MALAYSIAN Ann Tan relocated to Singapore last July. She was granted permanent residence status in June this year and aspires to have her own place instead of renting.
She hopes to earn enough to afford a S$1mil apartment as she is not eligible for the Housing Development Board (HDB) subsidy for flats that is offered to citizens.
Tan is one of many who are determined to secure a Singapore property in spite of the cooling measures introduced by the government. Whether she succeeds or not, only time will tell, as the various measures instituted by the Singapore government thus far have been across the board, targeted at developers, Singaporeans, foreigners and holders of permanent residences.
In a report on Singapore Property Market: Proprietary Housing Part II dated Oct 17, research house Credit Suisse revisited the survey it did a year earlier, this time with a special focus on affordability. It also took into consideration the impact of the latest four rounds of tightening measures, some of which were considered as the most stringent. The survey was conducted on a sample size of 300.
The Singapore government has since 2009 introduced nine rounds of tightening measures to cool the property market.
The last several rounds (there were three this year) require buyers to pay a larger downpayment with a shorter repayment tenure, forking out additonal buyer’s stamp duty and other stringent macro-prudential measures to limit over-leverage, among others.
As a result of these slew of measures, Credit Suisse says the Singapore government may have achieved its objective to cool the island’s property market, finally.
Says Credit Suisse research analyst Yvonne Voon said in the report: “Investment appetite has been impacted after four further rounds of tightening since our previous July 2012 survey with 46% respondents indicating that they will not be buying residential property anytime soon.”
The report also said that “buyer appetite is still skewed (towards) properties less than S$1mil, with 85% saying they are not willing to spend more than S$1mil on their purchase. But they are willing to compromise on the property size for proximity to the mass rapid transit.”
With the global economic situation in a state of flux and possible interest rate increase going forward, Credit Suisse expects overall prices to remain “flattish” on the island state.
Incidentally, over the past four decades, Singapore’s private property prices had fallen only three times. In each of these cases, the fall was triggered by external shocks, among them the 1985 oil crisis, the Asian financial crisis, the dot.com crisis and the severe acute respiratory syndrome (SARS) and the Global FinancialCrisis in 2008. Aside from these, prices have not corrected beyond 5%.
“We do not expect ‘panic selling’ (unless we encounter an external shock) as the recent purchases have been acquired under a much more stringent process,” says Voon.
Over the last three years, Singapore households – as with every household around the world – have benefited from low interest interests post-Global Financial Crisis.
The Singapore economy has also benefited from low unemployment rate (2%) and rising household income. This has boosted their affordability.
Now that the interest rate outlook has changed in view of the eventual tapering by the US Federal Reserve, Credit Suisse says it would be realistic to assume that affordability could start falling.
The research house also asked respondents if they knew how much they would have to fork out if interest rates were to increase by 2%. About 40% said “No” while an equal proportion said their monthly mortgage commitment are expected their go up by as much as 20%.
Aside from affordability and the impact of rising interest rates, the report also drew attention to the dependence on leverage in the pursuit to have their dream home, or dream investment.
The report quoted Monetary Authority of Singapore managing director Ravi Menonas saying that “many households could have over-extended themselves, fuelled by (years of) low interest rates and stretched loan tenures.
“The vast majority of mortgage loans in Singapore are on floating rate packages, which means households will face higher monthly repayments when interest rates normalise,” Ravi said.
He also said that mortgages accounted for as much as 46% of Singapore’s gross development product, up from 35% three years ago and that if mortgage rates were to rise by three percentage points, the proportion of borrowers at risk could reach 10% to 15% from an estimated 5% to 10% who are already over-leveraged on their property purchases.
On a broader basis, Ravi said that housing loans and loans for building and construction made up 28% of total non-bank loans. Of the housing loans, 70% are for owner-occupied properties.
“Our sentiment indicators highlight that 42% of the survey respondents know of people who are having trouble meeting repayments or living on an extremely tight budget, and 46% would become over-stretched if monthly instalments were to rise by up to 30%, Credit Suisse says.
The median household income in Singapore is RM6,772 per month including employer CPF contribution, and S$6,000 per month without it.
Does this combination of rising interest rates and falling affordability spell the end of the investment demand?
It certainly seems that way with 46% surveyed saying that they will not be buying anytime soon. Their concerns are not not limited to just rising rates but over supply of residential units, and the possibility of a fall in price going forward. A total of 88% said they will only buy when prices fall. The bulk of them also expect discounts from developers, from 5% to as high as 20%.
Surprisingly, despite the value of today’s currencies, more than a third of those surveyed continue to believe that cash is king in today’s volatile markets.
Has investment demand shifted overseas? Interestingly, for a country perceived to have fairly sophisticated investors, only 44% said “Yes”. Their first choice is Australia, followed by Johor’s Iskandar Malaysia, with as high as 77% of the 300 respondents possibly moving to Iskandar. - The Star
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