We live in exceptional times where events often do not play out as expected, such as with Brexit and the United States presidential election. In the Singapore private residential property market, buyers have been snapping up new homes although economic growth has been slowing down with increasingly bleaker outlooks being forecast.

Companies, from banks to oil and gas firms, have announced layoffs, while Singapore Press Holdings is slashing 10 per cent of its headcount over the next two years. The Government has warned that the pace of retrenchments may rise. As people lose jobs and wage growth slows, we should theoretically see reduced demand for housing, but primary homes sales have picked up in recent months.


The Urban Redevelopment Authority’s non-landed Private Residential Property Price Index (PRPPI) registered its 12th quarter of decline while more homes are added to the housing stock. Every single indicator suggests that the market is in the midst of its longest downturn ever and unlikely to stage a quick rebound. Yet, buyers do not seem to care.


New launches such as Gem Residences in Toa Payoh, Lake Grande near Lakeside MRT Station and Forest Woods in Serangoon have seen very good take-up rates. To put in context the sales numbers, we looked at the relationship between property prices and the total number of transactions in the market.

An analysis of the past turning points of the PRPPI suggests that property prices tend to reach a trough two to four quarters after total sales volume reached a bottom. The total transaction volume reached a low in 1Q2015. Based on this historical trend, the PRPPI should have reached a bottom some time from 3Q2015 to 1Q2016. However, this time, the PRPPI has continued to fall.


In addition, developers have become more aggressive in site acquisitions. In May, Qingjian Realty agreed to pay S$638 million for Shunfu Ville in the largest quantum for a collective sale since 2007. In October, UOL-UIC’s successfully bid S$334.2 million for Raintree Gardens. As these projects require Strata Title Board hearings for the sales to go through, the developers are taking the view that the residential property market will have recovered sufficiently by the time they are ready to go to market with the new projects.

Why are these home buyers and developers entering the market at a time when most observers are negative about the outlook? These purchasers of uncompleted homes and development sites are essentially betting that the prices in three to four years are going to be higher than what they are today.


A fellow professional in Australia told me recently that I was too pessimistic about the Singapore market. In his opinion, Singapore’s economy is well-managed, with a Government that functions much better than those in many other countries. While the immediate economic prospects continue to look bad, Singapore has a better chance to remake and reinvent itself than almost every other country.

Singapore’s business ecosystem for big corporations remains favourable. Amazon is reportedly ready to open its South-east Asian headquarters in Singapore by the first quarter of next year. Singapore’s excellent logistics infrastructure and connectivity could have contributed to the decision despite the city-state having the most expensive real estate in the region.

We can get a sense of the impact of Amazon’s decision by observing how much its presence in Seattle has grown. As of March last year, Amazon leased about 10 million sqft of office space in the city, or 8 per cent of total office stock. Based on that footprint, Amazon could grow to nearly 50,000 employees there. Even if Singapore were to have only 10 per cent of this headcount increase to serve Southeast Asia, that is 5,000 jobs. Similarly, Alibaba has been increasing its presence here. These are companies with big plans and staying power, which should have a positive impact on our real estate and supporting businesses.

Perhaps the single most attractive proposition for Singapore real estate is that the rules and taxes remain much more favourable for foreign investors than almost every other developed country.

Many countries have adopted more protectionist policies on real estate by increasing taxes on property purchases by foreigners and/or tightening loans to foreign purchasers. Just this week, Hong Kong announced a surprise stamp duty hike, targeting second-home buyers and foreign purchasers. Foreign buyers now have to pay a 30 per cent stamp duty instead of 16.5 to 23.25 per cent previously. Singapore’s additional buyers’ stamp duty is only half of this and this could make real estate here more attractive.


Our theory is that the Singapore residential property market needs a sharp correction before going on a sustained recovery. The sharp correction can happen only if people lose money somewhere. Using the performance of the Straits Times Index as an indicator of wealth creation or destruction, we can see an interesting trend.

Historically, the PRPPI tends to reach a bottom between one and four quarters after the STI reaches a bottom. The decline in the stock market destroys wealth and creates the pre-conditions for people to want to sell their properties quickly at sharper discounts. While the STI has faltered recently, most analysts feel that the stock market has not reached a trough.


We are in uncharted territory, if we use past trends as a gauge.. History cannot tell us whether we are near the turning point for prices. We probably are. However, the course of the world economy is also going into uncharted territory, with the potential trigger for Brexit and the protectionist stance of the incoming US President.

Purchasers who need a home should buy only what they can afford.. For investment properties, do not focus on the price quantum alone because if the unit is not very liveable, you will not be able to get market rent.

For investment properties, investors can also consider joint purchases to spread their risk and diversify their portfolios.


Adapted from: TODAY, 11 November 2016

Leave a Reply

Your email address will not be published.

error: Content is protected !!