Is Now The Right Time To Buy Singapore Property?

Property

Is Now The Right Time To Buy Singapore Property?

Residential property prices in Singapore have fallen 6.7% since its peak in 2013. Combined with land scarcity, a growing population and low interest rate environment, the current market may seem attractive to some homebuyers and investors. However, things are not as straightforward as it seems. We weigh out why residential sales volumes have remained sluggish and some factors worth considering.

Published on 2 September 2015

Residential property prices in Singapore have fallen 6.7% since its peak in 2013. Combined with land scarcity, a growing population and low interest rate environment, the current market may seem attractive to some homebuyers and investors. However, things are not as straightforward as it seems. We weigh out why residential sales volumes have remained sluggish and some factors worth considering.

Singapore’s property market is not what it used to be

Following a sharp decline during the global financial crisis of 2008, property prices in Singapore began to climb rapidly in March 2009. Hong Kong-based Property tycoon Li Ka Shing famously remarked that he would evaluate buying property in Singapore however high prices are.

The property market peaked in 2013, with transactions of some Housing Development Board resale flats breaching the $1 million mark – a price range typically only associated with private housing. A 1,281 sq. ft. unit in Sky Habitat, a 99-year Leasehold development in the Bishan area, sold for $2.35 million in May 2012, or $1,836 psf, which is high for a condominium outside the central and prime regions of Singapore.

What changed?

One of the main causes of the “property fever” is attributable to the policies set by the US Federal Reserve during the period following the global financial crisis. In order to stimulate economic recovery, the Fed kept interest rates low and initiated several rounds of Quantitative Easing (QE) – an exercise where the Fed purchases bonds and other financial instruments from private financial institutions to increase money supply.

As a result of cheap money available on capital markets, home loan rates from local banks fell to record lows and were in the range of 1.7% per annum in 2012. The historical interest rate for Singapore home loans is between 3% to 4%. This environment of inexpensive loans contributed significantly to the buying frenzy by local and foreign speculators.

The rapid, upward price spiral alarmed the Singaporean government. There were concerns that a property bubble was forming, with a large number of property owners over-leveraging and facing an increased risk of default in the eventuality that interest rates rose.

Constant news of high property prices also caused a degree of social unrest as Singaporeans worried about the affordability of housing. At the property peak in 2013, the grumbling took on xenophobic tones as locals lay the blame of a heated property market on an influx of affluent foreign buyers.

The Singapore Government stepped in and implemented several rounds of cooling measures (eight in total), which included raising stamp duties and imposing tighter loan restrictions. The cooling measures resulted in its desired effect of stabilising prices. As of Q2 this year, housing prices declined for seven straight quarters.

This may lead some to ponder if now is the right time to enter the property market. Here are some factors to consider:

01.

The low interest rate environment may be coming to an end

QE measures are coming to an end and there are indications that the Fed will hike interest rates in the near future. Even if this is delayed due to the recent devaluation of the Chinese Yuan, the fact remains that interest rates have been at historical lows since around 2007. There is no direction for it to move other than up.

The benchmark Singapore Interbank Offered Rate (SIBOR) and Swap Offer Rate (SOR) began inching upwards in January this year, with home loan rates now averaging 1.9%. Should this return to historical levels of 3% to 4%, property affordability and demand will be affected.

02.

Government policy and the easing of cooling measures

Housing affordability continues to remains a key concern. As many Singaporeans have proven to be sensitive to the issue, it is unlikely that cooling measures will take place until after the General Election on 11 September 2015.

Ravi Menon, Managing Director of the Monetary Authority of Singapore, said in a briefing on 20 July that, “Property prices have softened somewhat, but like I said last year, in the context of the price increase that had occurred – 60% over three years – the softening we have seen is really not all that much. So, it’s still premature to consider removing any of the cooling measures that are in place.”

Some analysts, however, predict the possibility of cooling measures being eased in the latter part of the year. Key among these are an adjustment to the Additional Buyers Stamp Duty (ABSD) – which does not apply to local first-home buyers, but amounts to an additional 15% tax levied on the purchase price for entities and foreign buyers.

03.

There is significant oversupply in the residential property market

Another reason for falling property prices is oversupply. Conventional property investors and analysts point out that luxury properties in prime locations retain their scarcity value and are not easily substituted. However, in this high-end segment of the market, there are large quantities of unsold units held by property developers which outstrips current demand.

Foreign Property Developers (which includes listed local companies with one foreign shareholder or director) face hefty extension charges for units that remain unsold for two years or longer. Whether this translates into developers offering discounts on unsold units to avoid penalties remains to be seen as they have several options available – selling the units to an investment company (which still attracts the ABSD), delisting or simply paying the extension charges.

These factors highlighted lead to the question of whether homeowners and investors are catching a falling knife. What can be said with certainty is that this is a buyer’s market. Caveat Emptor.

Planning on buying property in the near future? Contact a FWM Wealth Expert to let us know your thoughts here. Or find out more on property by visiting our Wealth Strategysection for the latest!

TAGS:

In 2017 SmartSearch™ has found better advice for over $500 million of our user’s wealth

SIGN UP