reporter2
16-03-22, 11:01
Property prices can be resilient amid geopolitical tensions
Some people may want to park their money in hard assets to get a sense of security
Mar 15, 2022
https://i.imgur.com/DXqDRDQ.png
GEOPOLITICAL tensions have ratcheted up with Russia's invasion of Ukraine. Oil prices have skyrocketed and food costs have risen. Equity markets have been hit as investors de-risk. The global economic outlook is much hazier and political leaders are grappling with what a new world order will look like.
Could global tensions rock the physical property market here? Possibly not.
In the lead up to the outbreak of war in Ukraine, Savills Singapore announced the sale of Tanglin Shopping Centre in the Orchard Road enclave to a privately-held entity of the Tanoto family for S$868 million.
On Mar 3, 2022, with war raging in Ukraine, Savills Singapore announced the sale of heritage commercial property House of Tan Yeok Nee, which is located along Penang Road, to an entity linked to the family of Bachtiar Karim. Savills Singapore said this sale received a strong response, with enquiries from many new-to-market buyers from China, Indonesia, Hong Kong, India and South Korea. The property was sold at above S$85 million.
The tenders that closed on Mar 8, 2022 for a private housing site at Dairy Farm Walk and an executive condominium (EC) site at Bukit Batok West Avenue 8 drew seven and nine bids respectively. The top bid of S$661.67 per square foot per plot ratio for the Bukit Batok EC site set a new record price for EC land.
Perhaps physical property prices will receive support from geopolitical tensions and weak equity markets. Amid global tensions, some people may want to park their money in hard assets to get a sense of security.
Stock market jitters may hardly affect buyers of mass to mid-market condominium projects so long as jobs are secure and income is rising.
Equity market weakness may mainly hurt wealthy individuals and in turn lower demand for high-end homes and commercial properties. On the other hand, some investors may lower capital allocation to equities and raise weighting to physical property.
As buying physical property is generally viewed as a long-term play, geopolitical conflicts can be treated as short-term noise and parked to one side.
Perhaps the main risk to physical property prices from Russia's war on Ukraine is whether the global economy tanks.
Prices of private homes here declined by 25 per cent between Q2 2008 and Q2 2009 in the wake of the global financial crisis, according to the Urban Redevelopment Authority's (URA) property price index.
Amid property cooling measures introduced in May 1996 and the Asian financial crisis that started in mid-1997, the URA's private home price index fell by 45 per cent between Q2 1996 and Q4 1998.
As it is, job creation in the United States is strong and Singapore's economy is growing, so perhaps there is no need to panic yet with property prices.
Two factors support why physical property prices here can be resilient amid geopolitical turmoil.
Prudent use of credit
Firstly, both the supply of homes and other property types as well as the use of credit are not excessive.
Government land sales is a major source of land supply and sales of sites by the government is generally done in a calibrated manner.
With troubled Chinese property groups such as China Evergrande Group, difficulties arose due to the use of excessive leverage. In Singapore, listed property groups are generally not highly geared while the real estate investment trusts typically maintain debt to deposited property of below 40 per cent. As such, owners of commercial buildings are likely to be financially strong and the risk of forced sale of assets due to interest rate hikes or passing economic weakness is low.
Also, the use of credit to buy homes is monitored and regulated to ensure household finances are not over stretched.
Safe haven
Secondly, heightened geopolitical uncertainty may raise the safe haven premium of Singapore property. Because of Singapore's diplomatic efforts, trade agreements, social cohesion, strong fiscal position, and political stability, Singapore is well placed to draw long-term investments from businesses and wealthy families.
Yield on physical property here is low - around 2 per cent on homes and 3 per cent on offices in the city centre. But yield compression is likely to play out across various asset classes globally - ageing populations in many developed countries could drive a flood of capital looking for investment opportunities.
Foreigners can buy many types of physical properties here though home purchases by foreigners, who are not permanent residents, attract additional buyer's stamp duty of 30 per cent. To put in perspective, home prices need to rise at a compound annual growth rate of about 2.7 per cent in order to get a capital gain of 30 per cent after 10 years.
Still, paying high transaction taxes for safe haven assets can be justified on several grounds. For example, the Singapore dollar is generally a strong currency. In the 10 years to the end-2021, the Singapore dollar rose by over 50 per cent versus the Indonesian rupiah.
Prices of cryptocurrencies and technology plays such as Grab Holdings and Sea can gyrate wildly. For people who have eked out strong gains from cryptocurrencies or technology plays, channelling some of these gains to safer Singapore physical property can make sense.
A wealthy resident of a country plagued by political instability or the threat of war may be happy to buy insurance to guard against major adverse events at home through buying a physical building in a safe gateway city such as Singapore, where trading liquidity of homes and commercial buildings is fine.
Physical property, particularly homes, may be levied with higher taxes over time, as the government here raises tax revenue to help fund rising expenditure such as on healthcare.
However, in a global environment fraught with conflict, the allure of physical property here as safe haven assets look set to grow. Expect many wealthy foreigners to continue to show interest in Singapore physical property.
Some people may want to park their money in hard assets to get a sense of security
Mar 15, 2022
https://i.imgur.com/DXqDRDQ.png
GEOPOLITICAL tensions have ratcheted up with Russia's invasion of Ukraine. Oil prices have skyrocketed and food costs have risen. Equity markets have been hit as investors de-risk. The global economic outlook is much hazier and political leaders are grappling with what a new world order will look like.
Could global tensions rock the physical property market here? Possibly not.
In the lead up to the outbreak of war in Ukraine, Savills Singapore announced the sale of Tanglin Shopping Centre in the Orchard Road enclave to a privately-held entity of the Tanoto family for S$868 million.
On Mar 3, 2022, with war raging in Ukraine, Savills Singapore announced the sale of heritage commercial property House of Tan Yeok Nee, which is located along Penang Road, to an entity linked to the family of Bachtiar Karim. Savills Singapore said this sale received a strong response, with enquiries from many new-to-market buyers from China, Indonesia, Hong Kong, India and South Korea. The property was sold at above S$85 million.
The tenders that closed on Mar 8, 2022 for a private housing site at Dairy Farm Walk and an executive condominium (EC) site at Bukit Batok West Avenue 8 drew seven and nine bids respectively. The top bid of S$661.67 per square foot per plot ratio for the Bukit Batok EC site set a new record price for EC land.
Perhaps physical property prices will receive support from geopolitical tensions and weak equity markets. Amid global tensions, some people may want to park their money in hard assets to get a sense of security.
Stock market jitters may hardly affect buyers of mass to mid-market condominium projects so long as jobs are secure and income is rising.
Equity market weakness may mainly hurt wealthy individuals and in turn lower demand for high-end homes and commercial properties. On the other hand, some investors may lower capital allocation to equities and raise weighting to physical property.
As buying physical property is generally viewed as a long-term play, geopolitical conflicts can be treated as short-term noise and parked to one side.
Perhaps the main risk to physical property prices from Russia's war on Ukraine is whether the global economy tanks.
Prices of private homes here declined by 25 per cent between Q2 2008 and Q2 2009 in the wake of the global financial crisis, according to the Urban Redevelopment Authority's (URA) property price index.
Amid property cooling measures introduced in May 1996 and the Asian financial crisis that started in mid-1997, the URA's private home price index fell by 45 per cent between Q2 1996 and Q4 1998.
As it is, job creation in the United States is strong and Singapore's economy is growing, so perhaps there is no need to panic yet with property prices.
Two factors support why physical property prices here can be resilient amid geopolitical turmoil.
Prudent use of credit
Firstly, both the supply of homes and other property types as well as the use of credit are not excessive.
Government land sales is a major source of land supply and sales of sites by the government is generally done in a calibrated manner.
With troubled Chinese property groups such as China Evergrande Group, difficulties arose due to the use of excessive leverage. In Singapore, listed property groups are generally not highly geared while the real estate investment trusts typically maintain debt to deposited property of below 40 per cent. As such, owners of commercial buildings are likely to be financially strong and the risk of forced sale of assets due to interest rate hikes or passing economic weakness is low.
Also, the use of credit to buy homes is monitored and regulated to ensure household finances are not over stretched.
Safe haven
Secondly, heightened geopolitical uncertainty may raise the safe haven premium of Singapore property. Because of Singapore's diplomatic efforts, trade agreements, social cohesion, strong fiscal position, and political stability, Singapore is well placed to draw long-term investments from businesses and wealthy families.
Yield on physical property here is low - around 2 per cent on homes and 3 per cent on offices in the city centre. But yield compression is likely to play out across various asset classes globally - ageing populations in many developed countries could drive a flood of capital looking for investment opportunities.
Foreigners can buy many types of physical properties here though home purchases by foreigners, who are not permanent residents, attract additional buyer's stamp duty of 30 per cent. To put in perspective, home prices need to rise at a compound annual growth rate of about 2.7 per cent in order to get a capital gain of 30 per cent after 10 years.
Still, paying high transaction taxes for safe haven assets can be justified on several grounds. For example, the Singapore dollar is generally a strong currency. In the 10 years to the end-2021, the Singapore dollar rose by over 50 per cent versus the Indonesian rupiah.
Prices of cryptocurrencies and technology plays such as Grab Holdings and Sea can gyrate wildly. For people who have eked out strong gains from cryptocurrencies or technology plays, channelling some of these gains to safer Singapore physical property can make sense.
A wealthy resident of a country plagued by political instability or the threat of war may be happy to buy insurance to guard against major adverse events at home through buying a physical building in a safe gateway city such as Singapore, where trading liquidity of homes and commercial buildings is fine.
Physical property, particularly homes, may be levied with higher taxes over time, as the government here raises tax revenue to help fund rising expenditure such as on healthcare.
However, in a global environment fraught with conflict, the allure of physical property here as safe haven assets look set to grow. Expect many wealthy foreigners to continue to show interest in Singapore physical property.