Singapore Property Related Podcasts (Part 3)

Outlook for the Singapore property market – 12 Apr 2019

Mandarin Gardens failed to get an En-Bloc, as they failed to hit the 80% of the residents voting for it.  It’s almost a year (July 2018) since the authorities slapped on cooling measures. Is the En-Bloc market truly dead? In 2017, this was when the En-Bloc market started to surge. It is more expensive for developers to buy land, as they have to pay ABSD up front and only a portion is remiss-able. The cooling measures causes developers to be more cautious at the moment.

Even at the height of En-Bloc cycle, it was hard for Mandarin Gardens to En-Bloc, simply because of its size. Developers need about $3 billion to purchase it, as it is a huge site with 1000+ units. There is too much risk and uncertainty around it at the moment. A lot of the owners are uncontactable and hence did not vote in favour of the En-Bloc.

It will continue to be tough for the developers to find suitable land to go for an En-Bloc. Pearl Bank was sold to Capitaland for $800+ million. Developers have to pay ABSD if they can’t sell within 5 years, regardless of the size of the units. The larger the development, the harder it is to go En-Bloc. Foreigners tend to buy in the CCR regions, the high-end properties. The cooling measures affect properties, especially in the CCR regions, where prices fell almost 3% in the last 2 quarters. If you increase the reserve price, people may be more keen on the En-Bloc. However, the developers may not be keen on paying a higher price, and it takes two hands to clap. The minimum floor area of condos is a ‘mini’ cooling measure as now condos will be even more expensive.

There are quite a number of Chinese developers in Singapore, and they did en-bloc projects in Sun Hozier, Shunfu HUDC. Are developers paying too much for the land? And this pushes up the property prices over time? Developers need to lower the selling prices if they can’t sell the units as they need to sell within 5 years. For developers, their business model is to buy land, build and flip and have a shorter term investment horizon. Foreign developers still have to comply with government guidelines. Chinese developers have generally done okay with their developments, in terms of sales.

If you buy property as an investment, you won’t get the desired property yield/rental yield as before. Rental yields have flat-line and remained very low. Interest rates are low in Singapore, and investors are willing to accept a lower yield as well. Expat packages are also lower as compared to the past, and this has an impact on rental yield. Property prices also go through a cycle, just like any other asset class.

Can we expect the same capital appreciation in the future? Fed raised interest rates 4 times last year, which was very significant. However, the Fed announced that they wont increase it for the remainder of 2019. However, interest rates are still low at the moment. For home buyers, they have to manage the interest rate cycles, over 30 years.

More Singaporeans are looking at the overseas property market. You need to understand the reputation of the developer, the local regulations there. You should talk to the agents there and find out what are the good districts. HK residents find Singapore prices cheaper. Most governments have adopted a populist policy and impose taxes on foreigners, in order to protect housing prices for locals. For Vietnam, Cambodia and Thailand, these are popular areas for investments.

The Singapore government is planning to allow developers to build more properties in the CBD. However, this will not be cheap. The masterplan has a 25 year horizon and is definitely a long-term outlook. Co-living and co-working is the way to go, just like New York.

If you work near to your workplace, you save time commuting. Land cost is too expensive in the CBD area. For an investment, people look out for ROI, freehold property, long-term capital appreciation, location etc. For home owner, people look for amenities, facilities, proximity to MRT/parents, neighborhood etc. For example, Indians want to live near their own community etc. Research shows that upgraders tend to move to a place near their old house, within 5km, but towards more central areas. It is unlikely that the cooling measures will be removed in the next 5 years. There are around 60, 70 new launches last year and this year and there is plenty of supply out there.

Learn to buy within your means and definitely work out your finances before making the plunge.

Singapore Property Related Podcasts (Part 2)

Asian Business First Podcast – Outlook for Singapore’s Private Residential Property Sector (26 Oct 2018)

There is currently huge level of interest for properties, given the surge in property price index from late 2017 to third quarter of 2018. There are new cooling measures [12% Additional Buyer Stamp Duty (ABSD) for Singaporeans who purchase a second property] and for new developments (new average size of 85 sqm, from the previous from 70 sqm), no more shoe-box condos for other than the central area. Balcony sizes will be shrunk (not more than 15% of the whole unit). For some old condos, the balconies are too numerous and too large and this limits the liveable space, which is quite a pity. Sentiment among property developers have soured because of the new government property cooling measures.

The various sectors such as commercial, retail, industrial types all have shown weaknesses in terms of rental yield. There are plenty of empty industrial space in Singapore as well of a lot of unoccupied condos around. The on-going US-China trade-war might also affect residential prices as it puts a dampener on the global economy.

The cooling measures are working, as can be seen from a slight decline in residential housing prices at the end of 2018. There are plenty of new launch condo projects in 2018, but there are fewer transacted units, and many projects are not selling that well. For the resale HDB, the number of transactions took a tumble and decreased. The En-Bloc market is also slowing down as a result of the additional stamp duty for developers when they purchase land.

Now, it is a buyers’ market, not a seller’s market, as buyers will adopt a wait and see approach before deciding on anything. There are many En-Blocs which have not found developers to buy, as it might be hard for developers to sell off these units within 5 years. There could be resale units emerging from failed en-bloc units as the previous owners just want to let go of their units. This could lead to a re-pricing of leasehold, freehold properties that failed to En-Bloc, because of the cooling measures and this applies a price pressure downwards. The best is to buy freehold properties in districts 9, 10 and 11. Many home-owners are brought back down to reality after the cooling measures.

Many of the En-Blocs are happening in the HUDC market, and those owners might downgrade to a resale HDB and save their money for their retirement. There are 50,000 new condo units that are new, of which 30,000 of which are unsold. There sounds like a glut in the market at the moment. The thing is that with limited population growth and stable employment and not many PMETs coming in, it is difficult to fill up the vacant units because the growth has tapered somewhat. Rental yields will continue to struggle in the near future. Property investors should certainly think twice before buying something for investment.

Developers build shoebox size units to attract foreign PMETs and property investors. However, for non-central areas, who will want to rent there? That’s the big question. Shoebox units tend to sell at a higher per square foot (psf), and developers will use this to justify charging higher psf for their larger units. People have valid concerns over the small condo sizes. Developers are allowed to build shoebox units, but they will have to build quite a number of 3 bedroom units as well, as the average size must meet the new URA guidelines for condo sizes. These guidelines were not included for the core central region (CCR) because had they were, the prices would be really unaffordable.

On average, the size of HDBs are way larger than private housing, and with a better living environment. A 4 room flat is on average 1,000 sqft. Some developers add the aircon ledge as part of the unit size, which is quite unethical.

The Singapore government really intervenes in the housing market, to control prices, as evidenced by the numerous rounds of cooling measures over the years. An increase in interest rates will eat into your rental yield and hence, your profits. Rental yields are about 3% in Singapore, but interest rates for home mortgages are closing in for 2.5%, and this is uncertain, depending on what the Fed does.

Singapore Property Related Podcasts (Part 1)

Asian Business First Podcast – On Board the En-Bloc Bandwagon (23 Mar 2018)

With a quarter of a million Singapore dollars lying around, you could place a down-payment for a condo/apartment. The En-Bloc fever (it means: all together or all at the same time) has been gaining momentum. Property developers want to buy up the land, demolish the building, and build a new development and hope to earn more by charging high prices per square foot (psf).

The Pearl Bank apartment has managed to go En-Bloc finally. The sale of the Pacific Mansion condominium is the biggest En-Bloc in the last decade, almost close to a billion dollars. Pacific Mansions is located in the CCR, and it is on a freehold land. In an En-Bloc, you get paid to vacate your property, which sounds attractive. However, with the money, you will have to find another place to live and chances are, other houses will be expensive too. In the past year, there has been a resurgence in property market, led by the wave of En-Bloc.

The new Additional Buyers Stamp Duties (ABSD) [increase from 7% to 12% if Singaporeans buy a second property] has hit the investors in the Core Central Region (CCR) region, especially when foreigners refuse to buy and pay the stamp duty. The market used to be suppressed artificially because of the cooling measures. HK has implemented up to 30% of taxes for foreigners to buy their properties, and this is substantially more than the ABSD on foreigners of 20% in Singapore. However, Singapore is still considered cheaper as compared to other big cities in the world, like New York, London. Singapore’s economy is doing relatively okay for now. Buyers have the fear of missing out, as they feel the prices will continue to rise and want to get a property now. For property, it is cyclical in nature, and happens that prices are over-heated now.

Should buyers target projects that have potential for En-Bloc? Can you tell which properties are targets for En-Bloc? It is important to identify the projects are early. If the projects are already slated for En-Bloc, you won’t be able to make a lot because existing owners will want to sell it to you at a premium, and the En-Bloc potential has been factored in the price. Try to avoid buying a property with the simple mindset of hoping for an En-Bloc, as that should be seen as a bonus only, and there are many other factors that make a property desirable (near schools, near MRT, near parents etc).

For location, it matters a lot, as those properties near MRT stations tend to fetch more. For properties near MRT, chances are that the location premium is already factored in. Investors should try to predict future MRT locations, and then you may get to make more money.

En-Bloc helps with the rejuvenation of buildings in Singapore. The winners from En-Bloc will also spend more, and this leads to a re-circulation of capital back to the economy. However, for first-timers, they will be pissed as property prices are likely to rise during En-Bloc fever. There is too much exuberance in the market at the moment. Developers also need to continue to buy land, with is their core business, and cannot stop doing that easily. If there are not enough government land sales, then developers will look to the private market and En-Bloc. The most recent cooling measures have killed off speculations. Those who can still enter the market are those who have the holding power and are cash-rich. The amount of leverage has been reduced and this is actually good for the economy, to avoid buyers getting into financial trouble and encouraging prudence in general. For this reason, it makes sense to keep the cooling measures in place.