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Singapore property market outlook for 2012 and 2013

By Mr Propwise

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By Mr Propwise | Property Blog – Tue, Mar 6, 2012

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In 2011, buyers from China were the biggest group of foreign property buyers in Singapore. (Yahoo! file photo)

By Dennis Ng

In 2011, buyers from China were the biggest group of foreign property buyers in Singapore. But if you are counting on foreigners to continue buying properties in Singapore in 2012 and 2013, I am afraid to say that you may be disappointed.

The following factors are worthy of our consideration when studying the prospects of the property market in the next two years.

Factors that determine Singapore's property market

Since interest rates are at a historical low now, it can only go up from here, and not down. In fact, interest rates on home loans can shoot up to 3 per cent to 4 per cent. In my opinion, this could probably take place in 2013 when U.S. interest rates start to climb due to the threat of rising inflation.

In the next two years, more than 30,000 condominium units will be completed. With a huge supply of new condominiums, do you think rental rates would go up or down? So when rental rates indeed go down and interest rates go up, would this make property investments more attractive or less attractive? With rental yield now at 3 per cent to 4 per cent, what would the revised rental yield be when rental rates drop? Would some properties go from yielding positive cashflow, where monthly rental income exceeds monthly housing loan installment, to having a negative cashflow?

In addition, HDB built 8,000 units in 2008. But in 2011 and 2012, HDB is going to build 25,000 units in each year, totaling 50,000 units in the span of two years. With supply of both condominiums and HDB flats expected to surge in the next two years, coupled with an economic slowdown as a result of the next global financial crisis, do you not think that the demand for properties would drop?

Singapore aside, given that the U.S. and Europe, each constituting 23 per cent of the global economy, are likely to experience an economic slowdown in 2012, the rest of the world seems to be headed for another recession. And when that happens, would a global recession, coupled with global sovereign debt problems, especially in the Euro zone and U.S., not trigger a global financial crisis?

By considering all the above using an upside / downside analysis, do you think Singapore's property market presents more upside potential or downside risks? And what will your decision be as to whether you should invest in condominiums now?

We should not just look at Singapore's property market alone

Apart from casting our sights on the local economic situation, we must also track closely the activities in Hong Kong. Why is this so? Well, this is because Singapore and Hong Kong are always closely linked in terms of property market trends and movements.

With respect to this, most market players have the impression that property prices in Singapore are slightly lower than prices in Hong Kong. So if Hong Kong's property prices fall, Singapore's property prices might fall as well.

So, with the latest land sales in Hong Kong fetching prices that are below market expectations, could this be a possible sign that the Hong Kong property market is beginning to go downhill?

As it is, Hong Kong's government—which is boosting the supply of land to try and curb a more than 70 per cent surge in home prices since early 2009—has already sold two sites in August 2011 that missed estimates as home price gains have stalled. This is due to concerns that the economy is sliding into recession. The Hang Seng Index (HSI) also fell 23 per cent from its November 2010 peak to below 18,000 points in September 2011.

According to figures released by the Hong Kong Land Registry, August 2011 home transactions experienced the biggest drop since February 2009. An index tracking home prices, compiled by Centaline, fell in June and July—the first consecutive monthly drop since December 2008.

Vincent Lo, chairman of Shui On Land Ltd., had reportedly said, "The last few weeks, the property market has come down a little and transactions have virtually stopped."

Echoing similar sentiments, Yu Kam-hung, a Hong Kong-based senior managing director for valuation and advisory services in Greater China at CB Richard Ellis Group Inc., said, "Property prices will start to decline soon and we are likely to see that in the rest of the year."

He reportedly added that "Prices will trend down by about 10 per cent in the next two years and I don't rule out the chance that they may fall as much as 20 per cent in the worst case scenario."

Property buyers from China may not continue their buying spree in Singapore. As it is, I am beginning to hear from some Chinese business owners that there is increasing difficulty for them to obtain loans in China. And some of them already know of friends who are starting to have cashflow problems in China. So if China business owners have cashflow problems, do you think they will have the ability or willingness to continue snapping up properties in Singapore in 2012 and 2013? Probably not.

In my opinion, the global financial crisis has already started, but most people just do not feel it yet. In fact, they won't find anything amiss until things become very ugly. When that happens, market sentiments can make a 180 degree flip within a very short time.

Many people, especially the middle-class Singaporeans are still happily buying properties. That said, my millionaire mentors and I are least interested in buying properties, especially condominiums, because the proposition simply failed our rule that upside must be at least double the potential downside.

But it must be said that I could always be wrong. When it comes to investing, we cannot afford to be overly confident. We must be mindful of the possibility of being wrong. So even if property prices rise instead of fall, I would only make less money by not buying more properties now, which is fine by me.

Personally, the number one investment question that I always ask is, "What if I'm wrong, will I be financially okay?" Next, I would do a simple upside / downside analysis and only invest when the upside is at least double the downside.

While these two investment rules may seem too simple to be true for some people, they have indeed helped me make millions of dollars and prevented me from suffering substantial losses thus far.

In this respect, it seems like I am able to see the future not because I have some supernatural abilities, but because I train myself to be logical and rational when analysing information and drawing my own conclusions.

In my books and seminars, I share this thought process that I personally go through, before making any investment. Since this thought process is made based on hard facts, anyone can arrive at the same conclusion by going through this process, unless he or she already has a biased view of the market.

And if you think that instead of investing in condominiums, you would be better off investing in commercial properties, as some seminar trainers are now advocating, do think again. Recently, I spoke with two multi-millionaires who specialise in investing in commercial properties. And they shared with me that the upside / downside is not working in the investors' favor. In fact, they are also not considering buying more commercial properties, but may sell if the price is attractive enough.

I also have a friend who bought a commercial property near Tai Seng MRT station in 2010, where its location is obviously rather convenient. The property's temporary occupation permit (TOP) was in May 2011, but even after a few months, he still has not found a tenant. This is in spite of the theoretical rental yield of about 5 per cent to 6 per cent based on current property prices.

With all above information provided, you should be in a position to decide for yourself the prospect of Singapore's property market. At all times, do remember that hope is not an investment strategy. Every investment can only be taken into consideration after doing your homework. Only after doing your research based on the available information, would you be able to take a calculated risk.

Dennis Ng is director of Leverage Holding and Master Your Finance. This article is posted courtesy of http://www.Propwise.sg, a Singapore property blog dedicated to helping you understand the real estate market and make better decisions. Click here to get your free Property Beginner's and Buyer's Guide.

Related Articles

Singapore Property — If the Minister is Worried, Should We Be Too? (at Propwise.sg)

A Look Back on 2011 and Looking Forward to 2012 (at Propwise.sg)

How Will Singapore Property Fare in the Year of the Dragon? (at Propwise.sg)
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chow
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chow • Singapore, Singapore • 15 days ago

Just my 2 cents worth. When property prices last peak in 1996, it took 10 years for it to climb back to the same level. Just search for "Property Price Index singapore" to find the chart. It means folks who bought during the historical high in 1996 took 10 years to get back the same selling price... More

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yanT
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yanT • Singapore, Singapore • 16 days ago

build 8000 HDB per year,.... and now... its clearly shown that, we can build 25,000 unit per yr!!! this mean, during this stupi.d MBT time, he try to cut down the supply, so as pricing can be control and shoot up!!!!! what a moneky action!!! pui

2 Replies
Win
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Win • Singapore, Singapore • 16 days ago

Most people behave like herds and jump in (buy) when the market is unstoppable. Many cash rich buyers feel safe to put their money into a tangible asset. Holding on to cash only erodes their value as inflation eats it up. No one can catch the bottom of the market.As long as one is comfortable with... More

1 Reply
noseynose
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noseynose • 16 days ago

The rich had bought long time ago and sold or are selling the goon middle income r picking up. the rich always get richer!

2 Replies
Lucymum
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Lucymum • Singapore, Singapore • 16 days ago

Everyone can give an outlook but Nobody can give an accurate outlook.

2 Replies
jon lin
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jon lin • Singapore, Singapore • 16 days ago

Well...seems like we Singaporeans get what we want after all... we complain to the Government and they respond and our property prices will come down after all... nice.....

2 Replies
Vote For Change
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Vote For Change • Singapore, Singapore • 16 days ago

Our government want to grow our population to 6.5 million by or before 2025.

Imagine our population is now 5.5 million. We need to accommodate 1 million more people in 10 years time ie. 100,000 per year. So how many flats or private houses we need to build to accommodate this big number?

8 Replies
Jimmy
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Jimmy • Singapore, Singapore • 15 days ago

well, the fact of the matter is, there is no need to over think all these data. data can be skewed in whichever way the author wants us to read.
we just need to look at ourselves for the hard truth.
... More

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KM
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KM • 16 days ago

Will we end up like the US , where the property bubble burst and they are now suffering ?
Conventional wisdom tells me that history repeats itself...

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Wee
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Wee • Singapore, Singapore • 16 days ago

how i wish the property crash then everyone will get to buy the house at cheaper rate XD

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Jimmy
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Jimmy • Singapore, Singapore • 16 days ago

I am speaking as an average working Singpaorean. I can only afford to lease a 99-year flat from HDB.
I have a family to feed and parents to support.
I will never be able to afford a private property at current prices and will need to work for the rest of my life even if I can afford one... More

1 Reply
Lamb Chop
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Lamb Chop • Singapore, Singapore • 15 days ago

Property prices have double since the last 4 to 5 years. But mostly due to speculation and profit hiking. That means developers are making profits many folds over the actual building cost. Every other things almost stay status quo or small inflation incurred. Moreover, salary has only seen moderate... More

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Clarissa
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Clarissa • Singapore, Singapore • 16 days ago

i feel very frustrated reading just the first 2 paragraph of this article, How many times must u ask rhetorical questions? if this drops and that rise , do you think this and that? i was horrid to see all the following paragraphs end with a "?" if i want to be asked questions all the time do u... More

7 Replies
avatar
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avatar • 16 days ago

Message to all PRC's thinking of buying property in Singapore...WE Singapore NSmen WILL NOT waste our time to protect your property in times of war.

5 Replies
Gideon
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Gideon • Singapore, Singapore • 16 days ago

What if a war starts in the middle east?

5 Replies
Wilson
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Wilson • 16 days ago

Currently, there are still 125,000 people looking for a home... so what if they are building 50,000 HDB flats and 30,000 condos... Not forgetting, more FTs are coming in every year.... supply can never catch up with demand since the last MND Minister screwed up his numbers. Or should I say even out... More

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Toolang
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Toolang • 16 days ago

Happy days coming. Soon will prices will be $1300/sq ft............and eventually $2000 sq ft........$3000 sq ft. Quickly go and buy two units so that by the time prcs hit $2000 sq ft you get one for free. This is what developers want you to believe.

1 Reply
Khaw has no guts!
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Khaw has no guts! • 16 days ago

Cheap money is going to stay for at least 3-4 years. ECB throw in $1 T of euros into banking system and not forgetting the USD T thrown in by the FEDS. The author is simply hoping fear mongering will work in his advantage. People are calling wolf since 2008 but prices have persisted till now. The... More

6 Replies
Ben
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Ben • Singapore, Singapore • 16 days ago

I would say Up or Down is dependant on the Government. Just implement a policy to make it up and make it down.

2 Replies
Lazy
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Lazy • Singapore, Singapore • 16 days ago

The writer miss the most important factor, the SG government. Singapore government did not want the property price to go down as this is one of their biggest milk cow.

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