We should be worried about rising property rates


Hundred Palms Residences sold every single one of their 531 units within just 7 hours. Hundreds of buyers turned up at the project’s showflat as early 10am to book their units.

In 2017, private property sales rose 7% to 7,972 units from the 7,440 units in 2015.

I hate to be the wet blanket in this party but the market is dangerously bullish.

Private property cost about a hundred percent more than HDB houses. The loans taken on these properties span a long horizon and takes a big bite out of a worker’s monthly salary. It leaves very thin margins for a salaried worker to play with.

Interest rates are very low today, most are below 2% and some very competitive ones are about 1.5% even. In fact, HDB gives rates of 2% and we think that this is “very high”, however we are forgetting that not too long ago, before the great recession of 2008 the interest rates were above 3%.

Historically, in the late 90s, interest rates shot as high as 9% even.


Can you imagine what would happen to the highly leveraged buyer today? They’re going to be forced to sell at market rates. And what do you call it when lots and lots of buyers try to outsell each other?

Yes – it’s called a market crash.

When people sell in panic (and history is rife with examples of this happening), who knows what the chain reaction it may set off? Distressed homes may be unable to sell, properties may fall into possession, banks may be unable to recover their money. The market may fall into illiquidity, economy slows and eventually job losses will be inevitable.

But even before this horror unfolds, another one awaits those who bought to enjoy rental yields. Bad news to this group: rental rates are coming down and coming down fast. A typical 3 bedroom condo used to fetch in excess of $3k, today you can get a large sized one for about $2200. Heck, you can even get some beautiful landed houses for the same price. HDBs are not immune either, if I can get condos and all their facilities and privacy at $2k-ish, why on earth would I want to rent an HDB?

Rentals are directly related to the number of migrants to this country. Unfortunately, the mood in this country is rather foreigner unfriendly. Well, good news for those who don’t like them: The number of foreign workers in jobs fell by an estimated 2500 in 2016 (excludes domestic workers). The number of permanent residents here dipped from 527,700 in June 2015 to 524,600 in June 2016.

Those of you who own investment properties and survive on the presence of foreigners, well… there is cause for concern. Today, the markets are tepid and it will continue to cool further. There aren’t enough people, their budgets are cut and you will be competing with fancy new apartments from this small tenant pool.

If you factor in MCST charges, property taxes, sinking fund charges and payments for wear and tear; you might find a need to top up money just to service the installments of your purchase. Rental income alone may not be enough.

“Oh, but I’ll sell it at a handsome profit a few years down the road”, you may retort. Not so fast – remember, the government is continuously reminding Singaporeans about the 99 year expiry on their purchases. To keep your expectations in check, be reminded that there is little to no chance of an en bloc collective sale. So this means buyers will become more and more wary of aging apartments, it means that the property you own becomes a “depreciating asset”.

Fish out a calculator, you’ll find out that it may be no different between keeping your money in the bank or taking profits from the property you buy today. You may have heard stories about how people made exorbitant profits from their investments made before 2008 – however, the sobering reminder is that these properties were bought when Singapore’s economy was exploding.

The government is not going to allow it any more. A seller’s gain is a buyer’s loss, especially if wages don’t keep up with property prices. It is a zero sum game. If the government doesn’t care about this, we’ll end up in a Hong Kong situation, where the houses are tiny but their price tags enormous.

Singapore is not a property market.

Singapore cannot be a property market.

Land is a very scarce resource and is both a right and a need to its inhabitants, regardless of social status, regardless of wealth.

What do you call it when you take a people’s scarce resource and let only the rich make money out of it?

That’s right – exploitation. Look at how the prices are climbing, In the future, your children will be paying for the profits you made today.

The property market is heating up, has always been and will continue to be. We need a new way to manage this and we needed it yesterday.





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