Singapore Property Rebound Just Starting as Prices Seen Jumping

Singapore Property Rebound Just Starting as Prices Seen Jumping

By Pooja Thakur Mahrotri
January 10, 2018, 10:53 AM GMT+8

Credit Suisse Group AG and Morgan Stanley are calling the end of Singapore’s property downturn, after a second consecutive quarterly increase in private residential prices.

Home prices may rise as much as 10 percent this year, according to analysts at Credit Suisse, while Morgan Stanley and OCBC Investment Research expect as much as an 8 percent increase, according to reports from the brokerage firms.

Private residential prices rose for a second straight quarter in the period ended Dec. 31, reinforcing signs that the city-state’s property market is emerging from a four-year slump. For 2017, prices rose 1 percent compared with a 3.1 percent decline in 2016, data from the Urban Redevelopment Authority showed.

More details in https://www.bloomberg.com/news/articles/...en-jumping

With multiple enbloc slaes acquisition over the past year, the demand for new projects is certainly growing, but don't forget that the last crisis was in 2008. now its 2018. it's the 10th year cycle.

Crisis may be round the corner, it may happen or it may not happen.
There's 2 possibilities.
1) You buy (property) now at high price, hoping to sell higher
OR
2) You buy (property) later wait for market to drop, hoping to sell high in future.

What Goes Up Will Come Down Eventually.
Be Careful Not To Make An Impulsive Decision just before the property developers and sales agents encourage you to do so.

According to the article below, rental rate is still low & likely to remain suppressed due to anaemic population growth (demographics & immigration policy). Affordability has also decreased. If so, the short term demand from en-bloc fever may just be transient.
https://www.theedgesingapore.com/curb-yo...c-87243593

Having invested in both property & stocks, I prefer the latter. Here are my reasons:
* As an investment asset, residential property yield (2-3%) is unattractive to me. And this is usually accomplished with leverage. You also take on the risk of no income for periods when it cannot be rented out.
* Property is illiquid & therefore a higher risk, it took me around 2 years to sell my previous property at the desired price (unless you are open to have a fire sale).
* Property purchase will often involve leverage (I am ok with debt for my own stay-in home, but not for an investment asset). Leverage can cut both ways - it can amplify your gain but also loss. To me, this is extra risk.
* Being capital intensive, property often constitutes a large part of your investment portfolio (unless you are super rich) & therefore lacks the diversification needed to mitigate risk.
* Property requires more effort, for me anyway. (Managing of tenants & agent, property repairs & renovation, etc)
* Property running cost is more expensive than a portfolio of shares (Higher property tax, rental commissions, condo maintenance fee, interest expenses, repair/renovation, home insurance, high property transactional costs - stamp duty, legal fee, agent commissions, etc)
* Equity investment returns are higher than property when compared side by side without leverage. http://www.todayonline.com/singapore/whi...-or-stocks

More reading here (I have no vested interest in the financial advisor below):
https://www.ifa.sg/is-property-still-a-g...nvestment/
https://www.ifa.sg/property-investment-illogical/

(20-01-2018, 04:38 PM)psslo Wrote: According to the article below, rental rate is still low & likely to remain suppressed due to anaemic population growth (demographics & immigration policy). Affordability has also decreased. If so, the short term demand from en-bloc fever may just be transient.
https://www.theedgesingapore.com/curb-yo...c-87243593

Having invested in both property & stocks, I prefer the latter. Here are my reasons:
* As an investment asset, residential property yield (2-3%) is unattractive to me. And this is usually accomplished with leverage. You also take on the risk of no income for periods when it cannot be rented out.
* Property is illiquid & therefore a higher risk, it took me around 2 years to sell my previous property at the desired price (unless you are open to have a fire sale).
* Property purchase will often involve leverage (I am ok with debt for my own stay-in home, but not for an investment asset). Leverage can cut both ways - it can amplify your gain but also loss. To me, this is extra risk.
* Being capital intensive, property often constitutes a large part of your investment portfolio (unless you are super rich) & therefore lacks the diversification needed to mitigate risk.
* Property requires more effort, for me anyway. (Managing of tenants & agent, property repairs & renovation, etc)
* Property running cost is more expensive than a portfolio of shares (Higher property tax, rental commissions, condo maintenance fee, interest expenses, repair/renovation, home insurance, high property transactional costs - stamp duty, legal fee, agent commissions, etc)
* Equity investment returns are higher than property when compared side by side without leverage. http://www.todayonline.com/singapore/whi...-or-stocks

More reading here (I have no vested interest in the financial advisor below):
https://www.ifa.sg/is-property-still-a-g...nvestment/
https://www.ifa.sg/property-investment-illogical/

well said.

Property investment is really just for those who need to make use of extreme leverage. If you do not need the leverage, stocks will be a better investment for exposure to property sector via REITs and property developer stocks.

Thanks to low property interest rates at 1.6% in the past, even if properties yielded 3% it was still a good investment. On a 50% debt 50% equity composition, investors will still be getting about 4.4% returns from their invested capital (ROIC)

However now that short term interest rates are rising due to QE cut back and monetary outflow back to the US (thanks to the new tax policy regime), we are seeing property loan climbing. As of now, property interest rates are about 2%. Assuming rental yields remain unchanged, On a 50% debt 50% equity composition, investors are still getting about 4.0% returns from their invested capital (ROIC).

What will be interesting is when property interest rates in Singapore revert to their pre 2007 rates of 4-5%. This means rental yields have to increase to 4%, otherwise leverage is going to work against property buyer. For rental yields to jump from 3% to 4%, this means i) increasing rental by 33% or ii) property prices are to correct by 33%. It will be interesting which poison the Singapore economy chooses

(20-01-2018, 05:57 PM)CY09 Wrote: Thanks to low property interest rates at 1.6% in the past, even if properties yielded 3% it was still a good investment. On a 50% debt 50% equity composition, investors will still be getting about 4.4% returns from their invested capital (ROIC)

However now that short term interest rates are rising due to QE cut back and monetary outflow back to the US (thanks to the new tax policy regime), we are seeing property loan climbing. As of now, property interest rates are about 2%. Assuming rental yields remain unchanged, On a 50% debt 50% equity composition, investors are still getting about 4.0% returns from their invested capital (ROIC).

What will be interesting is when property interest rates in Singapore revert to their pre 2007 rates of 4-5%. This means rental yields have to increase to 4%, otherwise leverage is going to work against property buyer. For rental yields to jump from 3% to 4%, this means i) increasing rental by 33% or ii) property prices are to correct by 33%. It will be interesting which poison the Singapore economy chooses

i) can only happen if the economy is booming and wages are booming or if there is a sudden undersupply of housing(both unlikely scenarios currently) 

which means ii) is much more likely.

what about iii) where rentals increase maybe 10-15% and property prices dip 10-15% as well, roughly adjusting to the 4% yield required.

(20-01-2018, 09:51 PM)BlueKelah Wrote:

(20-01-2018, 05:57 PM)CY09 Wrote: Thanks to low property interest rates at 1.6% in the past, even if properties yielded 3% it was still a good investment. On a 50% debt 50% equity composition, investors will still be getting about 4.4% returns from their invested capital (ROIC)

However now that short term interest rates are rising due to QE cut back and monetary outflow back to the US (thanks to the new tax policy regime), we are seeing property loan climbing. As of now, property interest rates are about 2%. Assuming rental yields remain unchanged, On a 50% debt 50% equity composition, investors are still getting about 4.0% returns from their invested capital (ROIC).

What will be interesting is when property interest rates in Singapore revert to their pre 2007 rates of 4-5%. This means rental yields have to increase to 4%, otherwise leverage is going to work against property buyer. For rental yields to jump from 3% to 4%, this means i) increasing rental by 33% or ii) property prices are to correct by 33%. It will be interesting which poison the Singapore economy chooses

i) can only happen if the economy is booming and wages are booming or if there is a sudden undersupply of housing(both unlikely scenarios currently) 

which means ii) is much more likely.

what about iii) where rentals increase maybe 10-15% and property prices dip 10-15% as well, roughly adjusting to the 4% yield required.

IMO, property prices are likely to continue rising for the whole of 2018.
Following that, it's anyone's guess, but the data does hint of a bumper supply without any real signs of demands from occupants (not investment) after 2018

The best guys to look at closely, are the Oxley guys.
The 2 guys have gotten the cycles pretty much spot on in the past several years.
In recent times, they're early in the en bloc game, and are now rushing to launch all their projects.
The bulk of all their projects will be launched in Q1 of 2018.
This tells me that their thinking is along the lines of a general property market rise for 2018.

yes oxley has shown foresight in the reading of cycles. in their recent presentation (link below), being early seems to have paid off wrt to "uplift in land value". the consensus opinion ard me is while prices will generally increase, the fever will taper off thru 2018.

http://infopub.sgx.com/FileOpen/Oxley%20...eID=485706

The rental market is rather weak , most have to lower their expected rentals just to retain their tenants .

(22-01-2018, 06:19 PM)BRT Wrote: yes oxley has shown foresight in the reading of cycles. in their recent presentation (link below), being early seems to have paid off wrt to "uplift in land value". the consensus opinion ard me is while prices will generally increase, the fever will taper off thru 2018.

http://infopub.sgx.com/FileOpen/Oxley%20...eID=485706

There’s also a recent article on CNA, which shows a spike in property prices for a few quarters, after a period of increased en bloc sales
I guess that makes sense, with the increased liquidity floating ard and previous home owners looking to buy

I myself, will be looking to sell in 2018, and perhaps buy something else again after that