Singapore’s Residential Market: To Buy or Not To Buy!

I started tracking Singapore’s residential market since I moved here as an expat in September 2006 from New York. The idea was to get up-to speed with the real estate market and perhaps more importantly, be able to buy an apartment at some point. I admired Singapore government’s initiatives to create jobs and wealth with an emphasis on a “live-work-play” environment, providing an impetus to expats like myself to relocate and establish new roots here. As a real estate investment professional, the Singapore residential market, with its volatile surprises, continues to amaze me. In this article I have tried to highlight my key “to buy or not to buy” decision parameters, especially in light of the new measures announced by the government recently to cool the residential property market.

My Search Begins:
With an aim to buy my first apartment, there are a lot of options to choose between new projects and from those available in the secondary market. However as far as a preference goes and what attracts me most are the properties available within the secondary market.

New launches seem expensive in terms of value for money as well as are unattractive to some extent, from a pure design and size perspective. They tend to be very ‘cookie cutter’ with box style apartments, overpowered by curtain glazing and steel. On one hand though these may seem contemporary, on the other and perhaps more relevant to my preference, I find them rather uncharacteristic.
Properties available in the secondary market - relatively older constructions of the mid to late 1990’s – seem to offer much better value – in terms of larger house sizes, a better design and a plush layout that I prefer.

Decision To Buy: Stalled Again!
Simply put, I have pretty much been out-priced of the market so far. Since 2007, the rising economy and the influx of expatriates led to the creation of a strong residential demand. This caused a steep rise in both rental and capital values across the island. With the improved economic conditions, ease of obtaining loans and lower interest rates, the residential market witnessed a steep increase in capital values and became more investor driven rather than genuine home buyer driven. Investors saw huge capital appreciation by ‘flipping’ and an island wide trend began – leading to a sharp rise in property prices. The property prices did fall briefly during the global economic crises in late 2008, but the market quickly picked up as investors took advantage of the lowered prices. The “Good deal” remained elusive for home buyers like myself.

New Measures: To Cool Overheating
Recently, the government, anticipating the building of a property bubble and in a bid to control the flipping trends, intervened and announced corrective measures to prevent the overheating of the real estate market.

For example, to discourage flipping, a duty of 3% of resale value will be levied on owners who sell their units in less than three years of buying them - This was a measure previously applicable only to transactions within one year of the purchase. To curtail the ease of borrowing, the minimum cash down payment has been increased from 5% to 10% of valuation, and the maximum amount a bank can lend is capped at 70%, down from 80% for buyers with at least one outstanding loan.

Here’s What I Think:
I expect these new measures will diminish the attractiveness of anticipated earnings from flipping and thus lead to a slowing down of the residential property prices. However, on the flip side (pardon the pun), first time home buyers will now face the onerous task of accumulating higher down payments in addition to steeper loan rates – making the dream of owning a home a bit more out of reach in the short term.

In the medium term, I expect the secondary market to soften to some extent. I was particular pleased to read that at the recent National University of Singapore’s Institute of Real Estate Studies Forum, experts said that the excess liquidity in the market was the main factor driving up property prices. They also added that the dizzying rise in property prices is not sustainable and prices could fall up to 40-50% in the next 12-24 months. Thus, based on this time frame, renting seems to be a more appropriate choice for me.

And Finally: To Buy Or Not To Buy
Finally, my “To Buy or Not to Buy” dilemma continues and whether these cooling measures – to seek higher down payment requirements and tightening lending restrictions will eventually benefit genuine home buyers like myself, only time will tell. But as Barack Obama says “Believe In Change”. At this point, I do believe in it and I hope other first time buyers do too. But till that happens - For the time being, I plan to put away my cheque book and continue to wear my renter’s hat.

This article was published in Franchise Focus, UK Magazine December 2010 Edition.