Property is one commodity that almost every Singaporean seeks to own. It has been drum in our ears by our parents since young that it is necessary to buy your own property before you get married. In the 70’s, my parents bought their first home (a subsidized government flat called HDB flat). They paid in full with their Central Provident Fund (saving kept in a mandatory account until retirement) money as the cost of one unit of 4-Rooms flat (with 3 bedrooms and a living room) was about SGD 25,000. The price of such flat has gone up to about between SGD 200,000 to SGD 350,000 (depending on locations) if purchase directly from the government. You can see that even subsidized government flat’s prices has gone uptrend, in this case by about 800 per cent in the last 40 years.
I am thankful for the government’s effort in helping more than 80% of the average and low income Singaporeans to own their first apartments through its subsidized housing scheme. I had benefited from this scheme and have realised some profits when the property prices appreciate in value.
Recently, the property price in Singapore has escalated so high that the government intervened and imposed cooling measures twice. Unfortunately, there is only slight effect on the market as prices continue to increase marginally though.
In my opinion, there are numerous reasons why the property market will continue to trend upward in the long-term provided there is no major global economic or financial crisis to affect the local economy here. There are:
1. Population Increases. Tthe latest statistics reviewed that Singapore population is over 5 million. I feel that the possibility for population to reach 7 million is likely in the future. During my trip to Hong Kong last year, the tour guide told us tourists that the usable land in Hong Kong is smaller than Singapore although its total land area is bigger, as it includes the mountains and hills. Statistics in 2010 showed that Hong Kong’s population is about 7 million. If Hong Kong can accommodate 7 million people, so can Singapore!
As I look around Singapore, there is vast land in the Northern, Western and far Eastern end of the island that is not fully developed. It means that there is capacity for residential/commercial development if population grow. It is not surprised that the government may allow the population to hit 7 million, if there is a need to replace the drop in population growth rate. If more permanent residents were to buy HDB flats in the open- market, the prices of HDB flats will rise inevitably.
2. The supply and demand of property. The supply of land for usage in Singapore is determined by the government. The change in the supply of land for residential use will directly affect the prices of development, and hence the prices of apartment and houses. However, how fast the market response to this change depends on numerous factors, e.g. individual disposable income, government’s regulation, ready to get married couples and the number of immigrants demand for housing. There may be plenty of land available, but if they are not released for residential development; prices is likely to rise if demand goes up persistently.
3. Aspiration of many Singaporeans. Most Singaporeans are pursuing the Singapore Dream. In my opinion, the typical Singapore Dream includes; owning a car, staying in a condominium or landed property, join a country club, travel overseas for holidays, earn passive income and enjoy life doing what they love doing. It is not uncommon to find many duo- income families own more than one property to earn rental income. In some cases, a few like-minded friends pool in their funds to co-owned high end market properties for its rental yield. Due to the current low mortgage interest rate, many investors took the opportunity to increase their leverage. For this reason, property prices can’t help but to trend upward with a strong resistant to go down.
4. Inflation. With the current general inflation of about 4.2%, it is not wise to keep too much excess cash in the bank since it only gives less than 1% interest. Buying property is one of the best ways to hedge against inflation as it appreciates in value over time. Of course there are other better investment instruments in the market to help you fight inflation and increase your wealth as well.
It is inevitable that many cash rich Singaporeans invest in property as it gives rental yield and capital appreciation value. Since the Singapore property prices have already gone up so much, you may wish to consider buying overseas property. However, in all kinds of investment, there is a certain amount of risk.
Do not invest in property if you do not understand the legality involved. If you are not comfortable with the local agent that structured the deal, do not invest. You need to do your due diligent check on the background of the overseas developers. Check on the financial status of the developer with its country embassy located here. If possible, visit the site of the development.
5. Rise in building cost. With rising cost of materials, labour cost and delivery costs, property price for all new private and government developments has to rise inevitably. As such, the overall property market price will probably rise. Even if there is a slight fall in price, it will not have much effect as the bench mark has been established. Some private developers would rather leave the unsold units vacant for a number of years, instead of selling at below market price during the property downtrend.
Before you invest in any property, do your research and ensure that you set aside emergency fund for your family. Have a contingency plan should your decision goes wrong. Assess your risk and be cautious not to over commit. Remember that you are to take responsibility for your own investment decisions.