Singapore: Is the Property Surge Sustainable?
Friday, June 29th, 2007 
Posted by Overseas Property Mall in Agence France Presse reports that Singapore’s residential property prices rose by 10% in 2006 and that rents have risen by a truly extraordinary 100% in 2007 so far. That rentals are increasing steeply is confirmed by other sources (http://lushhome.wordpress.com/2007/04/) and there is evidence to suggest that the government is just as surprised at the change as everyone else appears to be. However, we’ve found no confirmation of AFP’s 100% increase statistic, yet. Data to hand suggests that rental yields have normally been in the region of 3.5% maximum for a number of years. Given that interest rates on savings in Singapore are less than 1% pa (www.singstat.gov.sg/Keystats/mqstats/ess/essa51.pdf ), property would still seem to be an attractive investment but, as borrowing rates are considerably higher (prime lending rate is 5.33%), any kind of gearing for property investments would be heavily dependent upon prices of assets rising to be economic. Mortgage rates are lower with fixed rate mortgages available at 3.75% and floating rate ones available at 3.4% (with even more favourable terms for one to three year terms. With the increase rental yields in the first half of 2007 the economics of property investment in Singapore are seeing a sea-change.
In the last 12 months some comparisons have been made between Singapore and the richest of the United Arab Emirates, Abu Dhabi and Dubai, where property prices are still lower than in Singapore but rental yields can be twice as high. Relatively high rates of tax on rental income (10% plus an extra 10% for non-Singaporean owners) may have depressed rental yields in the past (but REITs provide a more favourable climate*). There had been relatively little real estate development in Singapore since the end of the region’s economic boom in the 1990s but why this should lead to strong sale prices and low rental yields is not completely apparent. One factor is the very high proportion of public (Housing Development Board) sector housing but it would seem that there must be other ways in which the government of Singapore was influencing the real estate market.
The Singapore property story is now changing with new money coming into the country from oil exporters and newly industrialised countries. This is partly investments made by high net worth individuals from neighbouring countries and partly a consequence of Singapore’s reputation in the wider world as a well managed financial centre. One important mechanism for property prices to be affected is the trend towards ‘en bloc’ purchases of residential complexes by (corporate) investors. Appartment owners who have profited by selling out are, in turn, forcing up demand for owner occupied and rented accommodation elsewhere in the city. It seems as if Singapore is feeling the effects of worldwide inflation in asset prices; CB Richard Ellis forecast total property investments of $35bn for the year, up some 15% on 2006. So far this year residential investments have reached over $14bn out of a total of over $21bn. Almost $8bn of residential purchases are accounted for by the en bloc/collective investments mentioned above. Bear in mind that the purchase of just one complex such as Pacific Mansions or Farrer Court can cost well over $1bn. These schemes are contingent on permission from the Singapore Urban Redevelopment Authority.
In conclusion, it would seem that Singapore is attracting investment currently because it is seen as a safe place in financial and geo-political terms. It looks as if a bubble may be developing. Possibly, signs of danger may be reflected in the share prices of property companies such as CapitaLand over the next few months.
In July, we’ll be taking a closer look at Singapore REITs (S-REITs). Please let us know if you have ideas on what has triggered the latest upturn in Singapore real estate.
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This entry was posted on Friday, June 29th, 2007 at 4:32 pm and is filed under Singapore Property, Trends. You can follow any responses to this entry through the RSS 2.0 feed.
One Response to “Singapore: Is the Property Surge Sustainable?”
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hk Says:
July 1st, 2007 at 2:18 pmPersonally, I believe that Singapore’s property boom could be attributed to the following reasons:
a. Low interest rates in Singapore - it is not only the people who are taking on mortgages, but developers are also using the low rates to bid for existing properties en-bloc. Singaporean’s high saving’s rate and contribution to the CPF ensures that there is always a ready supply of SGD to meet external demand, thereby creating an environment of low rates. In addition, Singapore’s monetary policy focuses on the exchange rate rather than interest rates to achieve price stability.
b. Political Stability amid South-East Asia - Singapore’s neigbouring countries are at times politically unpredictable and investors are keen to move more of their assets to Singapore where the political environment is predictable and friendly to foreign investments.
c. Singapore’s status as the private banking hub of South-Asia was a result of the right policies to attract foreign banks and talents. The success of this drive to become a private banking hub has also contributed to the shortage of commerical and residential spaces as foreign banks move to set up their offices here.
d. Hype and buzz surrounding the Integrated Resorts which are to be completed in Sentosa and Marina Bay in the next three years. In addition, F1 will have a night version of the street race in Singapore in 2008. The buzz created from these planned activities have driven up the asset prices of the property developments around Orchard Road, Sentosa and Marina Bay.I think that property prices will most likely to abate in late 2008 or early 2009. Reasons are:
a. The supply of residential properties will increase once the current developments are completed. The current price inflation is primarily due to the ‘flipping’ of properties before completion by agents/speculators who are not intending to live in the property. Singapore’s supply of residential properties is more than enough to meet its population of 4.4m.
b. Overall slowdown in the Global Economy. Inflationary pressures globally has given reasons for central banks around the world to tighten their monetary policies. This will inevitably slow down their economy. With Singapore’s huge dependence on foreign trade, any slowdown will most likely dampen grow
