When Singapore started phase 1 reopening back in 19 June last year, we witnessed a surge in enquiries for new purchase loans which were mostly attributed to a pent-up demand during the covid-19 lock-down.
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Fast forward a few months later, ask anyone who’s in the property market now, the buying momentum continued unabated and is now looking to continue into the new year. Indeed, the numbers said it all. Despite going through one of the worst recessions for Singapore since independence, more than 10,000 new private homes were sold in 2020. The highest number in recent years. No wonder the brisk sales at Normanton Park has now caught the eye of the Singapore government, concerned with excessive exuberance in the market and runaway property prices.
How do you explain all these purchasing power against the backdrop of a global pandemic?
Well it seems like the K-shaped economy is taking root here in Singapore too – there’s a big segment of people out there who are unaffected by the slowdown.
Yet we do hear of that 17,000 households who opted to defer paying their mortgages for 6 months last year. We’re not sure how many in this group continue to ask for deferment when the mandated reprieve ended in December. Those who lost their jobs during this period would have suffered much and might even be contemplating downsizing from their private property.
Pent-up demand is no longer the reason behind the euphoria as we hear more and more prospective clients looking at decoupling lately or stretching their budget just to get in on a piece of the action. From what I read, a few themes have emerged as the cause for the current frenzy:
- Vaccine has been a game-changer and most economies are now expected to recover sharply by 2nd half of this year as more of the population gets vaccinated. Job losses might be minimized or avoided.
- US Fed has pledged to continue to keep rates low for the foreseeable near term. The Fed chair has recently commented, “And that time, by the way, is no time soon.”, in a reference to the time that Fed will finally raise interest rates.
- Most of the supply from the last enbloc craze back in 2017 has now been launched and absorbed into the market.
- After the pandemic people come to realise the need for space and are looking to upsize to a bigger unit even if that means moving from a condo back to an HDB.
- More foreigners will now look to buy properties in Singapore for own-stay after they looked at how well Singapore has managed to keep the pandemic in control and re-open our economy whilst most of the western world are reverting back to lockdowns.
- Perhaps most importantly is FOMO – the fear of missing out on snatching a bigger unit at a reasonable price today if the buying demand is not contained and if prices continue to escalate.
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Are all the above reasons justified? I leave you to ponder those. When it comes to hot potato topic of property prices in Singapore, we can all weigh in with our own views and arguments. The truth remains that after each successive round (which we have almost lost count) of cooling measures, prices will resume its upward trajectory after a momentary pause.
In that sense, it’s behaving like Tesla’s stock price – the higher it goes, the more people will want to buy it! And it doesn’t come down much, even during dips.
This is no matter how much naysayers talk about the imminent crash that’s bound to happen at some point.
Will buying property in Singapore end in tragedy for some? That’s the last thing that the Singapore government would like to see and hence I’m not surprised if we get some cooling measures to be announced as soon as this month or before CNY. To some extent it’s a catch-22 situation – the more the market expects another round of cooling measure, the more urgency there is for buyers and I predict it’s going to be a hectic CNY period for buyers, sellers, agents and developers as everyone stays in the country now.
Lastly, this will not be a write-up with a “balanced” view point if I don’t talk about the risk of buying properties in times like these – when we are still not quite out of the woods yet as how our PM has put it.
So here are some of the potential risks of being overzealous in the property market:
- The biggest risk I see is the difficulty in getting a tenant to help pay for mortgage instalments later on. As you would have read, most of the new launches got sold out on 1- and 2-bedders i.e., investment units. Most of these buyers are hopeful of renting out the units at T.O.P. What if we are unable to get back all those retrenched foreigners or expats (90% of the lay-offs) who have left Singapore for good during the pandemic period?
- The next biggest risk is that of losing one’s job in a disrupted and uncertain world going forward. Property investment is all about holding power, to ride out the cycles so as to reap capital return at the end – a fully-paid up property. The worst thing that can happen then is to have both risks materialized – no tenants and no income to bridge the vacancy period.
- Another risk is to buy a highly immovable asset at a highly inflated price and spend the next 20 years trying to get rid of it just to break even or not to incur substantial loss on exit. While the asset value is unlikely to go to zero unlike an EV stock (too many SPACs chasing EV now), if you factor in all the holding costs like mortgage interests, taxes, management fees, repairs and upkeep, you might end up in a worst-off position financially than had you not entered the market.
- The last risk is that of regulatory where I am expecting increased ABSD for foreigners from the current 20% to perhaps 25%. This is even more so as depleted government coffers during the pandemic needs to be replenished. There’s also the likelihood of ABSD for Singaporeans buying a 2nd residential property to go up further from current 12% to say 15%. The second prediction will be truly disappointing as I have long argued that ABSD for 2nd property for locals ought to be removed – as our twin policy of TDSR (60%) and LTV has sufficiently addressed the concern for property speculation. For those who are unable to obtain the 2nd loan there’s simply no way to speculate. Allowing people to buy a 2nd property here in Singapore is better than putting their money in risky assets elsewhere.
Now there are also new opportunities for Singapore in the post-pandemic world where supply chains are shifted. If we are able to re-position ourselves successfully in the new global order of trade, we might attract more global HQs/RHQs and more global talents to our shore, especially from China, Hong Kong and South Asia.
Stay tuned to this blog for insights into the property market as well as mortgage news which help to make smart decisions about borrowing costs. Better yet, speak to our experienced team of mortgage consultants today and we might just help you to save right away with a simple mortgage review.
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