I read the article “Singapore Faces Balancing Act As Home Prices Climb” published by The Wall Street Journal and “Singapore’s Private Home Prices Climb to Record on Sales’ published by Bloomberg.
These are just two of the hundred articles published about the crazy residential housing prices in Singapore and some articles further discuss how the influx of foreign immigrants have contributed to this phenomenon (might or might not be). Both private properties and HDB alike.
Then comes the next question, when is the residential market in Singapore going to reach its peak and starts crashing down? I think this is a geninue question, because it is true that things (prices, demand and supply) are going to reach a peak and bound to come down one day., and i don’t think anyone can do much to change things. Yes, ONE-DAY.. But when? is the key question. This is what i am going to talk about today.
1) Who are buying the Singapore private homes?
- Local-buyers (young single professional, age 40 & below)
This is the market which the ‘shoebox’ apartments are targetting at.
We must admit that the younger generation are alot more blessed compared to the past. We get to go to universities, the degrees here are mostly internationally recognised, even if you come from a ‘not-so-well-to-do’ family you still get an equal chance to attend universities because tuition grants are easily available and accessible. It is because of the education system, there are no ‘social class-separation’, and the poor can always become rich because of equal chances of receiving education.
The younger generation is also more fortunate because most get to travel either on self-paid (or daddy-paid) holidays, school excursions, missionary trips etc. Having the chance to travel from young age enable the younger generations to gain international exposures, improve cross-cultural communications and these in turn increase independency and boost self-confidence. Of course, with information technology, the young are extremely efficient and savvy of international news & happenings.
Being equipped with these at an earlier age, the younger generation now has earlier career successes and they crave independence and control over their lives. Of course, most people need to accumulate wealth over time, but we cannot deny the young professional now has alot more spending power than 10 years ago. Though buying a ‘true-blue’ private condominium at a prime district is still far for this group of people, but they have the money to buy smaller quantum developments. This is the major reason why ‘shoebox’ apartments were successful!
- Local buyers (Family-builder, planning to have kids, age 35 & below)
This is what alot of people call the ‘geninue’ group of buyers who are in an urgent need to purchase a house in order to start a family. When 2 young professionals get married, their wealth doubles, they can afford something more. This group of people make up quite a fair bit in the suburban home sales (private condominiums or ECs) these days. Buying a private condominium becomes more enticing because it is prove of social-status and wealth, an important element in today’s raising aspirations of people.
- Local buyers (HDB upgraders, have a few kids, age 35 – 45)
For this group of buyers, the condominium apartment is an upgrade from their existing HDB flats. They are looking for a new apartment because of 1) growing family size, 2)kids have grown up and need personal space, 3) increased accummulated wealth. This make up majority of the suburban home buyers these days.
- Local buyers (Mature couples or retirees, with grown children, age 50 & above)
This is what we call the ‘empty-nesters’, their children have grown up and formed their own families, or their children are residing overseas so their children are no longer living together with them. A percentage of these buyers used to reside in bigger apartments or even landed-housings and they no longer require such a big dwelling, thus the decision to ‘downgrade’ so that maintenance is easier and they can free up their cash for other personal enjoyments. These buyers usually can afford better locations and reasonably sized apartments.
We are also seeing some parents buying the condominium apartments for their children, because they are worried about the raising housing prices and their children can no longer afford houses!!
- Local buyers (investors, buying to rent out or resell for profit)
This is a dimishing market with increasing housing prices as there are other investment alternatives that yields better profits. However, this market segment became active again with the introduction of ‘shoebox’ apartments with smaller price tags. In fact, more people enter the market as investors now as they can afford these smaller price tags compared to those days where buying a second condominium for investment is difficult to achieve.
- New Immigrants
There are two types to this group of buyers: 1) buying for self-stay 2) buying a 2nd, 3rd property e.g. for investment returns. The increasing number of immigrants has been a widely debated hot topic locally, and it is a fact that the Singapore population is now 5.31 million, a 2.5% increase from the previous year.
It is also a fact that successful immigrants are often affluent back in their countries and can easily afford a housing compared to many locals. So an increase in this group of buyers is only expected.
- Foreigners (buying a holiday home or for investment)
Singapore remains an attractive place for doing business and investment with its foreigner-friendly policies, established infrastructures, being bilingual and safe environment. Due to these fundamentals, Singapore is one of the top choices for doing business and real estate investment in Asia, if not world-wide.
When foreigners spend a large amount of time in Singapore, they may consider buying a home. When they consider investing in real estate, they would also select a country which they are familiar with. With increasing rich in the surrounding countries, e.g. China, India, more foreigners are buying the private homes in Singapore.
2) Why are Singapore’s private homes so hot?
- The population size has grown, so the private home buyers will also grow proportionately
- People can afford private homes at an earlier age, so the pie for private home buying has increased
- Conducive living & business environment, good medical facilities and advanced infrastructure makes Singapore a good choice for real estate investment.
With more buyers, supply and prices naturally increase. We can see this commonly across private homes as well as HDB resale prices.
3) Is this the peak of the Singapore property market?
The property market in Singapore is hugely dependent on government’s policies and the nation’s major decisions, such as whether to approve more new citizenships and permanent residency, whether there are further restrictions on the housing market.
Let’s take a glimpse at this years’ government happenings and announcements:
- National Development Minister Khaw Boon Wan says “COV is here to stay”, which is an additional sum given to sellers above the HDB flat’s fair valuation. COV amount can range up to $50, 000 cash upfront. Buyers who are deterred by this, will turn to ECs or cheaper condominiums in the private property market.
- PM Lee says “Singapore would be able to house about six million people in the future”, meaning the population size will continue to grow, and so will demand for housing markets.
- National Development Minister Khaw Boon Wan says “Percentage of ECs allocated to second-timers will rise six-fold from 5% to 30%
- Active government land sales. To date, there are approximately 21 sites that will be open for tender in the 2nd half of 2012, offered by both URA and HDB. These include both ECs and private developments which can yield a total of 14,200 apartments. With more land, there will be more supply, and developers who has bid for the land will try all ways and means to attract buyers, both local and foreigners.
Is this the peak yet? I don’t think so, at least for the next 3 years, because:
1) Singapore is continually attracting foreign investors or businesses with its efforts to revamp the city, e.g. building casinos, marina financial centre.
2) Singapore still intends to grow the population, so the ‘buyer-pie’ is still increasing
3) Singapore still remains as Asia’s top choice in terms of fundamentals like infrastructure, government support, safety etc
4) Singapore is located in the Asia region, where many up and coming economies are, e.g. India
5) There is a genuine pool of buyers, due to the raising affluence of the Singaporeans today.
So the fisheye verdict is that the property market in Singapore is stable at least for the next 3-5 years.
Yes, prices are crazy but it will become the new norm, just like Tokyo and Hong Kong. Yes, there will be a problem when people’s salary can’t chase up with the cost of living, but i think quite a sizable portion of young Singaporeans are chasing up! Especially, when the education system in Singapore is very well-established so its graduates are mostly able to remain competitive in the labour market.