The Lion City

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The Singapore property market in 2015 is going great guns

Singapore is one of the world’s major commercial hubs, the fourth-largest financial centre, and one of the top two busiest container ports in the world for at least the past ten years. Its globalised and diversified economy depends heavily on trade, especially manufacturing, which accounted for around 30 percent of Singapore’s GDP in 2013. Singapore places highly in international rankings with regard to standard of living, education, healthcare, and economic competitiveness.

It has one of the highest per capita income and one of the longest overall life expectancy in the world. The country is one of nine countries in the world with top AAA rating from all credit rating agencies. Singapore is highly urbanised. Land reclamation has been used to expand the country’s land area.

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THE STATE OF PROPERTY MARKET

According to Surbana International Consultants Pte. Ltd., Singapore group CEO Wong Heang Fine, “Singapore property market has gone up tremendously for the last few years.” Surbana’s roots can be traced back to the 1960s when it was the Building and Development Division of the Housing & Development Board (HDB). Housing & Development Board (HDB) was established as a government agency to solve Singapore’s housing crisis and to provide affordable and quality housing for the growing population. Wong recently gave his talk on Singapore Urban Property Prices Hike vs Affordable Housing Need in the FIABCI 66th World Real Estate Congress.

“If you look at our housing market in Singapore, you’ll find that 81% of our population are living in private and public housing by government-built plans (HDB). Today, only 19% of our population stays in condominiums and landed houses. So, if you asked how we’ve done that, Surbana itself has built over 1 billion homes in Singapore. You’ll also find that 90% of our population own their flats.”

“As you can see, even some of our affordable housings, government-built plans, are worth a million dollars each. It was a great time for a lot of developers. This chart [Figure 2] shows our index of our government housing and also private properties. You can see that in the last few years, there has been a boom time and only in the year of 2014 the market hesitate a bit. This is because the government has implemented some cooling measurements. For the last few years, there’s been an extraordinary period of growth of property market. If you look at the two curves, you’ll find that government housing grew slightly higher than the private property.”

“So what has happened in the last few years in Singapore that has resulted in such a huge property boom?” asked Wong. “First, our population has grown tremendously. If you look at the growth rate of 2001 to the year of 2010, every year on average we grow about 100,000. There are more immigrants if you look at the chart [Figure 3], you will see that greatest growth is the green bar, representing non-residents. Non-residents have grown at about 800k to 1.3 billion over the ten years. So do PRs (Permanent Residents) which have grown from 300k to 500k in total. This being said, with the growth of the population, they would require roofs over their heads.”

Wong elaborated his point, “You will see that we’ve drawn a line in 2004 [Figure 4]. Some of you would wonder why we’ve done so. Actually in the year of 2004, the government mentioned a huge change in the government policy by having two casino licenses in Singapore. From there, you can see the growth in the population. The growth rate has been tremendous. Before the announcement of the integrated resorts, the total population of Singapore was about 0.8%, after that it goes up to 3.5% in total.”

Afterwards, what happened to GDP (gross domestic products)? Wong said, “This is the chart [Figure 4] of the Singapore’s GDP. It has doubled the value since the announcement of the integrated resort. There’s been tremendous economic growth since 2004.”

“On top of that, our population has changed over the years. There has been a substantial increase in proportion of singles [Figure 5]. What does that mean? It means that there are demand for small and affordable units. If you notice, some of our property launches in Singapore, you will find that one or two bedrooms are often fully sold on the first day of our sale. So we have a growing need for smaller apartments.”

“The next one is also an interesting chart. This chart [Figure 6] shows household income in excess of 50k. Over that period, the number of households with income exceeding 50k has tripled. So it means that there are more people who can afford really good housing for both public and private sector. The market has also been boosted by really low interest rates. Over the years, the interest rate in Singapore dollars dropped to below 0.5% over that period. So it’s been a very low barrier of entry for a lot of buyers.”

In addition to that, Wong believed that it is because there is a lot of money in the market. “You can see that over than five years of the period, the money supply has actually doubled. So you’ll find that a lot of Singaporeans have to pay for the deposit for the private housing. So how do we as a government ensure that our public housing programme continues to be attractive? Of course, as you know, Singapore is a small place we only have 700 sq. km., where we accommodate five over millions of people.” The URA’s (Urban Redevelopment Authority) planning purposes have estimated population of 6.5 million by 2030.

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Figure 1

THE COOLING MEASURES

“We have done some analysis on the market. What are the drives of property market? Besides population, economic growth, employment, government policies of course that drive housing demands, we also find that there are some catalysts. The catalysts are rising income as I have shared with you, low interest rates, strong Singapore dollars that attracts investment in Singapore. Leading indicator of everything is actually the transactions. Every time you see a transaction grows up we will see price goes up later. And also we’ve done some analysis of how our stock index leads the transactions. So this is an interesting chart [Figure 7].”

What does the Singapore government do in order to make sure that they do not have the property bubble? “The first cooling measure that the government came up was in 2009, and that struck off all speculations (Interest-absorption scheme removed). That measure enabled the government to catch you if you sell your apartment within the certain period of that purchase. Bank Negara went on to reduce financing, what they call the loan-value ratio. So they put much tougher room to the ratio. That’s not enough to cool the market as you can see the market is still rising.”

“Then they came up with what they call the New Sellers Stamp Duty (SSD). So you have to pay more stamp duties as a foreigner, and also when locals buy their second or third property. So that’s the other measure that came up. But unfortunately, the market still kept on rising.”

“So in 2013, they came up with a new measure. This new measure was proven to be very effective, this is call the Total Debt Servicing Ratio. So what they do in this measure is to look at all you borrowings and all your liabilities including bank cards, car loans, in assessing whether you’ll be eligible for loans or not. So that’s been a big hit on the market. As you can see that since the introduction of the TDSR, the indexes are all coming down.”

Wong concluded his point by saying that strong fundamentals will continue to keep the residential market robust. High numbers of job vacancies can provide job creation up-cycle, low unemployment rate, while the tight employment market will push up the wages. Additionally, in accordance to Wong, it will also cause cycle wealth creation. There will be wealth created by continued economic growth. Increase in income levels as well will increase the affordability to purchase private properties.

From Wong’s experience and stand point, he believes that Singapore’s property market will remain affordable. This is because of the strong economic growth and political stability, along with the sound financing policies to ensure property market is stable and consistent with economic fundamentals.

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AN INVESTMENT DESTINATION FOR FOREIGNERS

The founder of Khalil Adis Consultancy Pte Ltd, Khalil Adis described Singapore as an investment destination, “What makes Singapore attractive is it is a very cosmopolitan city where English is widely spoken, it is seen as an international hub and a gateway to Asia. Due to its limited land size properties in Singapore tend to appreciate over time. This has made it sort of like a blue chip investment. In addition, the transparent property market, strong political stability and strong Singapore dollar have made Singapore a top choice among investors.”

He said, “Singapore is undergoing a bearish stage with little sales volume and transactions as a result of the various cooling measures. The market is right now driven by genuine home buyers. Homes in the mass market and affordable home segments are selling but not the medium- to high-end market. There have been fire sales reported in the high-end segment with sellers selling at a loss. It is right now a buyers’ market to look for properties.”

“For foreign investors, they will need to pay Additional Buyers’ Stamp Duty (ABSD) of 15% plus property tax. Therefore, the initial cash outlay is quite significant. Only those with deep pockets can afford to invest in Singapore. In addition, there is a Sellers’ Stamp Duty (SSD), when you sell your property in the first 5 years. This is to prevent rampant speculation. For those wanting to buy into Singapore, it is best to buy for long-term capital appreciation. The rental market is quite weak due to the many units coming on stream this year,” he wrapped up.

Figure 7

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