INVEST IN MAD SINGAPORE PROPERTY PRICES?
Contributed by www.PropertyBUYER.com.sg Singapore Mortgage Consultants
"The measures that were announced by the Singapore government on February 19 do not address the root cause of the problem yet. The root cause of the problem is a short-term supply crunch at the lower end of the market, but it definitely helps mitigate the risk of bubbles being formed in the future." (Channel NewsAsia, 2 Mar 2010, Asian property prices expected to continue to rise despite govt measures, Karamjit Singh)
We read Mr. Karamjit Singh's comments and we did a bit more research. So here is what we found.
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Singapore's population (in '000s) according to the Singapore department of statistics are: -
Year Total Singapore
Residents
2000 --- 4,027.9 --- 3273.4
2001 --- 4,138.0 --- 3,325.9
2002 --- 4,176.0 --- 3,382.9
2003 --- 4,114.8 --- 3,366.9
2004 --- 4,166.7 --- 3,413.3
2005 --- 4,265.8 --- 3,467.8
2006 --- 4,401.4 --- 3,525.9
2007 --- 4,588.6 --- 3,583.1
2008 --- 4,839.4 --- 3,642.7
2009 --- 4,987.6 --- 3,733.9
The population growth in 2006 over 2005 is a net increase of 135,600
The population growth in 2007 over 2006 is a net increase of 184,000
The population growth in 2008 over 2007 is a net increase of 250,800
The population growth in 2009 over 2008 is a net increase of 148,200
There is a nice table at
http://tankinlian.blogspot.com/2010/01/hdb-flats-and-population-growth.html
which shows the relative growth rates of HDB.
We are not against importing talent.
But we think Singapore is over-doing importing talent, signifying a lack of ideas for growing the economy. This could be a harbinger for long term negative prospects for Singapore's economic growth. Growing the economy through immigration policy is considered a brute force economic strategy.
Not even the USA have such a huge foreign talent import quota and they are a country of 300 million people.
We are worried that the government has run out of ideas to grow the economy and is resorting to brute force economic growth.
Based on household size of 3.5 people (Source: Singstat), this would translate into a potential housing demand of: -
2006 - 38,743 units
2007 - 52,571 units
2008 - 71,657 units
2009 - 42,342 units
"In year 2006, we were building about 2,400 new flats. This year, we are
building about 8,000-plus new flats. Supply has gone up to meet demand. That's
why HDB prices have gone up but they have not gone through the roof." (Source: Straits times)
MASS MARKET HDB BEING PROPPED UP
Many of these new supplies were "Built-to-order" flats which can take 3 to 4 years to complete adding to acute shortages of HDB flats.
LOCAL demand from Household formation (Marriages) come in at a range of 23,000 to 25,000.
These newly married couples surely need somewhere to stay.
Why didn't the HDB anticipate the demand?
Marriage rates is something which is very easy to estimate and very consistent over the years. Why didn't HDB anticipate the demand?
Although not all immigrants are granted Permanent resident (PR) status and may not impact resale values immediately, these people must surely end-up staying somewhere. This drives up rental yields.
WHAT IS THE LIKELY EFFECT OF MASSIVE IMMIGRATION?
Rental rates are being pushed up.
HDB property prices are being pushed up.
Without much choice, Fussy Singaporeans will be forced to choose undesirable locations such as Punggol which in the past has excess units. Not only that, some may not wait and instead go directly to buy private housing if they can afford it.
HDB flat owners whose valuations have risen and are sitting on profits will now consider to sell their HDB. After they sell, and look for a replacement unit, they will find that it is meaningless to buy another HDB. They very soon may end up buying a private unit instead.
There is currently no shortgage of supply of Private properties at around 60k units over several years (Refer to earlier article). This is easily 7 to 8 years of supply based on the average consumption trend.
The end effect is that a greater proportion of people will end up living in Condominiums and private apartments. This will gradually deplete supplies and bring smiles to property developers in Singapore.
The Singapore government on the other hand will be happy that prices of land will rise and reach the land's minimum reserve price to trigger a bidding process. More land sales equal more revenues for the government. And more developers bidding for land means higher prices. These higher prices are then translated into higher priced condominiums. Singaporeans will have to work even harder and hopefully earn more to pay for such private apartments or condominiums of which the major price component is the land price.
MICRO MANAGEMENT OF SINGAPORE PROPERTY MARKET???
Although it is a market driven economy, various policy levers which the government has access to means that it is not a full market driven economy.
Singapore has perfected the art of micro-management.
At $8000 household income, HDB income ceiling, you cannot buy HDB flats.
At $10,000 you reach the Executive Condominium ceiling, you are not eligible to buy Executive condominium anymore.
At a household income of $10,000 onwards, the Singapore government strongly encourage you to move upwards in consumption.
Consumptions helps increase tax revenues (annual property tax, stamp duty, transaction fees for property agents which translate into taxes, sale of furniture, construction, work for lawyers, etc.), and helps the economy in creating jobs.
WHAT THIS MEANS FOR THE SINGAPORE PROPERTY BUYERS AND THEIR HOUSING LOANS?
If you are Singapore Property Buyers, you have to be mindful that there is a gradual shift in Singapore Government policy in play. The government is the largest land-owner, it can regulate supply to influence prices. Being an honest and efficient Singapore government bent on maximising land productivity, you can expect land prices to continue to rise and set new benchmarks. If you already own land, good for you, if you do not own any property, you could be price out (at least in the short term), until the next recession sets in.
These subtle or not so subtle policy directions will either enrich or impoverish you. And when you consider your Singapore housing loans, you ought also to take care to choose the right loans structure to capitalize on these unwritten government policies or mis-calculations.
We do not support or reject any government policies, we only highlight such policies to the attention of our readers so that they can find ways to benefit from these policies or outcomes of government's miscalculations.
Tel: 6100 - 0608
SMS: 9782 - 8606
Email: loans@propertyBUYER.com.sg
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