What does property investment have to do with jobs?

cost of living

The property market is becoming extremely bullish. New launches have been sold out in record time, developers have been forking out generous sums for land buy-back programs and some developers have been holding back launches in anticipation of raising prices.

Demand has risen and it will in turn raise prices of private properties.

There are a few reasons for this:

a.) Interest in HDB properties is falling. Prices have fallen, signalling decreased demand

b.) Attitude shift: Singaporeans are upgrading, private property looks like it will hold value better in the long run

c.) Cash rich Singaporeans are buying for investment and rental income

The last point is the most worrisome group. It is not known how many intend to buy for rent, but judging from the interest in small apartments (these are known to be the first assets to sell out in launches), it appears that this group of buyers is quite large.

There is only one group of people that provide a secure source of rental income, and that is foreign employees.

And what has been happening with foreign employees in the past few years? Their numbers have dwindled. And why have their numbers dwindled? Before we blame the government, let us recall what in the years since 2011.

Thats’ right – mayhem.

Foreigners was the boogieman of the day. Complaints about foreigners, bitching about foreigners, blaming the foreigners… everyone bastardised the foreigner like as if they brought in leprosy to the country. Every opposition politician capitalised on the sentiment. Who can forget Nicole Seah’s teary eyed performance on how foreigners have changed Singapore.

Well, the government had to react. What followed next were regulations that became tighter and tighter each year. Quotas were raised and enforced, salary floors were raised, new mechanisms were enacted (e.g. Fair Consideration Framework). It was not uncommon to hear of foreign friends whom did not get their employment passes renewed.

The tightening did work. Last Wednesday, it was announced that there had been a reversal of trend – Singaporean PMETS grew at a faster rate than foreign PMETS did. Let me translate that into laymen’s speak for you: there are less foreigners coming to Singapore for employment.

Data from the Manpower Ministry showed that foreign employment fell by an estimated 2,500 in 2016 (excludes domestic workers).

The number of permanent residents fell from 527,700 in June 2015 to 524,600 in the middle of 2016.

Employers are the first to be affected, they will have a tough time filling positions but that is not of interest to us. We’re interested in what happens to the rentals market. CBRE Research noted that islandwide rents fell 13% at the end of 2016 and vacancy crept up from 6.1% to 8.4% over the same period. Vacancies are expected to rise to 10% as we inch into 2018.

Property agents reported that it takes twice as long and multiple viewings to secure tenants and landlords needed to lower rents. One owner had to slash rent for a one-bedroom apartment in Novena from $3700 to $2000.

I think Singaporeans have to be realistic with their attitudes to foreigners. They are not the enemy. They are only here because there are jobs and there are not enough people to fill those jobs.

The role of the government must still be to create jobs. It would be a very strange attitude to desire less job creation because Singaporeans are afraid of competition. This has not happened, but we do not want a government that would one day do something like this.

The average investor doesn’t know what is an optimal number of foreigners in the country. They can only rely on the decisions of the government and hope they do not over-regulate. It is already accepted that there would be no money to make from rental incomes, one would be very contented to be able to cover the cost of financing.

If labour regulations tighten further still, it may come to a point where home owners cannot even finance their apartments with rental income. This would be dangerous as many Singaporeans are highly leveraged. If they cannot fund vacant houses for a period of time, banks will go into repossession.

It would be just as frightening if banks decide to raise their interest rates. Whatever the scenario, home owners had better be prepared to fund these properties from their own pocket – that’s the whole point of implementing the Total Debt Servicing Ratio.

For now, Singaporeans ought to keep an open mind to foreign employment. They are not the enemy. By filling job vacancies, their presence actually help to create jobs and opportunities for all of us.

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