A friend told me that the middle class in Singapore is rich and they have plenty of money for investment. That is probably just a guess. So, I would also hazard a guess to say that many are probably leveraged up to invest in properties and that they are not all cash rich per se.
Notice how it is new launches which are doing well? This is evident in January and Februarys' sales figures. The resale market has gone very quiet. Why? Obviously, one reason is the initial financial outlay is smaller for new launches and payments are made progressively. If all of these buyers are really cash rich, they would be more active in the resale market because, frankly, right now, many times, there is better value in the resale market and these investors would also be able to benefit from rental income right away.
I believe that a big wave of more marginal investors will get hit when the oversupply situation becomes increasingly apparent in residential and commercial properties. Yes, commercial properties too. Rentals have been declining and will probably continue to decline for some time as more new space becomes available.
People leveraging up and buying newly launched properties in anticipation of bigger returns 3 or 4 years down the road when the properties get their TOPs are playing a very risky game. It takes time for stock of real estate to build up and just like arsenic which kills the victim slowly over time, oversupply which builds up over months and years might catch some people unaware.
Of course, there is the argument that unless there is a big external shock, property prices in Singapore will stay resilient. Do we feel that the eurozone's problems are truly over? Do we feel that China's economy is iron clad? Is there no chance of a big external shock taking place? With prices having doubled or more in the last decade and up by 50% or more in the last three years alone, a big external shock could produce a real shocker of a price fall.
We also have people like CDL's Mr. Kwek and CPL's Mr. Liew who say that they have very strong balance sheets and that they do not have to slash prices to move stock. However, these are public listed companies. They have to account to shareholders. Sit on unproductive stock or rent them out upon completion in an environment of weakening rentals even if they are 99 years leasehold properties? I think not.
Also, do not underestimate the political will of the PAP government to reign in the prices of residential properties to make them more affordable. This is also why there is a requirement for developers to sell out any project within a 5 year period from the time they acquired the land or else be slapped with an additional stamp duty. If the developers play punk, expect additional measures from the government.
There has been complaints aplenty regarding the rising cost of doing business in Singapore and a big complaint is that of rental. Everyone was surprised when the government recently said that they would keep an eye on REITs to make sure that they are not driving up rentals in any anti-competitive manner. Cooling measures for industrial and commercial properties on the way, perhaps?
Non-landed home prices in the secondary property market in Singapore continued to soften in the first quarter of 2012, with those in the prime districts 9, 10 and 11 faring worst.
According to a report by DTZ Research, resale prices of luxury condominiums and freehold condominiums in the prime districts fell by 0.8 per cent and 0.7 per cent respectively.
Resale prices of leasehold condominiums in the suburban areas registered a slight quarter-on-quarter increase of 0.3 per cent, a moderation from the 1.0 per cent growth in Q4 2011.
Transaction of non-landed homes also slowed to about 470 units per month over January and February. This was also lower than the monthly average of about 1,400 units in 2011.
Source: CNA, 21 March 2012.
1. Leverage up and buy investment properties now?
2. Selling a private property just got harder.