Singapore’s Property
Market Headed Towards a Perfect Storm?
Gauri Bhatia, On Monday 30 May
2011, 10:39 SGT
When a country registers a 15 percent growth rate, as Singapore did
last year, there is bound to be a lot of the feel good factor going
around. And Singapore's housing market is cashing in on this big
time -- prices have rebounded 50 percent in just two years,
according to the Urban Redevelopment Authority, and cooling
measures by the government have done little to calm them.
At a recent real estate conference organized by National University
of Singapore, which explored the theme "Will the boom never end,"
Chua Chor Hoon, Head of South East Asia Research at property
consultancy DTZ, said the Singapore residential market is not
likely to decline much because of strong economic growth, but she
also outlined a worst-case scenario, which could unfold as early as 2013-2014. "If all the
ingredients come together it will make a perfect
storm."
These ingredients include falling
demand, more supply and higher interest rates all kicking in
together.
Interest rates in Singapore are currently at record lows because
lending rates in the city-state track U.S. monetary policy. That's
allowed some homebuyers to pay less than one percent in the first
year of their loans, says Chua. Most analysts, however, expect
interest rates to begin moving higher later this year.
Second, in 2014 an unprecedented number of housing units are
expected to enter the market. According to the URA's latest
quarterly report, 32,359 units will be completed over 2013 and 2014
that is 85 percent more than the 17,501 units expected over 2011
and 2012.
Add to this the fact that Singapore's price-to-rent ratio has
increased from 20 in 2009, during the financial crisis, to 25
currently, according to URA and DTZ research. That means it will
take 25 years for a homebuyer to recover, through rents, what he
paid for the house. As a result, Chua says, people investing in
this market often have a short-term view looking to "flip" the
property for capital gains.
Foreign buyers are also helping boost Singapore's property market,
especially at the high end. According to DTZ's latest report,
foreign buyers of private homes in the first quarter of 2011
touched a record high of 16 percent. But Chua points out that this
could drop, if the government further tightens immigration
rules.
"Local concerns about high housing prices and the influx of
foreigners that were magnified during the recent General Election
will be a catalyst for the review of immigration and housing
policies, which could dampen demand in the residential market in
the coming months, " Chua wrote in a report.
While growth forecasts for Singapore over the next five years at
4-6 percent will support the property market says Chua,
one cannot rule out another unforeseen
external crisis like the financial meltdown, which could also lead
to a market crash. While the bulls might find it hard to
believe that something like that can happen again, another speaker
at the same conference had this to say: "We always think this time
it will be different, but it never is."
This article first appeared on CNBC.com on 29 May 2011.
