Property
A crisis that isn’t
Why is the market so hot when Singapore is still in trouble: Here
are some fundamental reasons. By Seah Chiang Nee
Sept 19, 2009
LAST month was one of those times when my
personal story became enmeshed with a wider phenomenon of today’s
Singapore.
I am referring to the buying frenzy that has swept across the
property market even as the economy remains in crisis, prompting a
worried government to intervene to cool it.
As I was pondering over why so many Singaporeans, who were still
facing a job crunch, were rushing to buy properties, I received an
unexpected telephone call.
It was from a real estate agent who made an offer to buy my home
in suburban Singapore for the last 22 years for a professional
wanting to redevelop for his family. His was a case of pent-up
buying which was put back because of recession.
The 50-year-old property was valued at seven-and-a-half times
what it cost me in 1987, another crisis year.
It was by no means a unique deal. Property remains one of the
best long-term investments in Singapore. From viewing to signing,
the sale was done in only one-and-a-half days.
I was told there had been quite a number of chequebook-in-hand
purchases.
In the days that followed, I had a busy time turning away other
offers. Elsewhere, crowds thronged new property launches or made a
beeline for resale homes like mine.
When I was house-hunting last Sunday, I encountered a little of
the frenzy.
In one house (offered for S$1.25m) which was situated near a
train station, I saw several families taking turns to view it. As I
left, another group was waiting to go in. Days later it was
sold.
The traditional Chinese fear of the Ghost Festival month was no
deterrence.
This inexplicable demand which began in June has driven up
prices to levels that analysts believe are unsustainable before the
year with the government determined to stop it get out of hand.
So far this year, some 10,000 new private homes have been sold,
compared with 4,300 in the whole of 2008.
This obsession for property among Singaporeans, which has
created many individual fortunes, is based on a strong
fundamental.
The supply of land cannot be increased beyond some small
reclamation, while the demand for it will increase as long as
Singapore flourishes.
“Over the long term, anyone who has a plot of land will be
sitting on a gold mine,” said a real estate executive. (Foreigners
cannot buy landed property here unless with special approval, but
many investors from Indonesia, Malaysia and Hong Kong who have
bought apartments have profited.)
“Tokyo’s Ginza today costs US$15,000 per sq ft. This could be a
reality in Singapore if there’s continued stability and growth,” he
added.
However, not all Singaporeans hold long-term views. Speculation
remains strong despite the poor economy, with people frequently
buying and selling properties for a quick profit.
Short-term investors are helped by low interest rates and
friendly payment terms offered by developers that allow them to
“churn” or “flip” them for small quick profits.
Others “upgrade” into bigger properties or “downgrade” them
because of changing financial circumstances or retirement.
The proportion of citizens buying property here every year is –
in normal times – among the highest in the world on a per capita
basis. The recent recession put a dampener on the practice.
Several years ago, a report said that during the preceding 10
years, more than half (or 52.2%) of Singapore’s total households
had changed residence.
Some 62% of people moved to bigger homes, while 18.4% shifted to
smaller places. These ratios would now likely have changed because
of the recent recession.
Statistics have shown that young-er households and higher-income
households have a higher propensity to move to bigger houses.
In recent times, when Singapore experienced a severe downturn
with more business failures and jobs being shed, there had been an
increase in the number of down-graders.
This sub-community of down-graders of which I have just become a
member is set to rise as the number of retirees keeps rising.
Singapore is one of the most expensive cities in Asia to retire
in, and some elderly without sufficient savings often downgrade to
be able to afford a middle class life.
In the New Singapore, an additional factor has appeared that
partly explains the property rush: The massive influx of
foreigners.
Singaporeans predict an eventual population of 6-7 million
people.
“Think of the number of new homes needed!” exclaimed a
businessman, who has accumulated several landed properties in the
northeast.
“People are hitching a ride into the future that could come in
20 years’ time,” he added.
In 1987 when I bought my house, the population was 2.77 million;
today it is 4.84 million – a 75% increase. Few countries in the
world undergo such rapid rises.
Wealth has risen even more. Singapore’s gross domestic product
(GDP) per person is now US$53,200 – a four-fold rise from the
US$12,560 (RM43,793) some two decades ago.
Under such circumstances, a 750% rise in the price of a property
is not extraordinary.
In the next few years, the speculative fervour is likely to cool
following last week’s measures to prevent an asset bubble. This
includes the release of more land for housing.
The government is caught be-tween two unpalatables. One is a
sharp market collapse that will hit 80% of the population which own
their homes.
The other is prices moving beyond the dream of the new
generation to own a home.
many singaporeans think that property is the best form of
investment and are willing to take risk.