Monday, August 30, 2010

Two sides of the same coin

Where Singaporeans grumbled, Malaysians were figuring how they could benefit from the launch of Singapore’s two casinos and, more crucially, its population expansion plans.

AMONG Singaporeans, life often evolves around one thing – property, especially private ones. For most people, it is a big factor that determines how well or badly they can live in this over-crowded city, so everyone strives to own one as early as possible.

The rationale is simple: This is a small and affluent city, where land is limited and cannot be expanded (beyond some reclamation).

Demand, however, will grow and continue to grow as long as there is economic prosperity and stability.

Singaporeans have regularly bought and sold their homes be­­cause of social mobility, or they flipped them for a quick profit. Often they talk property and breathe it.

A survey some years back found that 53% of Singaporeans had moved homes at least once in the previous 10 years.

Early bird Malaysians who were familiar with this and acted on it last year by buying into the depressed private property market have reason to be cheerful today.

From the bottom, their values have risen by 40%.

The buying spree began in mid-2009 when the city was still mired in recession, led initially by foreigners who made up 70% of the buyers.

Heading the foreign influx were Malaysians, who formed the largest group at 25.1%, followed by Indonesians (18.4%) and mainland Chinese (16%).

Foreign permanent residents (PRs) bought up 20% of public flats on the resale market, again with Malaysians leading the pack.

From early this year, Singaporeans moved in with larger numbers.

What propelled the foreigners to take the plunge during the depressing mid-2009 when locals were sitting on their hands?

“Foresight at a time when it was most needed,” replied a veteran housing agent, who has seen many past storms.

“They held a broader view of things, taking into consideration two things, the launch of the two casinos and more crucially, Singapore’s population expansion plans.”

He said the Malaysian buyers were calculating the future demand for property to house a proposed 6.5 million population.

“While Singaporeans were criticising both policies (the casinos and foreign intake), foreigners were busy calculating how to profit from them,” the agent said.

This is how the housing situation presently stands: With a 5 million population, the city has a total of 1.13 million residences – only a fifth of them being private properties.

The rest, some 885,000 were public apartments which are also in growing demand as more young Singaporeans and PRs jostle for the limited supply.

Singapore has gone from being one of the most depressed housing markets – in 2009, following the global crisis – to one of the fastest rising in the world.

A recent survey by The Economist showed that Singapore has overtaken Hong Kong as the world’s frothiest property market.

It pushed Hong Kong into second place, followed by Australia, South Africa and China, in that order.

The amount of froth is measured by comparing price-to-rent, which indicates its vulnerability; the wider the gap, the more dangerous the market is to a crash.

What it means is that too many properties are over-priced in relation to rent – or worse if they cannot be rented out, then it could signify a bubble is building.

In the Economist’s view, Singapore residential housing is some 20% over-valued after the recent run-up.

This has led some analysts to anticipate a real estate slowdown in the next six to twelve months, but no crash, barring a new global disaster.

People in the industry are, however, more worried about policy risks than they do about any bubble bursting, including the introduction of a capital gains tax or other measures to cool down prices.

In the 45 years since independence, Singapore has been transformed into one of Asia’s richest cities.

The Boston Consulting Group recently said that Singapore had the highest concentration of millionaire households (in US dollars) in the world.

Some 11.4% of families (about 125,000) owned more than US$1mil, and that doesn’t even include properties.

This rising domestic wealth has been steadily moving into the market from early this year. This momentum, helped by a strong economy and low mortgage rates, is keeping the market hot.

“The current demand is driven by Singaporeans upgrading from government housing to the more expensive private property,” one housing representative said.

Are the rising prices a blessing or a bane?

The answer is surprisingly mixed, given that 90% of Singaporeans are owners who benefit from high prices.

For those with investments in land-banks and private properties, these are boom times, turning out more millionaires than ever before.

Landlords can fetch high returns for their investments.

But for Singaporeans who live in their property, the escalating prices mean little except a higher cost of living.

The biggest sufferers are the lower-middle class and the poor, who own no property or have only a low-cost one-room public flat. They’ll have to settle for a further widening of the gap between them and the rich.

Nearly 80% of Singaporeans (and many PRs) live in public flats, whose values have also risen in line with the private sector – making it a major political threat to the government.

The shortage of cheap public housing is one reason why many young Singaporeans who have just started work are putting off marriage.

With more immigrants likely to arrive and over-crowdedness persisting, the prospect of expensive homes on this island will be around for a very long time.

As posted in The Star by Seah Chiang Nee

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