By Gerald Tay (Guest Contributor)
Here’s the burning question this article will try and answer: Will a 6.9 million population by 2030 support property prices or increase it exponentially?
To answer it we will analyse the historical price indices of the Singapore private residential property market and compare that to population growth.
This article aims to help investors, buyers and sellers to:
- Do their own analysis when buying or selling
- Understand in-depth the historical property market trends
- Manage risks rather than predict unknown future
- Make better property investment decisions
The charts and tables are based on public information collected and collated from various sources, including:
- Urban Redevelopment Authority (URA)
- Monetary Authority of Singapore (MAS)
- Singapore Statistics (Singstat)
Some notes for readers
- The tables below show real property returns after consumer inflation versus annual population growth rates over a 38-year period (1975 to 2013)
- Over a 38-year period, the population growth rate is 2.3% per annum.
- Over a 38-year period, property price growth is 7.8% per annum.
- What “mid to long” term means depends on each individual buyer’s preference.
- The ONLY period that produces a high property price growth rate from7.5% to 14%was during Singapore’s rapid industrialisation years of 1975 to 1996.
- From peak to peak, the years after 1996 produces negative or very low returns for property buyers, even with population growth exceeding 2% per annum.
- The table above proves a simple point – entering the market close to the bottom will always provide generous returns for property buyers regardless of population growth. From 1998 to 2000, population growth was at a low of 1.7%, yet registered a high return of 22.57% for buyers
- Regardless of a high 3% population growth rate in the period from 2008 to 2009, property prices plummeted 28% after inflation.
- Even with a population growth of 2.33% between year 1996 to 2000, property return was a negative 7.14% compared with other periods.
- Mid-term holding-wise, property returns was unjustifiable even with population growth above 2% per annum between from 2000 to 2013.
- Long-term property holding proves disastrous for buyers who enter at or close to peak market after 1996. Property Real Returns were negative even with an increasing population growth rate as high as 2.5% per annum.
- Population growth has NO direct correlation whatsoever with property prices.
- Singapore property prices are highly dependent on a confluence of complex factors such as government policies, monetary policies, economic conditions (internal and external), monetary supply, bank lending curbs, interest rates, etc.
- Large property price growth occurred primarily in the early years of rapid industrialisation from 1975 to 1996. After 1996, Property Real Returns have diminished regardless of population growth.
- From 2015 to 2030, a population target to reach 6.9 million population represents a growth rate of 1.5% per annum. It is one of the lowest since Singapore’s independence. This growth rate may even be capped lower with a tightening of foreign workers and productivity policies.
- Future land use for both infrastructure and housing have already been allocated and planned for a future 6.9 million population. Buyers who bought properties at or close to the 2013 peak market will have bought into far future prices.
Who will win in the future property market?
For sceptical readers, you can say I’m wrong about the lack of correlation between property prices and population growth. Before I’m proven wrong and you start jeering away, let me point this out: smart property buyers will win on either outcome for the future property market regardless of which occurs:
First outcome: Going forward to 2030, property prices rise exponentially due to the 6.9 million population, or perhaps a comprehensive MRT network as some believe.
Properties will go up in value tremendously, especially for properties bought at a low price. As an added bonus to savvy buyers, their rental income will also rise exponentially with an increasing population.
Second Outcome: Going forward to 2030, property prices stagnate or rise marginally due to a mature property market.
If property values do stagnate, smart investors will still make a decent rental income.
Who will lose in the future property market?
1. Middle Class Home Owners
There are buyers who aspire to be rich but are too lazy to attain it the right way. They prefer short-cuts and choose to believe owning a home can make them property tycoons. Many Japanese, European and American middle-class home buyers paid dearly for this “belief”.
“Scared” home-owners are scared of prices rising beyond affordability so they buy a property for more than what it is worth, coupled with a “foolish” belief that a future 6.9 million population will support or boost future property prices.
2. The Not-So-Rich Speculators
Some sold their first HDB homes for $1 Million dollars. Others were lucky to gain some inheritance from their late parents. With sudden wealth, they falsely believe they have finally joined the ranks of the rich.
For home owners sitting on paper profits, they feel “rich”. You find them showing off photos of their latest branded purchases, expensive dine-ins and luxury holidays to gain “likes” in Facebook and tell the world they have arrived.
They buy overpriced properties at a deceivingly low price quantum but with high PSFs. Those slightly “richer” buyers dabble in mid to high-end luxury investment properties to emulate the rich.
3. Rich Speculators
They believe land is limited and they belong to an all-exclusive club where their spouses eat beluga caviar instead of salmon roe. They are primarily buyers who dabble in highly speculative high-end properties to add to their collection of exotic trophies.
They may be one of those buyers who bought Sentosa Cove properties and have lost half the value today. Certain rich people have eccentric habits. In particular, Sentosa Cove landed-property owners have paid many millions to ogle at container ships and breathe smelly fumes as they sail by their sea-front property.
But then again, they are rich. So why should we care if they can afford to lose millions or how they spend their money on worthless toys. It’s “peanuts” for them anyway.
By guest contributor Gerald Tay, who is the founder and coach at CREI Academy Group Pte Ltd, an organization dedicated to empowering retail property investors with smarter investing philosophy and strategies. He is a full-time investor with over 13 years of solid experience in building his wealth through Property Investment and is financially wealthy today.