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Singapore Real Estate Market Review September 2008
real estate market review sept 2008 Download this article
Introduction
On 28 January 2008, I conducted the first 6-month market projection seminar at the HDB hub auditorium to a packed house. I titled the event: “Myth, reality, and Awkwardness of 2008 and my opening statements were as follows:
- We are at historic crossroads
- World order will shift, the rich may fall and the poor poorer
- We are near a crisis of an epic proportion
- We have no experience but the simplicity is familiar
- What we need is an Open Mind
Many agents who attended the seminar later asked me for the meaning of ‘epic proportion’. At first, I had some difficulties answering the question off the cuff, but I did enough to say that it was something that would be very major and very bad. Three months after, Dr Tony Tan, Deputy Chairman of GIC, warned that the world might face the worst recession in 30 years. And that is equivalent to saying there will be a crisis of epic proportion. But I must straighten the record – that is, I said it first on 28 January 2008 in front of a packed auditorium.
It proved that I really deserve my lunch that day.
How to deal with the impending recession
Enough bragging and let us get back to serious work. Now that we know the crisis of epic proportion is going to hit town, how should we prepare ourselves as professional real estate agents, and the breadwinners to our family.
To begin with, let me say that we must be psychologically prepared that the population in the entire planet are going to be poorer than before. Some of the rich upper class will go down straight from the rich list to the bankruptcy list, starting with some top guns in many of the world’s leading investment banks, hedge funds, insurance company and many other private financial institutions who just a year ago were living the high life.
At the time of writing this article I did not know if the US$700 billion rescue package will be approved by the House of Representatives. But even if it does, the world will still have to go through some months of painful readjustments and recuperation as new realities set in.
The crux of the matters is that over the past six years or so, the housing inflation had also inflated the values of many companies, such as banks and major institutions, and emboldened many property investors, Singapore’s included. In short, the economy bubble was inflated out of proportion over the past years and it is still in the process of being put down to its correct size. In the process, spending will be curtailed, making the global economy look like an obese new recruit on his first day of Basic Military Training (BMT), trying to fit into a tight uniform. The moral of the story is: the fat boy needs to cut down the excess body fat very quickly by eating less and exercising more.
An old saying goes like this: “when US sneezes, Asia will have pneumonia”. But in today’s context, when the US has a tremor, Asia will have a tsunami. And as we are speaking, the sign of tsunami is ominous – the tide is receding and being sucked back into the sea, far away from the beach. There will be some moments of stillness in the air before the high waves strike. This time round, none of the economic sectors anywhere in the world could be spared from the fallout. In short, we are in for a rough ride from now.
We have to be prepared for widespread poverty, even in the world leading economy such as the United States and some parts of Europe.
What does that mean to the property market in Singapore?
In the first place, I would like to stress that not all ‘down trend’ markets are bad market for real estate agents. Though prices may fall by 5% to 10% in the next six months, the transaction volume is a different matter altogether. As far as property transactions (including sales and rentals) are concerned, there are many signs that point to an active year ahead of us – as investors and home owners alike are adjusting to their new circumstances.
- More Sub-sales on the card
The record 18,000 sales of new home units achieved in 2007 and the ‘not-too-bad’ 11,147 sales of new home units in 2006 will combine to release thousands of completed new condos into the property market, starting from the early part of 2009 onwards.
More than 15,000 condo units are slated to be completed from the first quarter of 2009 onwards, with more than 8,000 units in the prime districts such as districts 9, 10 and 11; and another 4,400 units in the East Coast areas of districts 15 and 16. The rest of the thousands of new condo units will be scattered around the outlaying areas.
With banks tightening credit control, some of the property buyers who had purchased the properties on Deferred Payment Scheme might not be able to secure the financing and will have to dispose of the property in the sub-sale market.
Meaning of sub-sale:
As long as the property sellers do not have the property title in their hands and need to notify the developers to issue a fresh Sale and Purchase (S&P) Agreement to the subsequent purchaser, the sale is considered a sub-sale.
When the property seller has the title in hand and is able to sign the Transfer Document and release the Title to the buyer upon legal completion, the sale is called Resale.
- More down-grading from condos to HDB flats
In fact, a ‘down trend’ market where some sellers are desperately trying to dispose of their units may be a good hunting ground for real estate agents of all shapes and sizes, whether rookies or veterans.
There may be more instances of condo owners wanting to downgrade to public flats due to the massive increase in costs of living in a condominium. With the new price hike in electrical tariffs from 1 October 2008 where average households will pay 21% more in utility bills, more ‘middle income’ households with a gross household income of between $5,000 and $10,000 with more than two ‘financially dependent’ children may have to adjust their lifestyle and spending habits – if they are living in a condominium.
This means that the HDB resale flat segment may experience a ‘mini-boom’ as it will become a ‘buffer zone’ in times of great ‘economic adjustment’. I expect younger 5-room flats to experience an increase in activities since the ‘middle income’ may not be comfortable to relocate into an old heartland area. Newer HDB precincts may offer a lifestyle concept that appeals more to the middle income group. In other words, I expect the newer HDB precinct to become the growth area in the next nine months to one-and-a-half year. [See case study in HDB price trend later]
- Cheaper prices lower risks
In fact, from the list of 40 Best Selling Condos in Singapore in page 12 – 13 it is not difficult to detect the increased buying activities of mass market condominiums in the outlaying areas in the first half of the year, despite the fact that the US subprime mortgage crisis has already making regular headlines in the local newspapers.
The Best Selling Condo list has been dominated by transactions in Districts 5, 15, 16, 22 and 23 where the unit floor rate (i.e. per square feet price) are hovering from $700 to $1,200 for District 15 condos, and as low as between $400 and $600 for condos in Districts 22 and 23.
While the new home segment may take a hit in sales volume due to developer’s pricing strategy, the sub-sale market is more responsive to the basic market forces of ‘demand and supply’. As such, it is not surprising to see sub-sellers pricing their units on hand for ‘cut-throat’ prices that are lower than the developer’s listed prices.
- Agent’s Market in the Great Singapore Sub-Sale
This is in fact a piece of good news for new agents who were elbowed into the sideline during the bull-run of 2007 because they lacked the critical skills to out-fox their more experienced colleagues. But with the thousands of new condo units available for sale, there are many ‘low hanging fruits’ ripe for anyone’s picking.
- Back to basic for every agent
For the thousands of experienced agents, everything is back to square one, which is the basic real estate marketing 101. When no buyers will jostle to throw the offer cheque at the listing agents, the agents will have to go back to the prospective buyers to elicit offers. And, on the other hand, to get the property sold quickly, the listing agents will need to convince the property sellers to align their asking prices with the market condition – simply by showing them the latest facts and figures. It’s all what the agents have been taught at the classroom when they first entered the trade.
So, when everybody is starting from a clean slate again, the agents who stick to the basics will flourish. In such an agent’s market, there will be no more short-cuts like during the 2007 bull-run. When an agent misses one step, or resorts to short-cuts, no offers will be forthcoming.
Real estate sale is now a fair game – you reap what you sow!
Property prices to drop by 20%?
Not this time, definitely
Some wishful buyers are hankering for the prices of their coveted properties to fall by more than 20% because of the looming global economic recession.
But the numbers do not add up to such a drastic drop in houses prices in Singapore – for at least the next six months. Here are some of the reasons why:
The rich lists have grown
There are three categories of wealthy individuals which are known as High Net Worth Individuals (HNWI).
- Ultra rich – US$30 million per person
The ultra rich are individuals with investible assets of at least US$30 million. In Singapore, there are 1,000 such individuals with total wealth of US$159 billion.
Across the Asia-Pacific region, the number of this category of HNWI rose 16.4% to 20,400 last year. The number may drop back a little but as Asia is not as badly hit as elsewhere in the world, the rich list is not expect to shrink by much.
- The rich – US$1 million per person
Next is the ordinary HNWI – individuals with at least US$1million in investible asset.
There are now 77,000 such wealthy Singaporeans, representing a growth of 15.3% annually, or 1.7% of the population. The total combined wealth of such individual Singaporeans grew by 18.4% to US$380 billion last year.
- Emerging rich – US$750k to US$1 million per person
Next level down the rung, the number of emerging high net worth individuals in Singapore also grew by 15% to 24,000 in 2007. Altogether, these people have a combined wealth of US$20 billion.
To be counted as an emerging HNWI, one must have at least US$750,000 to US$1 million in investible assets.
No doubt the asset growth of the ultra-rich in the region as well as in Singapore will slow down, it will not suddenly disappear. It may contract by 10% to 20% but the money need to be deployed somewhere for good returns, and the people working for the rich need to be put up somewhere when they trot the globe for investment opportunities. Granted, there will be some bad days at the office where there will be no sales but there is no reason for the property market to suddenly stop functioning altogether – there will be people jostling to get out and others trying to get in. The basic economics continue to function.
- Singaporeans are all ‘house proud’
A recent report by Merrill Lynch and Capgemini found that the Singaporean HNWI have an average net worth of US$4.9 million, and it confirms that Singaporeans HNWI, regardless of their wealth, are indeed very ‘house-proud’.
They put 25% of their wealth in real estate with the rest in alternative investments like structured products, hedge funds and currency.
Though the same report also stated that the Asian high net worth individuals are likely to turn to fixed-income securities which are less volatile in the near future, there is nothing to stop them from buying into Orchard Road if the investment returns become attractive.
The report points out that in the longer term, the region's wealth will continue to expand at 7.9% annually - higher than the 7.7% global rate.
Singapore population has grown
According to National Population Secretariat, Singapore now has 4.84 million people living in the island city. Out of whom 1.2 million are foreigners working and living here.
Among the 1.2 million non-residents, 757,000 of them are on work permits, 143,000 on employment or S passes, and 85,000 on student passes, according to the Ministry of Manpower. The Ministry also said that the number of non-residents has been rising significantly since 2004.
Likewise, the number of permanent residents (PRs) rose 6.5% this year to 478,200.
This is THE statistics that we badly needed in this market – it is indeed a shot in the arm. It means that we are not speaking in vacuum. There are people to fill those condos, and new flats that are coming onto the property market later on.
The size of the population underpins the growth in real estate prices, including rental prices. Barring any more financial disasters which result in these 1.2 million foreigners being recalled home, there is going to be strong tenant base to provide the cushion for any future correction in rental prices. Or to put it another way, rents will not crash, barring a major disaster – man-made or natural.
Total quantity of residential units
How many houses do we have in Singapore? I can assure you that the statistics is quite reassuring. Let’s look at the numbers:
- For public flats, there are about close to 900,000 HDB flats, of which about 30% are available for approved whole-flat subletting.
- For condo and apartments, there are about 180,000, spread over 3,000 private housing projects. This number will increase to around 220,000 by 2011, if all the planned developments are built on schedule, which we now know is unlikely due to delays in legal completion of many huge en bloc sale projects.
- For landed housing units, we have about 68,000 houses, out of which 25,000 are bungalows and the rest are semi-detached and terrace houses.
This means that had the economic bubbles not burst in the United States and Europe, there will be an acute shortage of rental properties in Singapore. This time round the consequences of the global financial fallout may not be so sinister for Singapore, because barely six months ago this country was still grappling with problems of burgeoning house rents, and lack of places in international schools.
Granted that home rentals will ease and landlords will have to wait for a longer time for an expatriate willing to pay the extortionist’s rents, but it is not all doom and gloom. At worse, we are going back to the 2006 situation where everything happened within reasons, and where nobody thought we were in an economic recession. The truth is that 2007 had made many people very greedy.
Taken together, we might have a difficult next few months when the entire global financial systems go through fundamental restructuring and major austerity drive, but the mid- to long-term prospect looks promising, especially for Singapore.
Investment is like F1 grand prix
Maybe we should look at a recent event for inspirations. The turmoil going on in the world now is like the Formula One night race – there are always accidents, mistakes, crashes, unexpected twists and turns, disappointments and jubilations, and along the way, very loud noises. But isn’t this why the crowd loves the race?
When it comes to property investments, it is like the F1 grand prix – so full of unexpected twists and turns, but ultimately the one who is able to take advantage of adversity will win the day.
All along, we in Singapore know the ‘who’s who’ in the world, but they don’t really know us. When the dust of the current financial crisis settles, Singapore will rebound and surge ahead faster than any regional countries; and with the F1 night grand prix being telecast ‘live’ all over the world, the world will get to know what Singapore is made of.
One does not get such a good opportunity to pick up a piece of the world’s most coveted real estate in Singapore. Last year’s prices were too high and too risky for wise investors to do that. Therefore, if there is no crash, those falling behind in the race have no chance to catch up and become the new champion.
This is really the opportunity of a lifetime.
Buy, Sell, Rent, Invest, In Singapore
Billy Chen
CEA Registration Number : R029372I
Tel: (+65) 88689999
Fax: (+65) 64021826
billy@billychen71.com
KF Property Network Pte Ltd
CEA Licence Number : L3008430D
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