Has the Singapore property cash cow been fully milked?

Has the Singapore property cash cow been fully milked?

- Soaring real estate prices have taken the sheen off what many see as a golden investment, according to a study by the country’s largest bank

- A shrinking population and tightened policies over foreign workers could also stifle demand, DBS warns, while a younger generation increasingly looks to stocks and cryptocurrencies to grow their wealth

Derek Wong

1 Nov, 2021

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To Singaporeans like Angela* and her husband, both in their 40s and in the IT industry, investing in property seems like a no-lose proposition.

“If I choose the wrong property, in the worst-case scenario, I can still live in it or collect rental. But if I choose the wrong stock or investment instrument, it is possible to have all my money wiped out,” she said.

Her view is a commonly-held one that has inspired an enduring love affair between Singaporeans and property. Property values have consistently risen over the years in land-scarce Singapore, making millionaires out of many regular working-class citizens. Some opt to invest in a second private property even with hefty taxes in place, such as an Additional Buyer’s Stamp Duty of 12 per cent. Singaporeans generally cannot own two public-housing apartments concurrently.

But the winds are shifting. Investment properties have become increasingly expensive and out of reach even for the middle-class, with a new study showing that the asset class has done poorly over the years.

The younger generation of investors are also turning to new types of investments and turning away from property to fuel their own dreams of financial independence.

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A property safe haven

Singapore’s housing market is booming despite the pandemic. Private residential project launches are breaking price records and resale public flats are seeing double-digit year-on-year price growth. At the top end, Good Class Bungalows – the largest, most exclusive homes in the Southeast Asian country – are also fetching record prices.

Reinforcing the idea of property as a treasure trove is the trend of Singaporeans selling their subsidised public apartments – attained via ballot – in prime city areas for sky-high profits. This caused the authorities to tweak the rules for such homes on October 27, doubling the mandatory live-in period for buyers to 10 years and limiting the profits made on the sales of such flats to curb a “windfall effect”.

The latest launch of new public flats in Singapore saw prices range from more than S$300,000 (US$220,000), without government grants, for a 1,000 sq ft apartment, to more than S$500,000.

Property in Singapore has been a stable asset class for the most part. The last time Singapore’s property market saw a crash was back in 1998, during the Asian Financial Crisis, when it fell 40 per cent over a year. In 2008, following the Global Financial Crisis, property prices fell 25 per cent over a year.

Investors are also able to borrow huge amounts – 75 per cent of the private property’s value under certain conditions – which allows them to bet big on a stable asset.

This combination of low volatility and high leverage has made property one of the most popular investments among Singaporeans. Nearly 42 per cent of total household assets in Singapore are allocated to property, based on government data for the second quarter of this year.

Singapore’s stable currency, political stability and low taxes have attracted foreign buyers, including those from Hong Kong further boosting prices. In June this year, real estate agency OrangeTee & Tie said it had received enquiries from Hong Kong buyers on luxury homes, for both larger ones for families and smaller ones for investment. From January 2019 to May this year, Hongkongers made almost 100 property investments in Singapore. Based on property firm CBRE’s Global Living Report 2020, Hong Kong was the most expensive place to purchase a property, averaging US$1,987 per sq ft for prime property, compared with US$1,214 psf in Singapore, which came in third.

Property agent Jack Sheo, who has been active in the republic’s real estate market for more than 10 years, believes the love affair Singaporeans have with property will continue yet. “Real estate will be an integral core of a Singaporean’s investment/retirement planning as long as land costs remain high – and it does not seem logical for it to trend down in the years ahead.”

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A sanctuary rocked

But experts are now questioning if the real estate romance will continue.

For one thing, a shrinking population and tightened policies over foreign workers could stifle demand, noted a report by the largest bank in Singapore.

The study by DBS also forecast that property yield would no longer be as attractive as prices escalated. Since 2010, the average property price per square foot has jumped 50 per cent, according to the report.

Since 2009, returns on property have been poor compared to other asset classes. Average yield on property has been close to 2 per cent, losing out to alternative investments such as Singapore real estate investment trusts (S-Reits) and indexes like the S&P 500.

For the younger generation of investors, alternatives such as stocks, cryptocurrencies and even private equity have emerged as more compelling choices.

Kyith Ng, a senior solutions specialist at financial advisory Providend, said some of his younger clients were turning away from property.

“They grew up in an age where they were exposed to equities, bonds, cryptos and believe there are more options to growing their wealth. To them, [property investment] requires a lot of their net worth to be concentrated in a single asset, in a single country, dictated by the rules of the government.”

This holds true for Daniel Stephen, 31, a senior manager in the e-commerce industry. He said: “Investment has become increasingly decentralised and accessible today. I have invested a significant amount of my wealth into equity, especially into tech companies, which have seen strong growth. I hardly think of investing in a second property. To me, property is more to live in than an investment.”

James Lim, a financial consultant from Finexis Advisory, said his clients – most of whom make between S$8,000 (US$6,000) and S$20,000 a month – were like-minded. He said only about a tenth of his clients had more than one property, even if more than half of them could afford one.

“Over the past five years, I am seeing a growing trend of clients who do not feel as optimistic about property valuations largely due to the surging prices of properties today. Many feel that the entry point for them is at such a high point today, that being able to sell it for a meaningful profit in the future would be hard,” he said, adding that he was sharing on the basis of providing information and not financial advice.

But for now, many Singaporeans prefer putting their savings into brick and mortar because it gives the assurance, perceived or otherwise, of safety.

Said Angela, who was badly burnt twice by dabbling in stocks and cryptocurrency: “I simply feel buying a property is safer than stocks.”

* Identity withheld at interviewee’s request