Buying property in Singapore? Where’s the opportunity?

We’ve heard it all before. When it comes to property, the only key item of actual consideration should be location, location, location. There were among the few of us who were lucky enough to purchase a property long before prices skyrocketed exorbitantly. This buying surge from 2009 through 2013 accounted for more than 60% that was further fuelled by low global interest rates and quantitative easing in developed economies after the global financial crisis.

This period of economic growth gave rise to a healthy market but to prevent a plausible property bubble and punter speculation from occurring, Singapore’s government imposed safety clauses that included an Additional Buyer’s Stamp Duty. This exercise added as much as 15% to the purchase price for foreign buyers and Singaporeans alike who own more than one property deterring speculating consumers hoping to flip properties for a quick gain.

Fortunately, the significant capital outlay discouraged speculation and kept the property market demand and supply in check as can be seen from the property price index falling about 11% from a high in the third quarter through the end of 2016. However, this policy has caused a domino effect on escalating property prices in a weakened economy, with property investors putting a pause on their purchases and exercising due caution.

For the rest of us who had to set our sights a little further out while keeping our finances in check for a slice of the property pie, we had to settle for minor inconveniences and a further commute to secure our own property and check off boxes on long-term equity building.

 

Housing market in a rut

In today’s current market situation, the housing market is stuck in a rut with recorded prices of a 14^th consecutive decline in the last quarter. The property market is stagnated with prices of private residential properties declining by 0.4% as compared to the 0.5% decline in the last quarter. The fate of landed properties fared no better with declines of 1.8% as compared to an increase of 0.8% in the last quarter of last year although this rise was shortlived. This depressed state of property prices has done little to encourage serious buyer interest what with the current weakened state of economy.

This decline has also affected commercial property prices. While once enjoying robust growth in a booming economy, many retailers have now turned to online shopping, causing companies to file for bankruptcy and existing retail lots to remain unoccupied.  In addition to the stiffened competition from online retailing and regional markets, retailers have now changed their profit strategies to only maintain cost-effective outlets and minimizing unnecessary costs.

With fluctuating demands for both residential and commercial properties added with strict rules and legislations, the local property market has reached a plateau and is expected to remain such in the near foreseeable future. This despondent state in Singapore’s retail, residential and office property markets shows no signs of slowing down as receding occupancy takes its toll to favor rental properties promising flexibility, lower capital output and better options for the buyer’s market. Even so, the rental market is speculated to take a hit with rent reversions experiencing a 9% decline despite the government’s recent intervention of reducing the seller’s stamp duty and minimizing the minimum holding period.

There have been many new residential development launches as of this year in addition to unsold units of existing projects. This factor coupled with secondary sellers given the rising interest rates and government interventions in place has created a buyer’s haven at least for the next few quarters.

Due to this oversupply, even as market sentiments forecast an unsteady economic outlook dependent on the take-up rate of existing properties, the property market gait remains ambiguous. With an estimated completion of about 23,000 residential units for the next two years, coupled with unchanged population rate, property prices and rentals will face increased pressure of competition.

 

Rental market competition heating up

Source: Shutterstock

With hardly any incentives of owning property, consumers can expect tougher competition in the rental segment for both residential and commercial properties.

As the purchase sentiments are forecasted to remain unchanged in the near foreseeable future, the option of renting has become even more viable and often times practical with financial diversification. Cautious buyers are also aware of the total debt service ratio (TDSR) in consideration and its translation when weighing between buying or renting a property.

 

Property: A hedge against inflation

Property remains the most favored investment asset to hedge against inflation as it helps to build a steady investment portfolio and equity. It also remains the one asset with highest demands of capital outlay governed by market conditions and market sentiments. But with a relatively bleak property market outlook ahead, in an economy that will outweigh the pros of buying in the next financial year, investors will be forced to shift their focus on other aspects of interest sources for a steady income at the expense of momentarily halting equity growth. While some analysts expect the local property market continue it’s lackluster, others remains more optimistic.

According to Morgan Stanley, this downtrend of the local property market is set to end next year and projected an increase in property prices by 2030. This projection would imply a steady growth of about 5-6% per annum, ending an excessively long journey of depressed residential market property prices.

While speculators wait with bated breath for when the property market finally turns around, would that translate to temporarily thwarted asset building for the privy investor looking for diversification? Opportunely, there are still other viable alternatives for those seeking and who may most certainly find, if they look beyond their borders.

 

 

(By Lily Teh)

Related Articles
- Top 5 reasons to use a property agent when buying a home in Singapore
- TripAdvisor for property agents
- 5 Key Property Investment Do’s and Don’ts