Singapore Property past and future (Same old same old?)

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Kyith Ng from Investment Moat recently posted a great article about Singapore Property price growth over the years.

How has Singapore Home Condo, Landed and HDB Property Prices Grow over Time? (5 years, 10 years, 20 years) – read here.

In the post, he shared the below table.
Singapore-Property-Non-Landed-1975-2014.png

As with all great articles, it always sparks a thought process in my mind. Looking at the table, I am curious as to what are the figures in the year 2015 (and also 2016, since we are more than halfway through the year).
2015 wasn’t really a good year for the Singapore property market.

Private property prices down 3.7% in 2015: URA (read here)

The Cyclical Property Market

So assuming that the figures are sort of like the previous down cycles (from 1982 to 1986 or from 1997 to 2003), the color of the cells in the table for the year 2015 and 2016 might look like what is shown below.
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After all, prices have eased since the 2013 peak. Private home prices, for example, have been falling for 11 consecutive quarters and the resale market for Housing and Development (HDB) flats has had a similarly weak period, even though the fall in prices is much less than the surge from 2009 to 2013.

So let’s assume it really look like the table above, and you think to yourself, “Wow!… looks like we are in the midst of the downtrend in the cyclical property market, and it looks like a great time to enter (or prepare to enter the market)”. Some might think that since the cycle is always the same, the future is pre-determined…

We have often heard of how people made great fortunes from properties and of people who wished that they had bought the properties in the down years of 1997 or 1998 (with the greatest declines). In any market, the hindsight is always 100% crystal clear.

The future is never the same as the past, however they often rhythm.

Property: A complex commodity

A property, as a commodity is fairly simple to understand. After all, I am sure all of us use one. However, unlike most other commodities, when it comes to properties there is a social and political agenda. If it becomes too expensive, citizens (esp. first-time buyers) would feel marginalized.

In Singapore, the property market is unlike any other commodity/stock markets. Properties are highly regulated by the government (from the supply of land for sale, restrictions on foreigners owning properties here, fees/duties/taxes on properties, etc).

Let me put it in another way. When it comes to stocks, for the typical retail investors there isn’t much restrictions on how much shares they can buy (or sell) now or 3 years from now (unless they own a huge amount of shares for a particular company and threaten to take ownership of the company – which is highly unlikely). There is also no duties or taxes for anyone deciding to buy another 10,000 lots of the same stock, within any time period. I am not talking about Options or Derivatives… just simple stock trading.

Pricey properties and cars in Singapore
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Maybe a better example to use would be another item close to the hearts of most Singaporeans – Cars.

If you have been living in Singapore for a number of years, you would know that in Singapore, cars are extremely expensive and so are properties. In the case of cars, this is partly due to the COE (Certificate of Entitlement). Well, it is understandable, given the limited land/road in this island state, the number of vehicles has to be restricted in some ways.

If I can draw a parallel between cars and properties – the COE of a car would be like the Stamp Fee of a Property. However, for the former (COE), it is subjected to a bidding process – its value fluctuates base on the demand and supply. On the other hand, the stamp fee is a flat percentage of the selling price of the property.

In so many ways they are similar (pricey in land-scarce Singapore), yet in so many ways they are dissimilar when it comes to regulatory policies.

A dichotomy between properties and cars in Singapore

To some, both properties and cars are essentials. The must haves in their daily lives. Ok, this is really arguable. And I don’t think a single post is sufficient to discuss this.

For some families, consisting of working parents with young kids and aging grandparents, a car is a life saver. With a car, the daily morning & evening rush to and from work/child care centers/schools / clinics / grand parent’s place/gym, etc is a lot easier and faster.

There are families with no cars, but there are also families with 2, 3 …4 cars. There are even people who collect cars as a hobby (then again, there are also people who collect properties as a hobby :p).

It is no wonder that there was a question raised in the past on imposing taxes/duties on people who buy a second, third car, etc. Similar to the ABSD (Additional Buyer’s Stamp Duty) when it comes to properties in Singapore.

Citizens / PRs / Foreigners have to pay ABSD for their second, third properties, etc… so why not cars? After all, a family with the means to buy 2 or 3 cars might not necessarily require a car as desperately as another family with lesser means and who have more kids / aging grandparents / disabled or terminally ill members, etc.

Having said that, I can understand why some families need more than 1 car. For instance, if both parents are working in sales and both need a car for their work… etc.

However, when it comes to residential properties, I find it hard to understand why a family needs 2 properties in Singapore. Maybe one as a vacation home (in sunny Sentosa), or for investment. Eh.. or because the husband and wife can’t stand the sight of each other and want to live apart?

Well, there are some possible situations:
– The couple is buying the other unit for their aging parents (but then it could be in their parents’ name).
– Or their workplaces happens to be at opposite ends of Singapore – the husband works in the West while the wife works in the East, so they bought one property in the West and one property in the East. The husband stays in the East while the wife stays in the West so that their commute to work on the weekdays is easier, and on weekends they stay together in one apartment :p…. yeah probably not likely in tiny Singapore.
– Or the second apartment is for the mistress/lover.

There are many ways to view a car or a property.

We can view a car as a utility / functional item, but in some situations, it could also be seen as an investment (eg. when you rent it out). For example, a limited edition Lamborghini kept in mint condition over time could be viewed as an investment. Or if you lease out your vehicles and use it as a means of generating side incomes (as a Uber driver) etc…

Similarly, a residential property can be seen as both a utility / functional item (when you stay in it) or as an investment (when you rent it out).

Property cycle: Same but different
Death_to_stock_kinckerbocker_photography_6.jpgComing back to the table shown above.
So assuming that we are again in the midst of the downtrend in the cyclical property market, and you think that it is again a good time to buy a property. But are things the same as in the past?

For one – was there ABSD (Additional Buyer’s Stamp Duty) or TDSR (Total Debt Servicing Ratio) in the years from 1982 to 1986 or from 1997 to 2003? Was the downtrend then and now caused by economic factors, actual supply, and demand or by policies and regulations?

Then again are the figures a true reflection of your buying price, especially now. For example, the price of property might have dropped by X%, but by buying a second property the drop would be more than X% (you need to factor in another 7% or 10% due to ABSD). So how relevant is this table now (to some segments of the population)?

Regulation by itself is a double edge sword. With no regulation, the market is prone to volatility and sudden boom and bust. Segments of the population will be marginalized and priced out of the market. Too much regulation, it would stiffen the free spirit/entrepreneurship and again marginalize another segment of the population. Creating a build up of demand.

Is it a good time to buy a property (for stay or investment)? Keeping in mind that in the three years since the cooling measures were introduced, URA data show that average prices across both private and resale HDB markets have only declined 10 percent.

And lastly, do you think the ABSD and other property cooling measures should stay?

Why the ABSD and other property cooling measures should stay (read here)

Shall leave you with this song.

 

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About apenquotes

Born in 1976. Married with 2 kids (a boy and a girl). A typical Singaporean living in a 4 room flat.
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