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3 Jan

Looking back on 2011: Key Property Highlights of the Year

As we ring in the New Year, iProperty.com takes a look back to remind you of the highlights of the real estate market over the last 12 action-packed months:

1. Cooling Measures 2011

The additional cooling measures introduced by MND (Ministry of National Development) was by far the most talked-about topics within the property industry this year. These included the increase of seller stamp duty rates to 4 to 16% for residential properties sold within four years of purchase, as well as the lowering of LTV (Loan-to-Value) limits from 70% to 60% per cent for buyers financing two or more properties.

In November 2011, MND also shocked the market by announcing the increase in Additional Buyer’s Stamp Duty of 10% for foreigners purchasing private residential property.

2. Relief for The Middle-Class Masses

Those in the “sandwiched middle-class” had much to rejoice about this year, when MND announced that the income ceiling for buyers of HDB flats would be raised from $8,000 to $10,000, and from $10,000 to $12,000 for buyers of ECs (Executive Condominiums).

Other measures included the release of large numbers of BTO (Build-To-Order) flats, accompanied by a SBF (Sale of Balance Flats) exercise in September earlier this year.

3. En-Bloc Schemes a Plenty

Rochor Centre, Redhill Close, East Coast Road and Clementi Avenue 5 were all examples of the areas which were ear-marked for SERS (Selective En bloc Redevelopment Scheme) this year. While the sentiment of residents affected was mixed, a good many were most concerned about compensation and replacement programs – with some even writing some (very public) letters to voice their unhappiness, contributing to the extensive media coverage on this topic.

4. DBSS Sticker-Shock

While high property prices in Singapore are nothing new, the price tag of $880,000 for a unit at Centrale 8, a DBSS (Design, Build & Sell) project in Tampines proved too much even for the locals to swallow.

Very quickly, petitions from the public led to MND stepping in to freeze all land sales under the DBSS program. However, prices of Centrale 8 were eventually lowered, and DBSS sales soon continued into the year, with projects such as Lake Vista @ Yuan Ching, the first DBSS project in western Singapore, launched at more affordable prices, from S$360,500 for the smallest unit to S$680,400 for the largest flat.

5. ECs: the Hot Property of 2011

ECs were in high demand in 2011, with notable launches including the Arc at Tampines –which commanded higher average PSFs as compared to Belysa, the previous EC launch in Pasir Ris earlier in the year.

ECs particularly appealed to home-buyers whose income was below the revised ceiling of $12,000, and who wanted accessibility to condo facilities such as 24-hour security, a swimming pool and tennis courts.

6. Record-Breaking PSFs

Developers certainly had reason to pop out the champagne at their annual company dinners this year. Earlier this month, more 80% of the freehold Charlton Residences was sold, even before its official launch. New benchmark prices were also set at the preview of Thomson Grand in Upper Thomson, with PSFs for apartments topping a jaw-dropping $1,600 psf. EC developers also had much to celebrate this year, as mass-market EC projects like Blossom Residences enjoyed strong consumer demand during the first weeks of their launch.

23 Nov

Bedok Residences – Are the serious buyers turning up?

Is Singapore a city where long queues are the norm? It certainly seems so at the Bedok Residences launch over the weekend. However it was revealed that many were actually queuing in place of agents or buyers. Is demand as high as it seems, especially with the high prices of units at $1,3000 psf? Is there a reason property agents are standing in line?

Hundreds of people braved the rain and scorching heat yesterday to queue for the upcoming Bedok Residences project, but many claimed they were either acting for agents or being paid to stand in line by genuine buyers. The line started forming on Sunday night and numbered a few hundred by 7pm yesterday. The CapitaLand project will be launched tomorrow. Plastic bags and rubbish were strewn across the entrance of the showroom as the crowd settled in for the long wait at the show-flat near Bedok MRT station. A CapitaLand spokesman said each person in the line is assigned a number that entitles him to pick a unit.

How will units at the Bedok Residences do?

It was not clear why the potential buyers, having obtained a queue number, had to remain behind instead of being allowed to return on the day of the launch. Some market watchers reckoned this to be a marketing ploy, as the sight of a big turnout might help drum up interest among buyers at a time of flagging interest in the residential market due to the global uncertainty.

While the project is centrally sited near the Bedok bus interchange, the pricing is unlikely to be a top draw. Although no firm details have been released, prices are expected to hover around $1,300 per sq ft (psf), valuing a 517 sq ft one-bedroom unit at $723,000. In contrast, several new projects – including A Treasure Trove in Punggol – have sold well in recent months, with analysts pointing to their average price of about $870 psf as a key attraction.

Options are wide and many at Bedok Residences. Will there be units for everyone?

Bedok Residences comprises 583 units of one-, study plus one-, two-, three- and four-bedroom units, and penthouses. The 15-storey project will be built above a retail development and is due for completion in 2015. It is unclear how many in the queue are really buyers looking to secure a flat in the 99-year leasehold project. Since the last cooling measures were implemented in January, no major project has been an instant sell-out.

And Bedok Residences is unlikely to buck the trend, analysts noted. Many people in the queue The Straits Times spoke to were property agents, or students and retirees who said they were being paid by agents to stay in line. Asked if they were there to buy, a group of women shook their heads and pointed to a property agent’s name card.

Bedok Residences is situated in a prime location, near public transport, shopping malls and other amenities.

A potential buyer, Mr Lim K.T., said he was interested in the place as his in-laws lived nearby, but added that some of his friends who had come with him had decided against buying when they saw how disorganised the situation was. There was no clear instruction on where to queue and many people pushed in. Some analysts were taken aback at the turnout, given the unstable economic outlook. Guessing at a reason for the crowd, Mr Colin Tan, head of research at Chesterton Suntec International, said the resale market has been slow, so agents may be focusing on developer sales.

Analysts said that the indicative selling price of $1,150 to $1,400 per square foot (psf) at CapitaLand’s newest condominium, Bedok Residences, is higher than expected – but they still expect a strong launch performance. OCBC Investment Research analyst Eli Lee, who visited the showflat on Monday afternoon, checked with three agents and found that they will only hire a replacement to wait in line if his team committed to buy and submitted cheques.  ’From these data-points, we judge that there is robust demand for the launch and expect a strong sales performance in terms of both units sold and average selling prices later this week,’ Mr Lee said.

Take a peek into the showflats of units at Bedok Residences.

Kim Eng Research also noted that the lack of condominium supply in Bedok Town Centre probably allows the project to set a higher price. The 99-year-leasehold, 583-unit Bedok Residences is part of an integrated development comprising homes, a shopping mall and a transportation hub linked to Bedok MRT station. ‘Demand for such integrated projects is expected to be strong as they provide convenient access to key transport nodes and retail outlets, not to mention their limited quantity. After all, there are only so many MRT stations in Singapore,’ said Kim Eng’s analysts in a fresh note.

Take-up could also be boosted by foreign purchasers, said Ku Swee Yong, chief executive of International Property Advisor. ‘There is likely to be a fair amount of foreign interest in this project, and around 20-30 per cent of the units could be bought by non-Singaporeans,’ he said. CapitaLand decided to forgo the traditional balloting system (which is largely based on chance) and instead opt for the queue system for Bedok Residences, so that selection and purchases can be done on ‘fairer, first-come first-serve basis’, said ERA.

The property firm added that many people in the queue outside the project’s showflat are paid to stand in line by agents who represent potential buyers with keen interest in the property. ‘We expect most of the queuers to be students and retirees as most of the interested buyers are working adults holding full-time employment and therefore are unable to take leave from work to be in the physical queue themselves,’ ERA said. ‘Similarly, the agents themselves are unable to join in the physical queue as they will have appointments, such as HDB appointments and viewings to attend to.’ Some of the agents also have more than one customer keen to purchase a unit, in the project, ERA added.

Source: The Straits Times © Singapore Press Holdings Ltd. Reprinted with permission.

Editor’s Commentary:
Are property buyers giving a final year-end push to sales volume or are they still waiting for more options to fall on their plate?

18 Nov

Keeping history intact – at what cost?

With what little history Singapore has, it is all the more important to maintain what we have. But when the URA comes a-knocking on your door, what would you expect history to cost you?

A cloud of confusion hangs over the owners of four two-storey blocks of flats in Tanjong Katong Road regarding the conservation status of their property. Some think the Urban Redevelopment Authority (URA) – the agency overseeing conservation – is pressing them to make changes to their units immediately to conform to conservation guidelines. Others do not even know what the issue is, as the letters from the URA went out to them in English, which they do not understand.

The URA’s first attempt to engage multiple owners in a discussion on conservation guidelines has turned out to be a challenging exercise. Its dialogues with the minority of residents who did show up generated discussion but little agreement. Mr John Lim, who chairs the management committee of Beng Tong Mansion, one of the four blocks, said: ‘Some residents don’t show up for the meetings and don’t know what is happening. Then they make noise.’ The other blocks have no committees.

Beng Tong Mansions along Tanjong Katong Road is one of the four blocks of flatts gazetted for conservation by the URA.

Situated opposite the Chinese Development Assistance Council building near Geylang, the four blocks were built between the 1950s and 1970s, and gazetted for conservation in 2003. But the URA, which can impose fines of up to $200,000 and jail terms of up to a year or both for breaches of conservation guidelines, has decided to wield its authority with only a light touch in these four blocks. If the owners there were to follow the guidelines to the letter, they would have to keep:

  • the balcony as an open space;
  • the walls and original louvred timber doors; and
  • air-conditioning units out of sight.

If you are looking to invest in a older building in conservation areas, it might be wise to get familiar with the guidelines URA stipulates. Photo courtesy of the Singapore Tourism Board.

The URA has instead let them choose the guideline they want to follow: They can either keep the original facade or change the original timber doors to glass-and-aluminium ones of the same size. Owners can also seal off the balcony. The URA has not, in this case, imposed a deadline for these approved changes to be made. Its only caveat is that owners in the four blocks agree on the guideline to follow and stick with it when they do renovate their units. Uniformity will thus come over time.

The issue has come up because the URA would like the owners to choose which guideline to follow, ideally by next month. Mr Ler Seng Ann, URA’s group director of conservation and development services, cited three reasons for the decision to offer options to the owners:

  • First, many units were renovated before the buildings were gazetted for conservation.
  • Second, the blocks are not considered the ‘cream of the crop’ among conservation projects.
  • Third, the URA understands that heavy traffic along Tanjong Katong Road may make sealed windows necessary to keep out the noise and dust.

The decision was made in consultation with bodies such as the Singapore Heritage Society and Singapore Institute of Architects, said Mr Ler. ‘Some owners gave feedback, asking for more flexibility when they renovate their flats. We’re trying our best to see how we can accommodate their requests and retain the character of the buildings at the same time,’ he added, noting that 70 per cent of the 140 units in the four blocks have been altered in some way.

Besides Geylang, and Tanjong Katong, Joo Chiat also has a number of conservation and heritage shophouses. Photo courtesy of the Singapore Tourism Board.

The URA’s consultative stance had its roots in 2008, when it received feedback from owners that some units had illegal modifications. Enforcement action was taken against four owners who did not undo the changes they had made. After talks with them, the URA reviewed the issue and decided to consult the owners, but interest has been scant. Only about a third showed up for each of the three meetings called, and few bothered to respond to the URA’s letter inviting them to choose which guideline to follow.

Unit owner David Ow, 64, who runs an advertising agency, said: ‘The URA has no right to ask me to change it back to the original condition. It is private property and there’s no compensation for me.’ Saying he has renovated his unit twice, spending more than $60,000 since he bought it in 1990, he added: ‘I renovated it before they conserved it. Now they want me to redo everything?’ ‘In the first place, there’s nothing to conserve about this place. There’s nothing special about it,’ he said, urging the URA to pay for renovation costs.

Another resident, Mr Vincent Tee, 55, who owns a 2,000 sq ft unit, wants to go with keeping the original facade. He said if the building were to lose its timber doors, the ‘flavour’ of it would go. He said: ‘I hope the URA will stick to its stance. By giving too many options, it complicates matters because everyone has a different idea. At the end of the day, we don’t want to put money into renovations for something we don’t really want.’

Source: The Straits Times © Singapore Press Holdings Ltd. Reprinted with permission.

Editor’s Commentary:
Before you invest in a heritage building or those due to be gazetted for conservation, it might be a good idea to take note of URA guidelines.

7 Oct

Singapore 9th most popular city for property investors

Amidst the global economic turmoil, Singapore is apparently seen as a safe haven and places 9th on the list of top 25 cities that attracted the most capital into real estate. Which city tops the list and how did Singapore fare in different sectors?

Gateway Asian cities feature prominently in Cushman & Wakefield’s report on the biggest and fastest-growing cities in real estate investment for the year ended the third quarter of 2011. Singapore came in ninth in the list of top 25 cities that attracted the most capital into real estate, comprising  office, retail, industrial, hotel and serviced apartment properties but  excluding development sites.

The island republic drew US$10.8 billion of investment in the 12 months to Q3 2011, up 87.2 per cent year on year. New York City (US$29.7 billion) nudged ahead of London (US$27.2 billion) into first place. However, London topped the global ranking for attracting foreign property investment with US$14.2 billion invested in the year to Q3 2011. The figure was down 9.6 per cent year on year.

Singapore property prices will continue to rise

Will Singapore property prices continue to rise as it climbs the list of cities attracting property investors?

This was followed by Paris and New York. Singapore was in fourth position, with US$3.9 billion of investments. The figure was up 63.4 per cent year on year. Beijing and Nanjing were in fifth and sixth positions. ‘With economic uncertainty and financial risks both impacting further on sentiment in recent months, momentum has slowed in the market, but supply levels are up in some markets, notably of late London, and strong activity is expected to be maintained, albeit with deals taking longer to close as due diligence remains high,’ said the report, Winning In Growth Cities 2011/2012.

The cities experiencing the highest growth in investment volumes include Singapore (No 7) and Seoul (No 9). Chicago, New York and Boston were the top three. London emerged as the top city for global office property investment with US$18.9 billion of deals, followed by New York (US$14.1 billion) and Paris (US$12.5 billion) and Tokyo (US$11.5 billion). Seoul, Hong Kong, Shanghai and Singapore were in sixth, seventh, 10th and 11th positions respectively.

Cushman & Wakefield managing director of capital markets (Asia Pacific) John Stinson said: ‘The lion’s share of the global appetite for development sites up to Q3 2011 was taken up by Asia, which dominated the entire top 25 field.’

Icon condominium on Gopeng Street, in the Central Business District, is one of the top-most searched condos on iProperty.com.

Beijing was top  with US$24.5 billion of investments in all property development sites, followed by Shanghai (US$13.7 billion), Dalian (US$11.5 billion), Wuhan (US$11.3 billion) and Suzhou (US$10.7 billion). Singapore was sixth with US$10.4 billion of development sites sold; Hong Kong was seventh (US$9.4 billion) and Tokyo was ranked 21st. Except for these three, the rest of the top 25 cities for development site investment deals are in mainland China. ‘While investors are still keen to acquire development sites, overall volumes are now easing as policy tightening in China aimed at reducing the risk of overheating in the residential sector in particular, leads to lower levels of activity,’ said the report.

‘Economic factors alone do not make up a great global city. Transport, education, liveability and ease of doing business all become important differentiating factors as gateway cities around the globe compete for the investment dollar. Asia again figures strongly considering these often ignored parameters. Said Mr Stinson: ‘Singapore is the No 1 port in the world for container throughput, closely followed by another five cities all based in Asia – Shanghai, Hong Kong, Shenzhen, Busan and Guangzhou. Singapore ranks No 4 globally as a financial centre.

Familirise yourself with home financing terms so you know exactly what you are getting into.

‘On the human side, Singapore ranks No 1 for personal safety in top global tourist locations. ‘There is no doubt that economic, social fabric and culture (goals) combined with investor sentiment place many Asian cities in the top global ranking with Singapore winning gold in many surveys.’

Source: The Straits Times © Singapore Press Holdings Ltd. Reprinted with permission.

Editor’s Commentary:
What do you like about Singapore? What does Singapore need to propel itself upwards and forwards? Will property prices be reflective of its position in the global market?

30 Sep

Private resale home market in limbo?

For 2 months now, prices of private resale homes have remained flat. Buyers are waiting by the sidelines to see how both global and local economies fare. How long will the market remain stagnant, and when change occurs, will prices go up or down?

Prices of private resale homes stayed flat last month following a similar result in July, according to an index that tracks transactions in completed projects. Experts say the flatlining prices indicate that buyers are taking a cautious approach to property amid a period of economic uncertainty.

The Singapore Residential Price Index indicates zero price growth of private resale homes in August and July of 2011.

Flash estimates of the Singapore Residential Price Index (SRPI) indicated zero overall price growth last month while the revised numbers for July also showed zero growth in overall residential prices. Prices rose 0.7 per cent overall in June. The previously released flash estimates for July had indicated a 0.2 per cent overall price rise. The previous time the index was flat month-on-month was July last year, according to Ms Chua Chor Hoon, head of DTZ South-east Asia research.

Associate Professor Lum Sau Kim of the National University of Singapore’s Institute of Real Estate Studies and Department of Real Estate, who leads the group that compiles the index, said the situation is not directly comparable to that in July last year. This is because the index methodology was changed in July this year to ‘account specifically for the influence of small or shoebox units’, she said. ‘What we can say is that our August flash estimate shows that overall housing prices in the non-landed private market have remained relatively unchanged between July and August based on data captured by Sept 21.’

How have shoebox apartments fared in the property market?

August’s flat price index was a result of rising values of so-called shoebox flats being offset by modest movements in central and suburban areas. Prices of shoebox units – they are typically around 500 sq ft or under – seem to have defied gravity last month, rising 3.1 per cent and rebounding from a 0.5 per cent price dip in July. Property analysts told The Straits Times that the flash August values reflected buyer caution, with affordability as the top priority. Dr Chua Yang Liang, head of research at Jones Lang LaSalle South-east Asia, said shoebox apartment prices could have risen last month with more buyers seeking cheaper apartments. ‘At the end of the day it’s about affordability… it’s the total quantum, total lump sum that buyers are looking at. Shoeboxes tend to fare better.’

DTZ’s Ms Chua also noted that the outlook was more cautious now, although she added that the monthly index tended to be volatile so revised values could be quite different. As a case in point, flash estimates for shoebox unit prices in July showed 1.4 per cent growth but the revised number was a fall of 0.5 per cent.

Double Bay Residences in Simei, one of the Eastern suburbs.

Prices of regular-sized flats in the central and suburban areas showed little movement last month. Central area values slipped 0.7 per cent after a 1.3 per cent decrease in July, while suburban apartment prices rose 0.5 per cent, from July’s 1 per cent increase. Dr Chua said: ‘The market is in a bit of a wait-and-see (mood), given the economic uncertainty.’

Source: The Straits Times © Singapore Press Holdings Ltd. Reprinted with permission.

Editor’s Commentary:
So it seems shoebox apartments are the only ones bucking the trend. Will this mean developers will build more of this property types in future? Are we headed the way of other major cities of the world trying to fit more people in a almost rigid surface area?

29 Sep

Suburban homes – new target for foreign home buyers

Moving away from central and prime districts, suburban housing projects are right in the middle of the target board for home buyers. New private condominium launches have sprung up in the midst of these areas which are not necessarily any less expensive. Foreign buyers are also joining the queue.

While many mainland Chinese buyers still go for prime properties in Sentosa Cove and Orchard Road, a growing number are fanning out to buy suburban projects. More are now scouting for units in areas such Yishun and Bukit Batok which combine affordable prices with easy access to amenities, say analysts. When The Straits Times visited property fairs in Beijing, Chinese agents were strongly promoting projects like euHabitat in Jalan Eunos and Boathouse Residences in Hougang.

Orchid Park condominium in Yishun.

‘In the past, a lot of Chinese buyers would go for prime areas, but the overall prices there have gone up quite a lot,’ said Mr Steven Tan, executive director of real estate consultancy OrangeTee. ‘So some are looking at suburban areas, where prices can range from about $800 per sq ft to $1,500 psf.

Some Chinese buyers, who have worked in or visited Singapore, go for the heartland because of familiarity and lower budgets, said Mr Colin Tan of Chesterton Suntec International. They tend to pick areas like Geylang – ‘which has become somewhat like a second Chinatown’, he said.

Suites 28 in Geylang, district 14.

Knight Frank associate director Png Poh Soon said they may also favour suburban properties ‘close to good schools and amenities such as shopping centres and libraries’.

Besides high-rise apartments, townhouses such as this one in Tanglin Residences, and other low-rise units are also available for home buyers' shopping pleasure.

In the second quarter of this year, Chinese nationals bought more units in prime areas like Orchard and Tanglin as well as district 18, which includes Pasir Ris and Simei. Chinese permanent residents also bought homes in East Coast but opted more for northern districts which include Sembawang and Choa Chu Kang.

Source: The Straits Times © Singapore Press Holdings Ltd. Reprinted with permission.

Editor’s Commentary:
In a small country like Singapore, is there any district where home prices are not competitive? Even less popular suburbs such as Geylang, Sembawang, Punggol and Sengkang are now giving the prime districts a run for their money. Which district is coming up tops?

24 Sep

Average mass market home price – $1 million

Compared to last year’s average of $970,000 for a mass market apartment in one of Singapore’s suburbs, the 2011 average has hit the $1 million dollar mark. Home buyers have proven developers wrong and broken the first psychological barrier. Will they soon break the next – the $1,000 psf barrier?

Average prices for mass market flats in suburban areas have surpassed the psychological threshold of $1 million, according to a new study. Values for new and resale private homes in the three months to June 30 averaged $1 million, up from about $970,000 in the same quarter last year, according to data compiled by Mr Ku Swee Yong, chief executive of International Property Advisor, and the Singapore Condo agency. There were 3,931 sales made in that period with sizes averaging 1,157 sq ft, making the average price of about $880 psf, the report said.

euHabitat condominium, situated near Paya Lebar MRT station. Image by Far East Organization.

Mr Colin Tan, head of research at Chesterton Suntec International, noted that the $1 million mark is a psychological threshold – developers have been reluctant to price their projects above that limit because they believe it is difficult to push homes at that price. However, with prices of suburban properties inching up in recent quarters, Mr Ku said, crossing $1 million was a ‘foregone conclusion’. He added that with prices of Housing Board (HDB) flats continuing to rise, upgraders, who make up a sizeable portion of private home-buyers, are more willing to spend on their new flats.

Senior manager for Asia Pacific research at Cushman and Wakefield, Mr Ong Kah Seng, noted: ‘One factor could be that developers have already paid out a certain amount for land and that’s why they are pegging their prices at that level. Also, the new homes could be built with more premium features to justify the increased price.’ Singaporeans typically make up a large percentage of suburban home-buyers, but Chesterton’s Mr Tan said foreigners are increasingly keen on units on the city outskirts. ‘Singapore is becoming a well-established safe haven for people looking to invest their money. But with the strengthening of the Sing dollar, it could mean that foreign investors who would typically have their eye on mid-market homes are now also considering mass market suburban homes too,’ he said.

The Luxurie - near Sengkang MRT/LRT Stations.

The other psychological barrier – $1,000 psf – is one of the final frontiers left to cross for suburban properties, say analysts. Several new suburban projects, including euHabitat at Eunos and The Luxurie at Sengkang, have already inched up to or past that psf threshold. But experts say those are outliers and it is unlikely $1,000 will be the new average psf price seen across the board.

Cushman’s Mr Ong said that while buyers will still be interested in projects with distinctive selling points, there may be a mismatch between sellers’ expectations and home-buyers’ willingness to pay such prices. Economic uncertainty is keeping some home-buyers at bay, but Mr Ku pointed out that if Singapore’s economy keeps growing and the global situation remains stable, then average psf prices could rise. Suburban neighbourhoods of Punggol, Sengkang and Pasir Ris will see about 28,000 new homes, public and private, over the next five years, according to Mr Ku. But market experts do not expect prices to soften much in response. ‘I don’t think we will see the average transaction price and average psf prices come down, especially when interest rates are so low and there’s still liquidity in the market,’ he said.

Despites HDB's numerous announcements about the release of new flats in old and new HDB estates alike across the country, the resale HDB flat market is still likely to be red hot for some time.

Cushman’s Mr Ong also noted that even in the event of a slight price correction, opportunistic buyers will be quick to snap up flats, taking prices back to previous levels. He added that suburban mass market units are generally considered the most affordable private homes, so crossing the $1 million barrier could raise concerns about affordability among buyers ineligible for public housing or executive condominiums.

Source: The Straits Times © Singapore Press Holdings Ltd. Reprinted with permission.

Editor’s Commentary:
As a home buyer, what are you more concerned with – whether this is only the beginning of increase in home prices, or how long will this situation last?

23 Sep

Predictions for the Singapore Property

There seems to be a lot of volatility in the global equity market as well as Singapore’s. Indeed, in the two weeks following National Day, billions were wiped out.

Singapore property prices will continue to rise

Singapore property prices will continue to rise (image courtesy of thinkstock)

A piece of interesting news is that the Swap Offer Rate (SOR) has gone into negative territory. US Federal Reserve Chairman Ben Bernanke has made an unprecedented move by guaranteeing that the SOR, which is highly correlated to the US interest rate and exchange rate, will not go up for the next two years. This is truly risk free investing if you know how to take advantage of it. Well, one way I can think of is to refinance your mortgage to a floating SOR rate with a two-year lock on it, reviewing the global situation to repackage it two years later if necessary.

Another piece of news that has grabbed the headlines is the downgrading of US debt by Standard & Poor’s. This has resulted in Singapore, which has one of the few remaining AAA-rated government debts, being thrown into the limelight as a safe haven during these turbulent times. However I think that there is a treat of the Singapore dollar appreciating too much, which will affect its exports. Currently it is trading close to a never seen before rate of 1.2 against the USD. The upside is that it is combating inflation since Singapore is a major importer, but the downside is deposit rates will remain low and investing overseas will be challenging, which will result in savvy investors turning to local property, perhaps even commercial properties, instead of the volatile equity market.

Taking these two factors into consideration, coupled with the stamp duty penalty of 16% for the first year, 12% for the second year and 8% for the third year, recent buyers have the advantage of a booming property market. In the interest of maximising their profits without any opportunity loss, they are unlikely to sell in the next two to three years to avoid being hit with stamp duty penalty and low interest rates. Also, the next two years will see less uncertainty in the market; with the Singapore dollar appreciating and overseas investment opportunities becoming scarce, property will remain attractive as it is less volatile than equities, especially since demand still exceeds supply, given that foreign investors are eying this market as well.

Therefore, my analysis is that Singapore property prices will continue to increase over the next two years at least. However there is the potential that this will come crashing down if interest rates start increasing, as today’s buyers will start off-loading as a result of lower stamp duty penalty and an oversupply of homes.

 

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