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Selling a private property just got harder.

Wednesday, December 7, 2011

The Singapore government has "imposed an Additional Buyer's Stamp Duty (ABSD) for private property of between 3 per cent and 10 per cent for Singaporeans, Permanent Residents and foreigners to moderate investment demand for private residential property and promote a more stable and sustainable market."  Read article here.

This development is likely to hasten the weakening of private residential real estate prices which is something I expect to become really evident in 2014 or 2015.  Weakness in the resale market would probably manifest itself markedly much earlier now.

Anecdotal evidence already shows that it is harder to find buyers in recent weeks. The ABSD which takes effect from tomorrow will likely cause weaker sellers to lower their asking prices.

In real estate investment just like in any investment, price is always a function of who is more enthusiastic, the seller or the buyer. Such enthusiam or the lack of it is the function of many contributory factors. How is the enthusiasm competition stacking up?


If we search Property Guru for listings of recently completed condominium projects, we would be amazed by how many are trying to sell their units. So, let us see The Trevista in Toa Payoh which recently got its TOP.

The Trevista has 664 listings under "units for sale" right now! Granted that many listings are probably repeated, let us say each unit has been advertised by 5 different property agents, it would still mean that 130 units or so are up for sale. There is no question that many bought private real estate as an investment in the last year or two.

Now, the more realistic investors would probably settle for lower selling prices. In the end, those who are unwilling to sell at lower prices must have holding power. What affects holding power? Rental and interest rates. Rental should be as high as possible and interest rates should be as low as possible. Of course, how much financial muscle one has to begin with is an important consideration too for obvious reasons.

The rental market has been softening, from what I hear. So, rents, in time to come, could provide diminishing comfort. With more residential real estate being completed over the next few years, lower rents are a realistic expectation.

Interest rate although widely expected to remain low until 2013 is a wild card from then on. With expectations of oversupply from 2014 onwards, the expiration of low interest rate at the same time would be a double whammy.

Good luck to all who are still heavily invested in private residential real estate in Singapore.


Latest update (CNA, 8 Dec 2011):
CEO of PropNex Realty Mr Mohamed Ismail said he expects a price correction of approximately 15 to 20 per cent in the central core region and a correction of 10 to 15 per cent in the mass market segment in the next six months.  Read article: click here.

Related posts:
1. Money continues to flow into Singapore.
2. Should we be staying invested or in cash?

19 comments:

Marti said...

Problem is, with mortgages at 1% and likely to stay at this level for a while, holding power is likely to remain pretty good, even with the low rental yield of residential properties.

That you can borrow for so much less than inflation is a complete economic anomaly that is bound to create huge real-estate bubbles.

SnOOpy168 said...

Lower prices = good news for me as I am saving up for that 20% DP. Waiting for the right prices at a good location, for rental yield.

High rental income needed ? Then garment must keep those FT happy in Singapore and continue to rent.

AK71 said...

Hi Marti,

It is indeed a problem. As the bubble grows bigger the impact will be greater when it finally bursts. Bubbles will burst. It is a matter of time.

People who are still optimistic about the real estate market in Singapore must also deal with the possibility of a hard landing in Europe. This will affect economies here in Asia even more and it might be harder to find quality tenants then.

Although the crisis this time round is widely regarded as being less severe for Asia compared to the last one, I remember how some were forced to sell their private properties because they could not find tenants and they were out of pocket every month. These people probably stretched their personal balance sheets to the max and there will always be such people around.

AK71 said...

Hi SnOOpy168,

After the last General Elections, the PAP has been tightening on immigration and imported labour. It is getting harder for foreigners to come here to work now.

Yesterday, I heard foreigners who graduate from the universities in Singapore will no longer be allowed to work 1 year after graduation, removing competition for Singaporean graduates.

The PAP government is really driving home the message that it is "Singaporeans first" henceforth. Foreigners can't vote. The PAP have to keep the locals happy.

So many new flats, ECs and condominiums in the pipeline and more GLS in 2012. I seriously doubt that demand will be sufficient to keep rental high from the year 2014.

Falling rents will affect property valuations too. Those who borrowed to the max will be affected if the values of their properties should decline.

So, interest rates might remain low till 2013 or even beyond but there are wild cards around. When prices are where they are already, chances of a decline are higher than not.

INVS 2.0 said...

Hi Ak71,

At my age now, I am not worried about property prices since my pocket does not allow me to buy a house. :)

Anyway, for a single like me, I am going for a 1-bedroom full condo (heard that ECs are still governed by HDB rules - can't apply for a unit under a single name) that can cost more than $600k as of now (eg. Mitonia @ Yishun). :/

Well, the problem is, I am still far, far from the $600k mark. :)

AK71 said...

Hi INVS 2.0,

I believe you are looking at the type of condominium units that will be hit the most badly come 2014/2015.

Small units of 500 sq ft or lesser have been and are still being proliferated. Their pricetags are attractive to smaller investors.

I have shared with anyone who is interested in buying such condominiums for self stay that they should wait as current prices are not sustainable. A 20% decline is not unthinkable. In fact, it could be more.

Ray said...

IMHO, I don't think Singapore's property market was forming a bubble. There were legitimate good growth for the lasty few years and strong demands (by foreign investors as well as influx of FTs) to back the increase in property prices. What the govt is doing is probably to prevent a bubble from happening because if it continues to increase, speculation will be lucrative and bubbles may form like what China is going through now.

Foreigners can't vote? Yes and No. Govt give citizenships cheaply so that these newly naturalized citizens vote for them!

My $0.02

AK71 said...

Hi Ray,

Mah Bow Tan said there was no bubble too. :)

For me, when I saw HDB flats priced beyond the reach of common citizens, it looked a bit frothy. When flats with 60+ odd years left to their leases were changing hands at $960k a unit, alarm bells went off in my head.

I saw how condominium prices rocketed up to 50% in some cases in just two years, that told me that there was much exuberance in the market and people were greedy for residential real estate in Singapore.

I saw these and I turned fearful. I sold.

financialray said...

Yes, before anyone commits to a property ,must always ensure one has holding power.

Hey but the world is only exciting when there are people who like to swim naked. Isn't it?

Then again, what is sufficient holding power? Can anyone guarantee his job nowadays? A minority perhaps still can.

AK71 said...

Hi financialray,

I am a conservative kind of guy. Swimming naked is not for me. ;p

Sufficient holding power? Someone who is unemployed but cash rich would easily qualify. Again, a minority. :)

Calvin said...

AK,

Thanks for your comments on my post.

The oncoming supply is scary and the fact that most of these investors may not have the holding power is even more scary.

I always advocate buying completed properties as you can look at the history of rental rates before buying a property.

http://www.investinpassiveincome.com/pros-and-cons-of-buying-completed-properties-vs-under-development-properties/

Also, I have posted what I think are the possible effects of such a move on my post.

http://www.investinpassiveincome.com/additional-stamp-duty-for-singapore-properties/

Rgds,
Calvin

AK71 said...

Hi Calvin,

Yes, we have the ingredients for a perfect storm.

Thanks for the links. :)

INVS 2.0 said...

Hi Ak71,

This kind of consequence is very much expected. Same as the stock market, we have wise ones and greedy ones.

Just sit back and watch many fingers being burnt in the process. :)

AK71 said...

Hi INVS 2.0,

I guess I will have to start combing the classifieds again in another few months, just to get a feel of things. :)

Anonymous said...

I'm very happy with the new cooling measures as I've been saving up to buy an apartment for own stay. However, i'm very new to this. Can you blog more on this? or a separate folder for buying private property for newbies? where to start? lol

-Jaime

SnOOpy168 said...

Agrees with Jamie, if AK can spare the time for a sub-section on this topic.

Holding power. Yeah. That is true. My observation in HK rental yield is often low or negative %. Most owners are aiming for capital gains. The rental is just a bonus source of income to help with the loan. Of course, if one had bought sometime ago, then today's rental yield will be positive as it rent increases over time.

Anyway, until that time come, I am reading and learning as much. The fun feeling of setting up an apartment and being a Commander in it. Hehehehe.

Huat ah.

AK71 said...

Hi Jaime,

Thanks for inspiring a new blog post. :)

See:
Buying a private property as an owner-occupier? Think like an investor.

AK71 said...

Hi SnOOpy168,

Indeed, people in the know would tell us that it is the buying and selling of properties that makes the most money, not buying and renting out. So, I am not surprised with the situation you have described in HK. This is a mad, mad world we live in. ;)

Hope you enjoy the new blog post. :)

AK71 said...

Prices of resale private homes declined marginally by 0.4 per cent in April compared to March.

Resale volumes remained low, with 572 non-landed units transacted compared to 614 in the previous month. On a year-on-year basis, the resale volume recorded in April represented a more than 50 per cent drop from the same period last year.

According to data from major property agencies compiled by the Singapore Real Estate Exchange (SRX), prices of resale non-landed private homes in the city area and city fringes dropped 1.9 per cent over the previous month.

Prices of those in the city area fell for the fourth consecutive month to an average of S$1,772 per square foot. Prices of those in the city fringes fetched S$1,267 per square foot.


CNA

 
 
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