Singapore

In the aftermath of the collapse of Lehman Brothers and ensuing loose monetary policies globally, various Asian property markets have seen dangerously high valuations due to investors’ continued search for yield. Unlike its other Asian counterparts, with the intent to ensure a stable and sustainable property market, the Singapore government decisively introduced several measures to smooth out the cycles and promote market sustainability over the medium term. This resulted in the Singapore property market peaking in 2013 while the other Asian property markets continued to climb higher. This is illustrated in the following chart as published in a report by the Monetary Authority of Singapore,

Property Price Index - Selected Asian Economies
(Source: Monetary Authority of Singapore)

Apart from the various rounds of deliberate cooling measures, low immigration rates and the skewed demand-and-supply ratio in the housing markets also contributed to the falling property prices and transactions. Unsurprisingly, the Singapore residential property market saw its worst performance in the past 13 years in 2015. According to rating agency Fitch, residential property prices in Singapore have fallen 8.2% from their peak in September, 2013 – a decline in values for eight consecutive quarters. The chart below gives a bird’s eye view of the cooling measures and how they have impacted the property resale market,

Cooling Measures

According to the Knight Frank’s Prime Global Cities Index, which tracked 34 global cities, in third quarter of 2015 Singapore was home to the weakest-performing luxury housing market for the seventh consecutive quarter. The central region or luxury segment took the worst hit (due to increasing vacancies), as can be seen in the chart below,

Singapore Property Market
(Source: Institute of Real Estate Studies)

Notably, Singapore’s Finance Minister, Heng Swee Keat, stressed upon the importance of the cooling measures at length at an event in November 2015, which seems to indicate that these measures are going to stay for a while. So how long will these measures stay in place? How does the Singapore property market compare to the rest of the world? Perhaps the following two charts from a 2015 UBS report may add some colours to a plausible and educated guess,

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UBS Global Real Estate Bubble Index (2015)

(Source: UBS)

The UBS Global Real Estate Bubble Index tracks the risk of a property bubble through five different metrics on the current valuation and historical pattern of housing markets, such as price-to-income and price-to-rent.

According to UBS Group AG, London and Hong Kong are the cities most at risk of a housing bubble as real estate valuations begin to look frothy. Comparatively, while prices in Singapore are still considered to be mildly overvalued, the various afore-mentioned factors have contributed to a normalisation of its housing market.

Presently, forecasts on the Singapore property market look extremely gloomy. More specifically, many local property analysts have warned that the Republic’s private residential property market may be in for tougher times in 2016 as the lacklustre economic environment is likely to depress sentiment further. Given the Singapore government’s assurance that it would keep a close watch of market developments, many analysts believed that any adjustments would likely come in the later part of 2016.

In view of the above, it may now be a very opportune time for investors with deep pockets to capitalise on projects that offer bulk sales and deep discounts. After all, It is always easier to strike a “good bargain” at a time when most investors shun the market and motivated sellers want to offload their properties; the darkest hour is just before the dawn. Vis-à-vis property markets in the other top global cities which are seeing loft valuations, real estate in Singapore is indeed beginning to look attractive, especially in the case of the luxury residential segment.

As Mark Twain said, “Buy land, they’re not making it any more”. Land is a scarce resource in any country, and in Singapore, even more so.
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