How viable an investment is property in Singapore with yet more cooling measures introduced?
The Singapore Government announced more cooling measures last week, in an attempt to keep residential property prices under control, and affordable for local first time home buyers. The move was in rapid response to official data released just several days before, showing that private home prices were the highest they've been for 4 years. The past year has seen a 9.1% rise on average, and transaction volumes continue to increase too.
There has been much construction in recent years, as anyone living and working in Singapore can easily testify too. That has resulted in a large supply of units, with yet more due to come on stream in the near future. We all live in areas where there a plenty of visibly unoccupied units. Any sudden excess supply would put strong downward pressure on prices, and could even cause a severe and sharp correction. This is exactly what the Government wants to avoid. We're in a global rising interest rate environment, which could also start to strain some investors and households, again leading to further pressure on prices and valuations.
With the above in mind, why then, would anyone buy property in Singapore at this point in time? Well, I guess families that want their own home, will still need to buy somewhere. Though, why not wait if possible, given that it seems likely that there will now be a dip in prices? The good news, for this group of people at least, is that there are no changes to the ABSD (Additional Buyer's Stamp Duty) for first time buyers (Citizens and Permanent Residents). Below is a summary of the changes (courtesy of Channel News Asia):
So with such aggressive upfront taxation, it's hard to see how the market can possibly sustain these recent price rises. For new home buyers, who are Citizens or at least PRs, the situation hasn't really changed then, right? Wrong! The increased ABSD rates are not the only additional cooling measure that was implemented. Changes have also been made to the maximum LTV (Loan To Value) allowed for financing property purchases. Where one used to be able to get 80% of the value as a mortgage, now they can only get 75%. Note for younger purchasers looking for mortgages with a tenure longer than 30 years, or seeing them to past age 65, only 60% LTV was allowed. That has also moved down by 5% to a maximum of 55%. So it isn't just the impact of potentially higher taxation upfront, but also now the need for a larger deposit, due to reduced financing being available.
The main consideration right now when considering property purchases in Singapore now is timing. My personal opinion, is to wait if possible. These new measures will impact the market, and moreover the supply of units recently, and the additional supply that will hit the market in the coming year or so will also impact valuations.
I summarise below, my thoughts, for different types of buyers considering right now:
1) Singaporean and PR first time buyers - wait, unless you really cannot. Rents are on the down trend which helps, and if you are staying with parents then by waiting you can save more money. Not just for the additional amount now need for a deposit, but generally as well, even if prices stay level. However, in my opinion, prices will come down again, thus you will both save, and need less when actually buying, not to mention the lower the purchase price, the better investment returns you will see in the long run.
2) Foreign buyers or Singaporeans/PRs purchasing as an investment - don't do it! The ABSD is simply too much. As above, prices are likely to come down in the short and medium term, and rental yields are already so low. On the point of renting - prices here have also come down quite a bit in recent times, and I see no reason why, given all of the above, they will not come down further in the meantime. Enjoy renting somewhere nice, for less and less each year, and look elsewhere for your investments.
Long (long) term, Singapore property is a very good investment, of that I am not uncertain. Just how long term one would need to wait to see good returns though, is something I really don't know. I believe there are far better investment options out there today for short, medium, (and yes) long term investors.
Alternative investments - look to the stock market for long term investors, or for shorter term potential gains. In the medium term, yes we will see a large draw down and bear market at some point at the end of this year or during 2019, that's inevitable. But once these "trade war" concerns are over (NB we are not actually in a "trade war") all the strong fundamentals, and positive corporate earnings reports, particularly in the US given the tax reforms of last year, will drive stocks up again. Tech and US equities will continue to boom and pull up the rest of the markets. Alternatively, if bricks and mortar are still what you are after, look outside of Singapore. Low interest rates make financing appealing, many other countries and cities offer far better entry values right now, rental yields above that available in Singapore are still achievable in many mature property markets around the world, taxation on real estate is less aggressive, and even many currencies offer good value today given the long term strength of the Singapore Dollar.
As an Appointed Representative of IPP Financial Advisers Pte Ltd in Singapore, I do not act as a real estate agent, and cannot advise specifically on physical property. However, as someone that has lived in Singapore for 12 years now, have professional experience across Asia in Malaysia and Hong Kong, from London originally, and an owner of property in both Singapore and the UK, I have a pretty solid background and strong experience in international investing and my advice is simple - don't buy property in Singapore today!
For advice and ideas on other investment opportunities, or even to get second opinions on investments, please don't hesitate to email me at firstname.lastname@example.org