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Consider: Is there opportunity in a crisis in the residential market?

In the past, astute contrarians have gone against the grain to make purchases, but it's caveat emptor.

For people who are looking to buy a home for owner occupation, affordability is key.

THE residential property market has remained remarkably resilient notwithstanding the unprecedented pandemic. Flash estimates for second-quarter 2020 showed that the Urban Redevelopment Authority's private residential property price index eased by only 1.1 per cent quarter on quarter following the one per cent decline in Q1 2020 while the HDB resale market was even more resilient - the Q2 HDB resale flat price index increased by 0.2 per cent quarter on quarter compared with steady prices in Q1.

During the "circuit breaker" partial lockdown to contain the spread of the Covid-19 virus, developers were able to sell some units, mainly to buyers who had already visited the show galleries earlier. Response to sales of newly completed units by developers was relatively encouraging.

Interest centred mainly on Outside Central Region (OCR) (Figure 1) while the proportion of Singaporeans buying private residential properties increased to above 80 per cent in April and May, reflecting underlying confidence in the market.

Why is the residential market so resilient despite what is happening in the real economy?

  • Memories of past cycles. Looking back at past crises, including the Sars public health crisis, residential prices in land-scarce Singapore have rebounded after each cycle, on one occasion by as much as 62 per cent after the 2008 global financial crisis (Figure 2). From an economic perspective, the scarcity of land appears to be a supply fundamental that can weather the erosive effect of shocks.
  • High liquidity with limited investment options. For many, there are currently limited options with a wall of money trying to find an investment, gravitating them to residential properties.
  • Low cost of borrowing. The cost of borrowing is at an all-time low and interest rates are expected to remain low in the near future with the current fixed rate mortgage rate of about 1.5 per cent.
  • Stable asset class. Real estate is a relatively stable asset class. For instance, in Q1 2020, the URA private residential property price index fell by one per cent. This contrasts with the STI which fell by 23 per cent and property stocks by more than 20 per cent, notwithstanding that the stock market has recovered some ground since then.
  • Emotional attachment. Owners often have strong emotional ties to their residential properties as it is an asset where one can physically enjoy and have the pride of ownership, a legacy which can be passed on to the next generation.
  • Serious investors with longer term perspective. Macro-prudential policies introduced over the years have also weeded out speculators, leaving genuine investors who take a longer-term perspective.
  • Established developers. Similarly, the many crises we have weathered have ensured that developers who survived are generally in a much better position with stronger balance sheets than before, lending stability to the market.

The downside is that property is a relatively illiquid asset class and the capital outlay is significant. Buyers must be able to ride out market downturns, and for those able to do so, the returns have proven to be attractive.

For instance, during the past crises, the URA's private residential property price index fell by as much as 37 per cent during the Asian Financial Crisis but rebounded by 40 per cent within six quarters. Prices are often sticky on the way down as owners hold on to asking prices until volume has dropped significantly over a period of time. On the contrary, the rebound can be swift.

How should potential buyers go about their decision-making?


  • Understand the reason for the purchase. If the property is purchased for owner occupation, personal considerations like proximity to schools and parents' homes should take centre stage. If the purchase is for investment, the selection criteria must be from the perspective of the tenant. A common pitfall for investors is to buy what they like instead of what tenants prefer.
  • Understand your risk profile. For owner-occupiers, it could be the need to sell their existing property within a short period of time to avoid paying the Additional Buyer's Stamp Duty (ABSD) for their new purchase and the possibility of compromising on the sale price of the existing property. For investors, it could mean what happens if they cannot find a tenant, or when the rent falls and interest rate increases.
  • There is no "perfect" property. We are unique, each with our own lifestyles and expectations. It is therefore impossible to buy the "perfect" property that fulfils all our aspirations. Buyers need to calibrate their priorities and compromises may have to be made.
  • Giving up the good in exchange for the better. If one is trading up to a better location/asset, selling and buying in a soft market gives the opportunity for a stronger price increase when the market recovers.

Hedging the bet

For those who look to buy, what are some considerations to manage risks while laying the foundation for growth?

  • Location. The tenet for buying property has not changed - location - but with a new perspective. Where location was previously confined to the prime districts, the concept of location has evolved.

Although a prime location remains desirable, lifestyle amenities - for example, proximity to the riverside or F&B amenities have also come to the fore as convenience becomes the new currency.

Following the pandemic, the pace of decentralisation of business activities, supported by a wider variety of amenities, will gain momentum as more companies adopt a hub-and-spoke model with headquarters in the CBD and branch offices in decentralised locations.

  • Accessibility & connectivity. Singapore has become more accessible as the MRT and bus networks and neighbouring amenities continue to expand, supported by alternative modes of transport. By 2040, Singapore will be a 45-Minute City with 20-Minute Towns. All journeys to the nearest neighbourhood centre - whether by walking, cycling or riding - will take less than 20 minutes. Some nine in 10 of these peak-hour trips will be completed within 45 minutes.

Jobs will also be closer to homes as business activities continue to decentralise. This will make living away from the city centre increasingly attractive. As MRT stations become more prevalent, properties near interchange stations will command a premium as accessibility and connectivity in terms of time (instead of physical distance) become the criteria for decision-making.

  • Growth areas. As Singapore continues to decentralise, there will be new employment areas - for example, Jurong Lake District, Jurong Innovation District, Woodlands Regional Centre and Punggol Digital District, with ready accessibility to/from other activity nodes and residential areas, facilitated by the Jurong Regional Line, Thomson-East Coast Line and North East Line extension.

Neighbourhoods near learning institutes such as universities often command a premium as they anchor a cluster of knowledge-driven businesses that will in turn catalyse other activities. The presence of an institute of higher learning will also have a positive impact on the profile of the residents and amenities.

  • Park connectors, parks and nature reserves. Proximity to nature has a positive impact on our physical, mental and emotional health. Our 150-km Round-Island-Route which integrates with the park connectors, connects natural, cultural, historical and recreational sites, thereby creating myriad opportunities for a variety of recreational activities. More residents are exercising and taking to the outdoors. Meanwhile, Singapore's population is ageing. The current median age of 42.2 years is expected to increase to 53.4 years by 2050.

It is estimated that 12.4 per cent of our population in 2019 was 65 years and above and this will grow to 22.5 per cent in 2030 and 33.3 per cent in 2050. Even as seniors place more emphasis on outdoor activities, Covid-19 has also raised the awareness of health and wellness to a new level. As such, the demand for properties located near park connectors, parks and nature reserves will increase.

  • Health & wellness. This pandemic has made us rethink real estate including how space is to be used. Our homes have become our workplace, classroom, entertainment venue, exercise studio and playground. Going forward, we could find more households spending time at home.

The global trend towards a gig economy as well as more seniors working part-time is leading to a paradigm shift in the design of homes. For example, attention is now turned towards providing more light, cross ventilation, improving fresh air intake, views and creating dedicated or flexible space incorporating touchless design and technology to promote the well-being of those using the home for different activities.

Indeed, the healthy building movement is gaining pace, as its role in public health becomes more apparent with practical designs that help communities lead healthy and active lifestyles both within and outside of our homes.

New versus old properties

Over the past year, the price gap between new and resale non-landed private home prices has widened in the Rest of Central Region (RCR) and Outside Central Region (OCR) but narrowed in the Core Central Region (CCR). (see table)

While older developments tend to have larger floor areas, their designs are somewhat obsolete.

In contrast, new developments often incorporate the latest lifestyle designs with efficient and flexible use of space for living, working, playing, learning and entertaining - all centred around sustainability and wellness.

Although space may be compact, the focus is on delivering Space as a Service and not the traditional brick-and-mortar concept of physical space. As a result, many buyers have gravitated to new sales as they are perceived to deliver value, featuring contemporary living designs supported by technology that appeal to their lifestyle needs.

So you want to buy, sell, lease

Potential buyers must consider the transaction costs which include stamp duty/ABSD and legal fees which can add upwards of 4.5 per cent of the price of the property.

While we are in a low interest rate environment, mortgage rates do fluctuate. For investors, there are recurring expenses such as maintenance fees and property tax in addition to loan repayment, regardless of whether the property is tenanted or not.

Sellers, on the other hand, must have realistic price expectations if they wish to transact.

Engaging a knowledgeable broker who appreciates the strengths and potential of the property makes a huge difference. There is an even greater need to market the property to its fullest potential since buyers have many options.

As prices for older properties are unlikely to increase in the near term, it may be worthwhile to moderate price expectations to realise the sale earlier.

However, if the property enjoys unique attributes, it may be worthwhile to hold onto the property until the desired price is achieved.

Landlords should be realistic in their expectations bearing in mind the realities facing prospective tenants in the job market.

Likewise, tenants should work with landlords to ensure mutually acceptable outcomes. Some tenants may move to smaller or less prime located apartments, creating demand for these apartments.

The next normal

This crisis is like no other. It is firstly a public health crisis, a pandemic which has led to many governments shutting down economies before gradually opening up again.

The Ministry of Trade and Industry is forecasting 2020 GDP contraction of 4 to 7 per cent.

Businesses have been thrown the much-needed life line with financial support from the government to tide over this challenging time as we enter the next normal.

For investors looking to the residential market, the assets in this sector should generate sufficient total return from capital gains and rentals to offset the capital outlay and cost of transactions which can be hefty for Singaporeans who are buying their subsequent properties and for foreign buyers subject to the ABSD. If the owner sells within three years of purchase, it will also attract seller's stamp duty.

However, as the ABSD has been in place for almost nine years, buyers have accepted it as part of the transaction cost. For some foreign buyers, the tax in their country of origin may be high too. As such, buyers have pretty much internalised the ABSD as a cost akin to paying the Certificate of Entitlement for the purchase of a vehicle. They have also rationalised that if the ABSD were to be removed, many other buyers will jump in, leading to price inflation.

For those buying a home for owner occupation, affordability is key. The employment market will be important and if structural unemployment is limited, those on the sidelines may be prepared to buy a private residential property that meets their aspirations.

Singapore is a relatively safe haven in Asia. There is political and macro-economic stability, accommodative monetary policies and relatively high liquidity.

With the US Federal Reserve expecting interest rates to remain low at near zero through 2022, many are using property as a store of wealth and hedge against inflation.

For foreign buyers, the strength of the Singapore dollar is also a hedge against other currencies.

Despite the high number of Covid-19 cases in Singapore, fatalities have remained low and our healthcare system has proven to be adaptive, resilient and robust.

While there are areas we need to improve on, overall, Singapore enjoys a good reputation for health safety, social capital and resilience.

When the pandemic is over and with leadership, unity and grit, Singapore will be an attractive regional hub and gateway for businesses to be in. This will in turn underpin demand and value for the residential market.

The potential unsold supply (including planned supply) of private residential properties for sale has also declined as the supply of land has fallen, following the dearth of collective sales since mid-2018. Potential supply is now much lower at 32,366 units in Q1 2020 compared with 40,683 units in Q1 2019.

Based on demand of close to 10,000 units in the last three years, the potential supply will last for about another three years.

Similarly, supply of land in the Government Land Sales Programme has also slowed as the government reduced the number of units in the H2 2020 Confirmed List.

Additionally, the cost of construction has increased given the construction labour situation and supply chain disruption.

No one knows how long or deep this pandemic and economic malaise are going to last. In every cycle, it is impossible to buy at the bottom and sell at the peak.

Unlike stocks where every share is the same, every property is unique. Very often, when the property is "right", the price is not and vice versa.

In the past, astute contrarians have gone against the grain to make purchases, including properties which would otherwise not be available for sale in a normal climate. In every crisis, there are opportunities for the brave and prepared.

Caveat emptor.

  • The writer is CEO, Edmund Tie & Company (SEA)

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