Singapore, 25 Nov 2016 – Recently released figures by the Urban Redevelopment Authority (URA) showed that 1,252 private residential homes were sold by developers in the month of October. This figure is a 15 month high. In the first 10 months of 2016, developers have already sold 6,908 units. The figure for the whole year is expected to exceed the 7,440 units in 2015. In addition, buyers picked up another 6,337 units in the resale market in the first three quarters of the year. This is a significant 24.7 per cent higher than the 5,081 units sold in the same period last year.
Evidently, more buyers are entering the market and committing to a property purchase. Why is this so?
Much has been said about the housing situation in Singapore. Vacancy rates reached 8.9 per cent in Q2 2016, a 16 year high, before decreasing slightly to 8.7 per cent in Q3 2016. The number of unsold private residential units with sale licences as of Q3 2016 remained elevated at 15,575. These indicators point to an oversupply situation, which could be bad for the property market.
However, thinking from the shoes of a buyer, this might possibly be a good time to enter the market.
Currently, there are many new projects in the market, providing buyers with a wide range of locations and products to choose from. In order to entice buyers, developers have been pricing their units very attractively. Even in the resale market, individual sellers have also priced their units reasonably so as to avoid leaving their property on the market for an overly long period of time.
Lately, property investors have been driving up the sales volume at project launches. One and two bedroom units make up the majority of units sold. For example, in the case of Parc Riviera and Queens Peak, both launched on the first weekend of November, 82 per cent and 90 per cent were units with one or two bedrooms.
In this period of economic uncertainty, property stands out as an investment option. Investment properties are not solely an income generating asset; owners can also occupy the properties for their own use. While there have been many reports about the difficult rental market now, buyers of properties under construction will only have to worry about that in three to four years’ time, when the property is completed. Market conditions could have improved by then.
Ups and downs are part and parcel of Singapore’s property market. While it is true that the market is currently experiencing its longest down streak of 12 consecutive quarters, if we were to adopt a longer term perspective of 10 to 15 years, the fundamentals of Singapore’s economy are quite sound.
Despite the spate of negative economic news this year, Singapore remains the second most competitive economy in the world, according to The World Economic Forum Global Competitiveness Report, for the sixth year in a row. Singapore’s strong showing is attributed to its strong infrastructure, higher education and training, and goods market efficiency.
According to a recent survey of Asia Pacific business leaders by PricewaterhouseCoopers also found that Singapore was one of their preferred destinations, alongside countries such as the United States, China and Indonesia.
In the local real estate market, several large quantum deals have been concluded with foreign entities, including the $3.4 billion sale of Asia Square Tower 1 to Qatar’s sovereign wealth fund. This makes it the largest ever single tower real estate deal in the Asia Pacific region.
Singapore, being a land scarce gateway city, is evidently still a major attraction to investors. Hence, many investors have flocked to the property market to park their money.
Consequently, some concerns have arisen over whether there would be an issue where many would be under pressure to sell when interest rates increase. However, given that banks are required to adopt a stringent set of loan approval rules, this is generally unlikely to happen.
For investors purchasing a second residential property, they are only allowed a loan quantum of 50 per cent of the property’s purchase price, resulting in a much lower loan amount than a first time home purchaser. The Total Debt Servicing Ratio (TDSR) of 60 per cent also has to be taken into consideration. Lastly, when evaluating the loan amount, an interest rate of 3.5 per cent is used; and this is much higher than current actual interest rates charged by the lending banks. As a result, these requirements provide a rather sizable capital buffer and investors should not be under pressure to sell.
So, if you are able to qualify for a second property loan and have sufficient capital to afford a second property, why not take the opportunity to invest in one?
By Eugene Lim, Key Executive Officer and Seah Yao Hui, Assistant Manager, Research