Eyeing Property in Singapore

Good deals for owner occupiers

With property prices finally losing steam, home buyers may be wondering whether it is the right time to take the plunge.

Both the private and public housing markets have begun to slow down, as sales volumes tumble and prices turn downwards.

Analysts expect the property market to sink further this year owing to a triple whammy of weak demand, an expected rise in interest rates and looming oversupply.

Even DBS Group Holdings chief executive Piyush Gupta warned recently that high-end home prices could tumble as much as 15 per cent this year while lower-end homes could suffer a 10 per cent drop.

In the light of such forecasts, buyers who can afford to wait for prices to slide further may opt to hold their horses till at least the end of this year in hopes of snagging a better bargain.

However, experts agree that timing the market is tricky at best and buyers should be wary of jumping blindly onto any bandwagon.

"Unless you have a crystal ball, it is not possible to perfectly time the property market," said real estate lawyer Lee Liat Yeang.

"Few people would have thought the year 2009 was a good time to buy a property here, especially after the Lehman Brothers saga. Those who did so have been undeservingly credited with the ability to time the market."

Ms Christine Li, head of research at property consultancy OrangeTee, added: "Buyers should not adopt a herd mentality and should be clear about their objectives."

Buyers on the lookout for a home to live in are likely to be less affected by short-term price fluctuations than those who are investing for rental yield, for instance.

The Sunday Times looks at the property landscape for different groups of buyers and what they should watch out for.

Low demand, high supply

The market's long-term fundamentals are strong, in part owing to healthy employment levels, said CIMB economist Song Seng Wun.

"Singapore is only so big and the population will grow. So while we may be in a stall or correction cycle, the overall trend is still upward."

However, property prices are expected to be dragged down this year by both weaker demand and large upcoming supply.

On the demand side of the equation, the pool of potential buyers has shrunk after several rounds of cooling measures have left buyers clutching their wallets more tightly.

These curbs include higher additional buyer's stamp duty (ABSD) and tough restrictions on home loans under a total debt servicing ratio (TDSR) framework in June last year.

As a result, developers now face stiffer competition for home sales, noted Mr Mohamed Ismail, who heads real estate agency PropNex.

"Developers are able to attract buyers only if their units are well-priced and strategically located. The general expectations among buyers for a price correction are also likely to keep prices in check."

On the supply side, a possible glut of homes looms on the horizon, which could make it harder to resell homes or find tenants.

"Since 1996 there has been no three-year period where housing supply was higher than it will be in the upcoming three years," said Mr Hartmut Issel, UBS Wealth Management's head of research for Asia-Pacific.

From 2014 to 2016, more than 97,000 new Housing Board flats could be completed, plus around 65,400 private homes and 10,400 executive condominium (EC) units.

Mr Issel estimates that the total amount of new housing stock that will come onstream over the next three years is equivalent to about 14 per cent of the existing housing stock.

Owner-occupiers

The buying decision is more clear-cut for first-time home buyers and those who want to buy a home to live in.

Prospective owner-occupiers "need not wait as there are good deals available", said Mr Alfred Chia, chief executive of financial advisory firm SingCapital.

"It is not logical for buyers to wait for the market to crash as it is unlikely to happen."

Mr Lee also cautioned buyers against selling their homes in hopes of picking up another for a lower price.

However, Chris International director Chris Koh said that a "down market" could be a good time to upgrade to swankier digs.

Even if upgraders have to sell their current home for less, prices of higher-end homes could fall by a bigger absolute amount - which would lead to overall savings, he said.

Mr Peng Chun Hsien, business director of Citibank Singapore's secured finance and e-business division, noted: "An owner normally has a fixed idea on where he or she wants to live and that would determine what value he or she is willing to pay for the location he or she desires.

"There is no right or wrong timing. However, the key is to buy within his or her means."

Investing in another home

Investors face a more complicated guessing game, especially if they are buying a second or subsequent home and will therefore incur hefty ABSD.

"It is still too early to enter the Singapore residential market, from an investment point of view," said Mr Issel, who thinks that the market weakness could stretch out over the next two to three years.

"Even if one chooses to take a contrarian approach... property prices continue to remain at record highs."

Private property prices slipped 0.9 per cent in the fourth quarter of last year from the preceding three months, according to Urban Redevelopment Authority data last month,

However, they are still relatively elevated, at 61 per cent above the trough in the second quarter of 2009.

OCBC Investment Research analyst Eli Lee said that buyers "should carefully weigh the risks of a weaker rental market with higher vacancy rates and softer rentals ahead".

"It could take a longer time to resell their properties ahead if the need arises" since resale transactions can dry up in a bear market, he added.

What to watch out for

Buyers should assess three major factors before making their decision, experts said.

First and foremost is whether they can afford to pay off their mortgages if interest rates spike, said Mr Chia, who noted that the low-interest-rate environment "will not last".

The second factor is whether the unit can be resold in future or whether a tenant can be found.

This depends on economic growth and the Government's population policies, as well as individual unit attributes.

"Buyers should also scrutinise the layout ... For example, are they paying for an extra-large air-con ledge? Are they comfortable with the fact that some two-bedroom units in the market have only one bathroom?" said Ms Li.

"These are the things buyers do not usually pay much attention to during new property launches, but could have serious implications later on when the property is being put on the market for lease or sale."

The third is whether their money could generate better returns elsewhere.

Buying real estate "potentially requires a large outlay and it might not be easy to sell. Thus, property investments should ideally not constitute a key bulk of an investment portfolio," Mr Issel said.

Source: Straits Times 23rd Feb 2014

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