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Real Estate in Singapore: Housing, Capital Gains, Positives & Negatives

by Ziv Magen on May 25, 2012 · 2 comments

  
Singapore real estate investment

Singapore’s Unique Housing Market

“By the time Singapore attained self-government in 1959, the housing shortage and its related problems such as overcrowding and squatter colonies had reached alarming proportions. Public housing for the lower-income groups was thus given top priority and HDB (Housing Development Board) was set up by February 1960.

This marked the beginning of large-scale public housing development in Singapore. Compared to the cramped and unhygienic living conditions in shop/houses and squatter areas, flats built by HDB seemed luxurious – they were spacious and equipped with basic services such as electricity, flush toilets and piped water. By 31 March 1976, more than 50% of the population was living in HDB flats, a significant improvement from the 8.8% living in government sanctioned housing in 1959.

HDB took over the management of [other public housing developers] in 1982 and is now the sole provider of public housing in Singapore, excluding dwellings built or managed by other government bodies as staff quarters. As of 31 March 2008, 82% of the resident population was living in HDB flats.”1

Let’s reiterate this significant fact – 82% (or more) of the residential properties in the city are government housing (HDB) flats. As such, they cannot be purchased by non-residents. This leaves the foreign investor with 18% (or less) of the residential market to deal in. This is still a large market, though, with 2,000-3,000 new properties built per month (until last January – see below), as Singapore becomes a leading force in Asian economy, and attracts more and more foreign residents in various stages of residency or migration.

As a result, all property agents in Singapore (who are strictly and fully licensed, checked and double-checked yearly and on a per-deal basis by government regulatory bodies and their own stern association membership panels) share the single, infinitely limited database of properties. While this is the case in many markets in the world, the distinction in Singapore, particularly in that small piece of the market open to foreign investors, is significant – it means that, should you choose to purchase property in Singapore, your single point of access to the market would AND SHOULD be a single realty agent.

There would be no point utilizing several teams and having them compete on getting “the best deal”, as these guys all share the exact same properties and contacts, listings and information – it would be far wiser to shop around for the best agency, then work with that agency to secure the quickest, most creative and best possible response to attractive listings as they arrive on the market – because competition will be fierce, and your offer will need to be attractive or well placed to be seriously considered.

Properties available for purchase may be freehold or 999 years land lease (virtually the same, unless you’re seriously considering investing over more than several centuries), as well as 99 year lease, in which case prices drop as the lease shortens, depending on the property’s age.

Capital Gain (History)

Singapore is considered a small, more balanced mirror-image of Hong-Kong, Asia’s second city-state mover/shaker, and while HK surged an additional 145% average house prices in the last decade, with sharp dips and even bigger surges all through 2005-2008 – Singapore took a milder roller-coaster ride, and is now at a comfortable 75% or so above late 2001 values.

A sharp rise from 2007 and onwards signaled the government’s lifting of strict foreign ownership restrictions – this opening of the market kicked off a wave of foreign interest and purchases, a wave only slightly countered late last year, when the powers that be in Singapore backpedalled, increasing stamp duty on new developments purchased by non-residents, as mentioned in last week’s post.

While this had a mild slowing effect on the purchasing spree in the month or two after the announcement, developers are now offering discounts to counter this new taxation, and it seems business is largely back to normal, as April sales have started rising yet again, (to a 3-year high, if some of the local analysts are to be believed) – sparking a claim of yet another approaching intervention by the government.

Capital Gain (Future Speculation)

As to future appreciation, though, while the trend has certainly been upwards so far, analysts mostly claim this “has to stop” (heard that one before, on both sides of the graphs ;) – top analysts have gone as far as claiming a 12-20% decline in value in the coming year, with up to 40% declines by 2016(!) – Realtors on the ground seem to be sceptical, though, as Mike Roberts, team leader at SLP Singapore and local authority on Singapore realty testifies –

“What is moving…Low end, Mass Market… med to High end very slow but high end in District 9,10,11 (core central region) is lagging behind – hence now is a good time to buy for med-long term as this segment will improve in time playing catch up to the rest of the market.

Upgrades from HDB (Gov housing) to mass market condo is where the action is, sold 200+ [units, in the first 2 days] of a new development launch, prices from $810-$890 SGD [app. 634-700K USD].

Mike has been selling properties in Singapore for quite some time now, from the low $500Ks to the top $5M and over ranges, and we tend to take his advice in these matters, as evident in this 

Summary

Turn-Ons

Recent trend and common sense seem to point at potential for continued appreciation at an approximate 7.5% p/a or more (in central, recently built, previously owned properties), with possible sharper dips and rises anticipated over the next 7-8 years, if analysts and corresponding Hong Kong charts are to be believed. Local funding is highly accessible, interest rates very attractive. Increasing population, plenty of new developments and a strong economy seem to indicate good long-term prospects.

Turn-Offs

Government, while pro-business and normally reasonable, fiercely controls & regulates the market, creating uncertainty. Rental return very low in the majority of cases, and the small size of the market prevents extensive “deal mining” by local teams, as all teams share the same, strictly limited database of properties available for foreign purchase.

I hope this was of interest and use to you – as always, I’d love to hear your thoughts – before we jump headfirst into the dark and jasmine/sandalwood-scented waters of China, Asia’s (and the world’s) largest economy – and its emerging, glittering realty market.

Ziv

1 Extract from infopedia.nl.sg
Images: Edwin Lee, FreeDigitalPhotos.net

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{ 2 comments… read them below or add one }

Jeff Brown May 25, 2012 at 5:12 pm

Hey Ziv — Given your ‘turn-offs’, especially the consequence of market uncertainty due to government control, what attracts your capital?

Reply

Ziv Magen May 25, 2012 at 5:45 pm

To be honest, it’s more a stablizing effect than a limiting one – Singapore’s economy is a highly business-oriented one, but it does probably mean no inflated growth and miracle leaps in value.
As for me, I try to stick to cash flow oriented, more affordable (and, as a result, more diverse) portfolio, with little to no relying on capital growth (“show me the money” kinda guy, I guess) – and there isn’t much of that in Singapore, unless you’re dealing in short term rentals (hassssle).

Reply

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