It has been a matter of almost a fortnight since the Singapore government imposed the latest round of property cooling measures to try to tame a seemingly overheating property market. To most analysts expectations, the measures seem heavy-handed. The manner in which the developers were caught unaware also shows the independent nature of the Singapore government and its commitment to maintaining a sustainable property market. I have heard countless stories of how the government is constantly working in cahoots with the wealthy conglomerates and perhaps the speed and severity of these latest measures would put paid to those unfounded claims. To those aspiring to own their first property, these measures could not have come at a better time, especially with land prices as well as prices of new launches spiking. I personally am supportive of the new measures and I believe they are necessary and these are the reasons why.


1) The vision was to create a nation of homeowners, not a nation of landlords.

One of Lee Kuan Yew’s and perhaps the PAP’s greatest legacies to Singapore is the vision that home ownership would become a key pillar of a strong society. At the opening ceremony of Pinnacle@Duxton, then the member of parliament for Tanjong Pagar, Lee Kuan Yew commented that “If all the HDB flats built over the past 50 years were rental flats, Singapore would be a very different society today.  We would not have the stability, progress and prosperity that the stake in home ownership of a growing asset has made possible.” Having its citizens own the property in which they live in is essential to how social cohesion was built in Singapore. The people will feel a need to keep the environment and their homes clean and well maintained and as Singapore progresses, the value of their homes will appreciate accordingly. The vision was never to create a society whereby the vast majority of people owned multiple properties. Yet the dream for many living in Singapore is to live off passive rental income and the goal to that was to own multiple properties. If we were to take a look at the various rounds of cooling measures, they hardly had any impact to first time home buyers, especially towards Singaporeans. In fact, the stamp duties that first time Singaporean home buyers had to pay remained largely unchanged and even the recent 5% reduction in the loan to value is perhaps helpful in promoting financial prudence and does not add to suck acquisition costs like taxes to be paid.


2) There may be an economic slowdown around the corner

We have had about a decade of artificially low-interest rates no thanks to the US’ monetary easing policies. This has caused asset bubbles to form around the world. In cities like Singapore and Hong Kong, the interest rates on mortgages have hovered below 2% per annum for the most part of the last decade. In fact, interest rates on private loans have been consistently lower than interest rates on HDB loans for the most part of the last decade. If you had bought an HDB about ten years ago and decided to take a bank loan instead of an HDB loan, you would have been paying lower monthly instalments to date. In fact, private property owners have had to pay less interest than HDB owners in the last decade. There were instances whereby the interest rates were below 1% and this helped fuel asset purchases especially properties. The truth is that interest rates will invariably rise in the US and this will cause a knock on effect which will see rates in Singapore rise. In addition to this, there is a possibility of a trade war escalating between China and the US. The US is also scaling back on its asset purchases and this would see a drying up of easy capital across the world.


3) The Singapore property market is not similar to the Hong Kong property market

It would be foolish to compare the Singapore property market to the Hong Kong property market. The common rationale is that the Singapore property market is cheap compared to the Hong Kong property market but then Hong Kong does not have a successful government subsidised program like Singapore does. I will be first to admit that the HDB program does have some shortcomings but then it was designed to provide affordable housing to the citizens and for a large part it has been rather successful. Home prices in Hong Kong have far outstripped what is economically viable even to those who are earning above average income. In fact, the average home price of a Hong Kong apartment in May 2018 is HKD$21,858 or about SGD$3,800 per square foot. The annual increase in home prices in Hong Kong was 9.7% and these are the types of figures that the Singapore government is trying to avoid. When the prices of new launches in the rest of central region are commanding prices in excess of SGD$2,000 per square foot (Park Place Residences), then perhaps it is time to step in to tame prices a little. Singapore should never walk down the path of the Hong Kong property market in terms of unaffordability. In my work as a real estate practitioner, I have seen countless examples whereby certain groups of people reduce their spending and quality of life just to afford the mortgage on their property.


4) En bloc sale prices have gone ahead of fundamentals

When I speak of fundamentals, I am talking about whether the properties that are about to be redeveloped can find suitable tenants or homeowners. En bloc sales have become a lottery ticket to financial freedom and just about every homeowner is looking to cash in on the en bloc craze and pocket that sizable sum of money that will come their way. The common notion would be that these homeowners would be flushed with cash and immediately pour their monies back into the property market but the reality is that some of them will be taking this money to help fund their retirement. They may downgrade to an HDB flat, buy a smaller, older condominium or stay in their spare property. Yet redevelopment of the site yields so many more units than it replaces. Take Serangoon Ville as an example. It was initially a 244 unit development and it will be redeveloped into a 1,012 unit development called Affinity at Serangoon. I am not against en bloc sales as I do believe that there is a need to rejuvenate an ageing development and replace it with something newer and more functional. I am just saying that the supply that is coming onto the market because of these en bloc sales is far more significant than the en bloc sales proceeds that are going to be reinvested back to the property market. I cannot guarantee that all 244 owners in Serangoon Ville are going to spend all if not most of their en bloc sales proceeds on a new property but I am certain that there are going to be 1,012 more units coming onto the market because of this en bloc sale. Whether there is going to be enough rental demand to absorb all the new launches that are happening across the island is a huge question. While property prices in Singapore have been increasing, rental rates and volumes have been dropping.


5) Wealth creation must not be constrained to property investment only

The common thought in Singapore is that property investment is a sure-win investment. The truth is that people do lose money in property investment. The lost is further compounded when you consider the fact that there are costs like financing, maintenance and taxes that were paid during the holding period of the property. Add in renovation and furnishing and some property investments start to look really bad. An example of this would be a small boutique development Studio8. Studio8 is a freehold condominium completed around 2014 and is located along Jalan Ayer, just opposite Kallang MRT station. In fact, it is the nearest condominium to Kallang MRT station. If you were to compare the prices that the owners paid for their units against the indicative values on SRX, you will see that the homeowners are sitting on a loss of about 10% for their units. They bought the properties when the property market was buoyant and despite the fact that the development is freehold and so close to Kalland MRT station, they are sitting on a significant paper loss. Some of them may have already realised this loss by selling their units. This scenario is not unique to Studio8 and buyers need to be wary of the prices that they are paying for new project launches. Now that owning multiple properties has become more restrictive, perhaps investors can start looking at other forms of investments like stocks and if there is a pressing need to have properties in one’s portfolio, then perhaps looking at real estate investment trusts (REITs) is a viable option. I have always maintained that Singaporeans’ investment portfolios are too centred on property.


6) Singapore is not the only property market in the world

Property investment should not be confined to Singapore only. If the taxes are so restrictive and rents are dropping, perhaps it is time to look overseas. Many times I have encountered Singaporeans telling me that Singapore properties are the only types of property investments that make money. Yet I believe that they are basing this statement on the gains which the previous generations have made. Places like Japan and the UK offer good value at relatively affordable prices with low acquisition cost. Cities like Bangkok are at the centre of China’s one belt one road plan and are seeing healthy take-up rate. There are certain emerging markets like Vietnam or Cambodia which may offer good value in some segments. The issue for most investors is that they rely on developers or the sales agent selling that development to provide them with the reason to buy that very development. Information about where to buy, the prices of a certain area, amenities, taxes of certain property markets are all at everyone’s disposal now that there is easy access to the world wide web. Perhaps if investors were to do a search on the various property markets around the world, they could potentially find good value in certain markets. Of course, investing overseas would constitute a different set of risks and proper due diligence has to be done before committing to an overseas property purchase. That being said, there are property investors who are reaping the benefits of investing early in certain overseas markets.


So there you go. As investors, we really have to listen to what the government is trying to tell us. Singapore is focused on building a society of homeowners. In that respect, we are talking about a country whereby the people generally own the property that they live in. This has been the bedrock of our Singapore society almost since the day we obtained independence and it should not change. There was never an intention for us to create a nation of landlords. If we couple this with the fact that we are moderating the inflow of foreigners to maintain our Singapore core, then I find it perplexing how many Singaporeans are going to find tenants for the multiple properties that they are purchasing. Perhaps understanding this fact would make it easier to understand why the government is coming in with this latest round of cooling measures. Buying a good property is not difficult. The qualities of why you would want to live in a certain property would also be the same reason why a tenant or a prospective buyer would want to live in that same property. My clients have asked me what they should be looking out other than proximity to the MRT station, easy transport access, adequate amenities and a good layout. I usually tell them that perhaps it is that simple, the key qualities that they are looking for are truly what makes a good property. Perhaps it is time to think of property for what it was truly meant to be, a place of shelter and a place to live.


Yours Sincerely,

Daryl Lum