. It is not a family area as it is a red light district. My opinion is that rentals should be decent as it is fairly close to town but that doesn’t mean that prices/rentals won’t drop.

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Jacky Richards December 31, 2012 at 4:36 pm

We are a few hours away from 2013. Simple question: is it worth waiting for about 6 months before buying a second property for investment?

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Propwise.sg January 13, 2013 at 10:34 pm

Hi Jacky, with the new measures announced, it is probably not very attractive to buy an investment property.

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Samuel January 8, 2013 at 12:12 pm

if the interest rate shoots up to 3 or 4 percentage as described in this article which is double from the current rate, monthly housing loan repayment will also double, which will cause a number of recent purchases to default and possibly going bankrupt, this is not likely to happen. property prices in singapore will continue to raise i dont see any factor stopping it in the near future.

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Propwise.sg January 13, 2013 at 10:33 pm

Hi Samuel, a couple of points: 1. If interest rates double, mortgage payments won’t necessarily double but will go up by a lesser amount (the mortgage repayment is made up of a principal repayment component and an interest repayment component). 2. Why don’t you think it will happen? It has happened many times before and people who have over-leveraged have found themselves in trouble. Just ask anyone who has gone through the Asian Financial Crisis…

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ALvin January 23, 2013 at 11:24 pm

Is it better to pay for a new condo at the outskirt (eg Jurong East) or buy a condo at CBD area of 15years old for the same price.

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Propwise.sg February 2, 2013 at 9:08 am

Personally I’d choose the CBD condo, especially if it is freehold. But there are so many factors to consider to figure out if it’s a good investment or not.

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Rina February 18, 2013 at 7:14 pm

Do you think it is good to buy a family home (a 10 year old 99 year leasehold condo – about a 10 mins walk to the Hougang MRT) in the Hougang area at this time. The asking price for a 1200sqft 3 bedder is $1.2M, not sure if Hougang has potential for capital gains in the next 10 years? Any advice Mr Propwise would be much appreciated. Thanks!

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