Singapore, 16 Dec 2016 – The Monetary Authority of Singapore (MAS) released its latest financial stability review last month. In it, it noted that demand for housing remains strong. There has been an increase in the take up of both new homes and resale homes. According to data from the Urban Redevelopment Authority, in the first three quarters of 2016, a total of 18,330 new and resale homes were sold. This is 14.6 per cent higher than sales in the corresponding period in 2015.
Many of these purchases seem to be investment driven. While there are no official statistics on the number of people who own multiple properties in Singapore, recent new project launches have been driven by the sales of one and two bedroom units. These are unlikely to be purchased due to household formation, which is the “traditional” source of housing demand. Rather, it is more probable that these private housing units were bought as secondary homes.
In the past, most people were content with just one home, and buying a new one was purely out of necessity – being a home to live in. However, the current trend appears to be that one property is no longer enough. Perhaps this could be due to more people becoming increasingly investment savvy; and property has emerged as a popular choice for investors looking to diversify their assets.
While many are capitalising on the current low interest rates environment to own a home, this situation may not last forever. Interest rates may inevitably rise, with the United States widely expected to adjust rates upwards later this month. As such, property owners, especially those who bought for investment purposes and are looking to rent out their units, should bear in mind certain pertinent points before committing to a purchase.
Firstly, demand for rental homes come predominantly from foreigners. For those who bought small units in private residential projects, they would be looking to rent it to foreigners who are working here in Singapore alone. It is likely that foreigners who are able to afford private residential rents would be in Singapore on the Employment Pass. Currently, growth in this portion of foreign workforce has been quite measured, with there being only 1,700 new passes issued in the first half of the year. The Ministry of Manpower has also raised the income criterion of Employment Pass applicants to $3,600 from $3,300. Hence, it is imperative that buyers who bought with the intention of letting out the units be aware that there may be increasingly less new rental demand coming from foreign manpower going forward; as our economy adjusts to become less reliant on them.
Next, owners need to know what is it that this group of expatriates are looking out for in a rental home. As far as real estate goes, location, location, location has long been the guiding principle. Tenants are no different. They will be looking out for a location which fulfils their needs. From our observations, most tenants tend to look out for transport connectivity and amenities.
Most foreigners who rent small units are here in Singapore alone for work. Thus, in looking for a suitable place, they will pick one which has ease of transport. As such, property investors would do well to purchase a unit in a project which has at least one of the below locational attributes:
1. In the city fringe, so that tenants have relatively short commuting times to the city centre for work and leisure
2. Near a commercial cluster, as expatriates working in these commercial areas will be looking to rent a place nearby
3. Near public transport nodes, so as to minimise travelling times
Amenities wise, having them within a short distance away greatly enhances the attractiveness of a rental property. For the tenants who are staying alone, they would appreciate the convenience of having retail establishments around. For instance, shopping malls or eating establishments nearby provides them with the convenience of dining out or buying food home. Having a supermarket around is also a plus point as tenants can buy household items easily.
While going by these general guidelines makes it easier to spot a good investment property, we must still urge buyers to be cautious. The purchase of a property involves a large sum of money at the point of purchase and many more payments spread over years and healthy finances are important for this purpose. However, as MAS noted, most households are still resilient to economic shocks and their risk profile has improved. Repayment risks remain only for a small group of borrowers. Hence, as long as property owners choose attractive properties to invest in, risks would be minimised.
By Eugene Lim, Key Executive Officer and Seah Yao Hui, Assistant Manager, Research