Housing Sector in Singapore Only Getting Hotter
Kevin Lim | March 27, 2011
The display room of a high-end waterfront development in Singapore. Many residents say they are being priced out of the property market. (AFP Photo)
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Singapore. Wendy Cheng, 32, has been trying to buy a home for more than two years without success.
Cheng and her American teacher husband cannot afford property on the open market where a government-built apartment can fetch as much as $700,000 Singapore dollars ($553,000), and they have been unsuccessful in balloting for apartments available from the state at a cheaper price.
At her last attempt to buy an apartment directly from Singapore’s Housing Development Board, she was given a waiting-list number of 1,983 for the 200 units offered, which meant she could get a unit only if 1,783 of the people in front of her dropped out.
“It’s like trying to win the lottery,” she said of her efforts to buy her own place, a predicament shared by an increasing number of young Singaporeans who feel they can no longer afford homes, unlike their parents’ generation.
Private home prices in Singapore rose 17.6 percent last year despite government attempts to cool the market in February and August. Resale prices of HDB apartments that house more than 80 percent of the population gained 14 percent.
The city-state’s median household income rose a much smaller 3.1 percent, or 0.3 percent after adjusting for inflation, to S$5,000 a month last year.
Singapore, Asia’s second-largest financial center after Hong Kong, has one of the world’s highest rates of home ownership at 87 percent, thanks to a home-building program to provide cheap housing for its citizens that began in the late 1960s.
But the HDB is building fewer apartments and charging more for them. Prices of both resale HDB apartments and private property have also soared due to an influx of foreigners in recent years.
“The high property prices, especially for private homes, is a festering source of disappointment, unhappiness and perhaps anger among voters,” said Eugene Tan, a law lecturer at Singapore Management University. “Parents are also concerned with how their children are going to afford comparable homes in the future. The angst and anxieties are made worse by the view that foreigners are pushing up property prices.”
Foreigners now make up 36 percent of Singapore’s population of 5.1 million, up from around 20 percent of four million people a decade earlier, after the government made it easier for foreigners to work in the city-state.
Many Singaporeans also blame higher property prices on the sharp drop in HDB construction after the government agency moved to a build-to-order policy several years ago. According to HDB data, the government agency completed an average of 3,600 units a year in 2006-08 compared with more than 11,000 units per annum in 2001-05.
Singapore, like Hong Kong and China, has found it difficult to keep a lid on property prices due to the surge in global liquidity that has pushed mortgage rates to near record lows and an influx of foreign money.
Kelvin Tay, chief investment strategist for Singapore at UBS’s private bank, said property prices were supported by low interest rates and the market could correct sharply if borrowing costs rose to more normal levels of around 3.5 percent.
The city-state’s banks currently pay less than 0.2 percent annual interest on deposits, while home buyers can get housing loans for as little as 0.8 percent per annum for the first year and about 1.5 percent thereafter. Inflation, meanwhile, is running at 5 percent.
The low mortgage rates have made prices affordable. For example, after paying a minimum down payment of 20 percent for a S$1 million apartment in the suburbs, the going price for many newly launched units, a person can borrow S$800,000 over 30 years and pay around S$2,500 a month assuming a housing loan rate of 1 percent per annum. The monthly payments soars to around S$3,600 a month if the rate rises to 3.5 percent per annum.
The government is aware that Singaporeans are concerned about high home prices, and has stepped up construction of HDB apartments and increased subsidies for first-time home buyers in the lower-income groups.
It also introduced tough new measures on Jan. 13 that included tougher borrowing limits and a hefty stamp duty of 16 percent of the selling price for those who buy and sell within 12 months, aiming to clamp down on speculators.
Despite that, new private homes sales remained high at 1,101 units in February compared with 1,209 in January.
Developers such as CapitaLand, 40-percent owned by the government’s Temasek Holdings, have also bid aggressively at land sales, buying sites at prices that require a further increase in home prices for them to break even.
Prices of HDB resale apartments and low-end condominiums have stabilized since the government’s January measures but luxury homes continue to be in demand. Analysts said there was spillover demand from cash-rich mainland Chinese investors who last year overtook Indonesians to become the largest group of foreign buyers of residential property in Singapore.
Reuters
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