The property glut is not in itself a problem

Property developers are trying hard to get the government to roll back on the curbs (famously known as the “cooling measures”) on the property market. If you have been following property news, you might have read headlines screaming “Singapore’s property glut could take years to clear!

But the fact remains – prices continue to rise even with the cooling measures, and the rising number of unsold units.

These articles paint a miserable picture. They reflect URA’s report of how there is an “overhang of 31,948 units as of 30th September” and how sales have averaged about 2,500 homes per quarter this year. The report uses the research of Cushman and Wakefield Plc, a commercial real estate services company surprise, surprise, to say that it would “take almost four years to clear the backlog”. 

Also not surprising it is the property developers that call for property curbs to be eased, this means lowering the 20% stamp duty for foreign buyers.  

Now, when is a glut a glut? Is this 32k surplus of properties too high?  Afterall, there are thousands of (resale/subsale) transactions that take place each quarter and it appears that a lot of these unsold units belong to the unaffordable, high-end projects. 

I think these points should be considered, lest we fret too much over this scary article:

  • Thanks to TDSR (the policy that makes sure you have enough money to buy), Singaporean property investors are very patient sellers. Even if there are no buyers, or tenants (and appropriate tenants I may add, Singaporeans can be quite fussy landlords) I understand from fellow property owners that we’re fine letting our properties sit empty or even to enjoy it ourselves. 
  • In a land scarce Singapore situation, demand is exceptionally strong. Property purchases are the number one financial goal of almost every Singaporean. In our case, we actually need increased supply to keep prices calm. Already as it is, prices continue to rise even with burgeoning demand.
  • Not only is a property purchase a number one financial goal, our savings and salaries are amongst the world’s highest. Many Singaporeans have money sitting idly in banks waiting to be put to work.
  • Thanks to our stability and certainty, we are also attracting strong demand from abroad, not just for investment but for actual living even. Walk into any condo and you’ll find strong overseas communities living in them.
  • Of course property developers want the curbs removed, if this happens then more and more people would be able to buy their properties. This is fair, after all they are looking after their interests and the interests of investors. But is this good for the entire country? Part of what shoved Hong Kong into mayhem is the inability of young people to buy properties, because they were just too expensive!

So in short, we have desire + ability + patience = a very hot property market that is difficult to cool. Unless it gets quenched by equally strong supply, which is exactly what this “glut” is trying to do. In the coming years at least, I don’t see property prices coming down soon.  

But what are the dangers?

  1. A lot of property agents are promoting the trick of selling just after TOP.  Buy cheaply a building under construction, sell just after TOP to buyers who cannot wait for a building to be developed. It is an interesting strategy and it has proven to have worked in the past, but just like any investment idea – if the buik of the public knows about it then it may be too late. New launches have been reported to be very, very strong. People have to queue to buy condos and some even find out that projects are sold out! But think about 4 years later when these projects are completed – if everyone is expecting to sell at the same time…the who’s going to buy it? Is the demand going to meet the strong supply?
  • Rising interest rates. We are so used to the low interest rates in the past few years,  we forget that once upon a time property interest rates have gone as high as 7%! Today, if banks raise it by 0.0x% people are already freaking out. This is the reason why we need TDSR; it would be a national disaster if people cannot keep up with mortgage payments and were made to force-sell. What we are concerned about are people who have found a way to cheat the TDSR or built a lifestyle that was unsustainable – so when the economy hits the rocks, these fire sales would drag others down with them.
  • Jobs, jobs, jobs. The property market rests on one thing and one thing only: jobs. And this can be further broken down into two categories: locals and foreigners. For locals, if salary and economy continue to be strong then the property purchase trend will continue to rise. However, if we see more disruptions, more uncertainty, fewer jobs created and salaries that stagnate – then we have a problem. If there are no jobs, or weak salaries, then TDSR cannot help the country. But for now, this is not a worry as the country has one of the strongest savings in the world and the Singaporean salary is amongst the top ten in the world. Foreigners help us with liquidity in the rentals market. The more foreigners, the stronger the demand, the higher the rental. However, the reverse is true as of today. The government have had to cool the number of foreigners coming into the country, because well… Singaporeans don’t want it. And further more, whilst the country is affordable for us to live (because of rebates, transfers, fundings and grants), it is actually very expensive for a foreigner. In fact, we’re one of the most expensive countries to live in and if you’re not protected by citizenship it can be quite pricey. Property investors who depend only on rental to pay off their mortgages are finding that they have to top-up and pay the difference, because rental income is reduced. 
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