Singapore Housing Oversupply?

S’pore’s Housing Oversupply, and What You Can Do About It

By Ryan Ong | MoneySmart – Thu, Jun 14, 2012 12:00 AM SGT

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  S’pore’s Housing Oversupply, and What You Can Do About It

Last night I had a vision: I saw the sky darken, lit only by flames of burning money. In the distance, towering condos leered at mewling investors, who shook their fists in rage. Which is either the most cinematic property analysis ever, or a direct result of eating mouldy Cheetos. Doesn’t matter, both mean the same thing: A housing oversupply is looming. In this article, I examine the causes, and what you can do about it:

"Take a good look at that sky. Once we're done building you'll never see it again."

What’s This About An Oversupply?

Wing Tai Chairman, Mr. Cheng Wai Keung, sees it coming. Simply put, we may have too many available houses entering the market. If you’re a potential buyer, you may now commence your lewd victory dance*. If you’re a seller, act fast; or you’re going feel like a jerk who just opened the 400th laksa stall in Katong.

*Do it in public, because Singaporeans are known for their sense of humour.

The causes of the oversupply are:

• Buyers’ Herd Mentality
• Low Interest Rates
• We Made Developers Aggressive
• Harsh Transition From Past Undersupply

Of course I can deal with this. I used to be a property developer.

1. Buyers’ Herd Mentality

Try this: At any social gathering, raise the issue of property. I guarantee it takes five minutes, tops, before some blowhard explains ”How my property made me so damn rich”. If it’s not them, it’s someone they know.

This “property cures everything” notion has become a disease. Thanks to the hype, everyone’s rushing to throw money at the first patch of dirt they find. Doesn’t matter if the walls are dried dog poop and the architect was an orang-utan with a crayon; Singaporeans will buy it.

Case in point? Even nonsense units like OCR (out of central region) shoebox flats are selling well. And condos are bought regardless of price (see Sky Habitat).

Since the herd mentality translates to high demand, developers have been building non-stop. And now, all their products are going to hit the market at the same time. Coupled with a crop of 8000 HDB flats, property prices are going to droop like a fat man on a treadmill.

"No Ma'am, you can't pre-order any projects we might start in 2040."

What to Do?

If you’re a buyer, wait a while before buying. When more houses flood the market, your desired property may drop in price. Even if it doesn’t, you’ll have a wider range of alternatives.

If you’re selling, you better move fast. If you find you’re too late, and prices have started to drop, then sit tight and hold; you’ll have to wait for the next upswing.

2. Low Interest Rates

If you’ve been tracking the 110+ plus packages on the home loans market, you…need to get a hobby. A documentary on cow grass would be more exciting. But at least you’d know the rates hover near 1%, which is fantastically low.

And because of that low rate, Singaporeans have little reason to hold back. The rate of capital appreciation far exceeds the home loan interest. Property investor Charlie Sng agrees:

“If you choose the right property, it will more than pay for itself. If the value of your property is growing by 5 or 6% every year, but your loan interest is just 1.2%, then you are making a lot of money.“

But will oversupply change this? Mr. Sng says:

“There is a lot of liquidity in Asia right now, especially Singapore. The oversupply will not change that. I believe interest rates will remain low.”

Maybe I need a better plan than "Whichever bank I can shout to from Starbuck's".

What to Do?

Take advantage of the cheap bank loans. If you haven’t changed your loan package in a while, now is good time to refinance. Visit sites like SmartLoans.sg for comparisons. However, do not feel rushed into taking out a new loan now. Chances are, you’ll still get a comparable deal later (even if housing prices drop).

3. We Made Developers Aggressive

Singaporeans are more willing to invest in a nice house than in retirement funds. We are undiscerning about property price, and encourage developer aggression. Mr. Sng feels that:

“Developers have been so aggressive at bidding for land, so aggressive and…start projects one after another. Why? Because they have the confidence that Singaporeans will buy.

Singaporeans will buy no matter the price, because their retirement security is not their job or their business; their retirement security is their house. And they will put everything into it, no problem.

But of course, houses are the same as cars in Singapore. There is limited space. When developers build so aggressively, there will definitely be oversupply.”

"House? We're building the pit for the developers' death match."

What to do?

If you’re a long term home owner, oversupply shouldn’t be a worry. There will always be cyclical dips in the property market. Mr. Sng says that:

“Don’t worry; if you are a true home owner and not a speculator, oversupply is more or less irrelevant to you. Five, ten years…probably a lot less…and your property will go up again.”

Mr. Sng also adds that oversupply can be an opportunity to upgrade:

“You can also sell now when prices are high. Later when prices drop, you will be able to get another nicer property. If you can time it right, this is a good opening.”

4. Harsh Transition From Past Undersupply

Singapore’s property market is like a car with two speeds: Too fast, and not moving. If you’re riding in it, prepare to be jerked around like a first time home buyer in a bank office.

When we faced undersupply (as far back as the late 90′s), homes were too few and too expensive. Now, we’ve over-compensated. This isn’t the first time, nor will it be the last: Population and property are not exact sciences.

Still, we can be grateful that an oversupply will hit the rich (who can afford it) before the poor.

"In my day there were no flats here. All jungle. And you had to kill your own brontosaurus for meat."

What to do?

Visit the URA building and look at the master plan; that’s the best way to predict oversupply.

You’ll also see where the future parks, MRT stations, and malls are. Don’t cling to fast, easy assumptions about different districts. For example, did you know that Bedok will host the world’s first arena for giant robot duels?

I’m totally not making that up to boost my home property price.

CPF Valuation Limit - How It Affects You

As mentioned in Parliament, not many home owners have hit the CPF valuation limit.  Yes, not many, but what are they NOT TELLING us?
What they didn't tell us is, once you hit 100% of the valuation limit, you cannot use CPF to pay for your loan, till you build up the "Minimum Sum". Than you can continue using it again.

Given a 30yrs loan, most likely, you will hit the valuation limit (the valuation of your property) somewhere on Year 26 (assuming, interest rate remains unrealistically at 1.5% throughout, AND not taking into consideration Accrued Interest).  If you take interest hike and accrued interest into consideration, the Valuation Limit will be reach in a far shorter years.

A few things to consider.
1. How many home loans have reach 20 years (let alone 30)? A lot of properties today, have not reach 20yrs loan yet. Increased in property transaction took place in the mid-90s onwards. Which means, most loans from the 90s (if those pple didn't change home again), will only be about 15yrs old. 

2. How many people are aware of the Maximum Withdrawal Limit, and the Minimum Sum policy? 

Way into the mid 2000s, I hear home buyers saying, I will upgrade after 5yrs. Is this practical? How many friends you know stayed in their same flat beyond 5yrs?

3. If you get married, buy a flat now, you may end up being a parent in 2-3yrs time. 20yrs down the road (You may have hit the 100% withdrawal sum), your child is ready for University education. 

You suddenly faced the stoppage in using of CPF for housing. HOW? Pay in CASH!!




So, have you been told the above?  Why are they not coming out with the real information?




--------------------------
CPF valuation limit not an issue for majority of home buyers
Posted: 14 May 2012 2004 hrs

SINGAPORE: The CPF Valuation Limit is not a constraint for the vast majority of members who are servicing housing loans using their CPF savings.

Minister of State for Manpower Tan Chuan-Jin said this in response to MP for Pasir Ris-Punggol GRC Gan Thiam Poh's question on whether the CPF Board will review the CPF withdrawal limit for housing.

The valuation limit restricts the amount of CPF savings members may use or property purchases to the lower of property price or property value at the time of purchase.

This is to ensure Singaporeans' retirement needs are not compromised when CPF savings are used to finance housing needs.

Mr Tan said the number of members who can no longer use CPF savings to pay for monthly instalments after reaching the valuation limit is actually very small.

"But the small minority of members who may find it difficult to continue servicing their housing loans after they reach the valuation limit, CPF Board does assess the situation and has allowed them some flexibility on a case-by-case basis," Mr Tan said.

"For example, where giving such flexibility helps them tide over a period of temporary hardship or where the member is in the midst of right-sizing his property to avoid defaults."

"CPF Board will continue to exercise such flexibility and discretion where the case merits," Mr Tan added.

- CNA/wm
http://www.channelnewsasia.com/stories/singaporelocalnews/view/1201195/1/.html

Is Housing In Singapore Still Affordable?

Propertyguru.com did a write up on housing affordability which I shall just discuss a little.

In their article, it was said that public housing (HDB) has become severely unaffordable. The affordability formula was based on globally-recognised formula where the Median Multiple (median house price divided by the annual median household income) where a result of

- 3.0 and below would imply that houses are affordable,

- 3.1 to 4.0 (moderately unaffordable),

- 4.1 to 5.0 (seriously unaffordable), and

- 5.1 and over (severely unaffordable).

It was stated in the article, that private properties median was 6.03, which means they are 'severely unaffordable' but in contrast to Singapore's public housing which stands at a high of 6.7, it is, actually mor affordable to own a private property than a HDB flat.

The HDB's primary role is to provide affordable housing to the masses, but from this recent home prices, they have failed terribly. The HDB is now a profit chunking machine of the government. Here is some simple comparison.

Way back in the mid-1980s, a 4 room HDB flat type cost abou $45,000 per unit while combined household income average at about $20,000-$30,000. Home prices were about 2 times of the combined household icome.

Currently, the same 4rm flat type from the HDB itself, cost about $400,000 (or in some projects, A HELL LOT MORE). Given that same formula, shouldn't the same house hold be earning about $200,000 per annum? NO! An average household is now earning about $60,000-$80,000 per year, which makes affordability median at about 6 times their combined household income.

However, our government always reminds us, we are a city state, and they use Hong Kong's housing prices to 'convince' us that housing is still affordable. An average home for the average Hong Konger is about SGD1 million while the combined household income is possibly near $100,000 or 10 times their combined household income.

How convenient! Shouldn't we expect the government's remuneration to be compared with Hong Kong since we are quite much modelled against Hong Kong, both highly dense city (don't get me wrong, am not getting political... but just comparing)?

Own a HDB Flat with $1,000 Income

Recently, Finance Minister Tharman Shanmugaratnam comment in parliament that a family with combined income of $1,000 could actually afford a small HDB flat. That created an uproar from many people, as $1,000 a month these days, could hardly pay for a basic life.

Emotions aside. Yes, it is indeed, possible to own a flat with an income of $1,000. The question is, what's the mathematics that the minister didn't explain (of course, in parliament, they don't go into the bits and pieces).

Here is the breakdown.
- New 2 room BTO flat (1 bed room) cost : $100,000
- Enhanced Additional Housing Grant : $40,000
- Special CPF Housing Grant : $20,000
- Loan needed : $40,000

The monthly installment (CPF/HDB Loan) :
- 30-year loan: $161 per month
- 25-year loan: $182 per month
- 20-year loan: $214 per month

So, actually, a family with $1,000 combined income, can actually afford to buy. Monthly installment is by CPF. As compared with RENTING from HDB, the same flat would cost $123 and $165 monthly and this amount is payable in cash.

This may free up a little more cash for such families (since installment is from CPF).

HDB resale prices could drop 10%

It was writen in PropertyGuru.com.sg website that HDB resale prices could drop 10%.
(source : http://www.propertyguru.com.sg/property-management-news/2012/2/32295/hdb-resale-prices-could-drop-10-say-experts)

In the article, property experts shared their view on the HDB flat (public housing) prices in the current Eurozone debt crisis.

There was 'coffeeshop' talk that property prices will dip by 30% this year. Would you believe the rather baseless blind leading the blind talk, or the experts from the property market (as cited in the report above)?


New HDB Flats
The many BTO projects will help first timers, which, a lot are not
able to pay the high Cash Over Valuation (COV) and valuation in the first place. So the HDB's release of more BTO projects will provide first timers with the chance to own their flat, to provide to the demand.

Resale Flats
On the resale market, what may happen when the economy soften further? Valuation won't drop too much. HDB flat valuation is government controlled, not independent to market movement like private properties. So, if valuation comes down, new flat prices will also come down. That is not what the government wants.

However, COV will come down. COV is what buyers are willing to pay on top of valuation. If cashflow is limited, people will not splash so much cash. Sellers may expect, but if the market is not paying, they can't fetch. It will come down slowly but surely. It may even dip below valuation like what happened in the mid 2000s.

30% Dip
If such a big adjustment happens, all properties will be affected, banks will be affected,
economy will slide further. So I don't think this is gg to take place so easily right now. Yes it can, but not so easy.

Post Eurozone Debt Crisis
Propnex CEO said, “Public housing resale prices have gone up by over 80 percent in the last five years".What happened after US Sub-Prime dust settled? In 2006-2007, private property prices shot up drastically. It soften and came down in 2008 and started climbing again after CNY 2009 (with the launch of Alexxis).

Will we see a repeat of big spenders coming into the picture after Eurozone problem is settled and economy recovers? Singapore needs more sound policies to curb foreign speculation.

European Crisis! Will It Affect Singapore? Property Policies - The Other Side Of The Coin

It has been nearly 2 years since my last blog post. Economy was rosy for awhile. Now that European Crisis is too real to divert, it has become a worry, a big topic of concern.

(1) European Crisis
The question of late is,
- Will it affect Singapore?
- When will it hit our shores?
- Is the government capable to steer us out


A simple broad based issues to consider:
- Singapore is an export based economy.
- We are not self-sufficient.
- We are a very small economy, like a small boat in the ocean.

Just based on these 3 points, we are always affected by international turbulances. The only thing the government can do is, foresee some of these turbulances and try to implement
policies that can soften the wave.


(2) When Will It Hit Shore
There are many street talk that it will hit us after Chinese New Year (funny, it is 1 week away from today... that spells doom in about 2 weeks???). Street talk is baseless! Fear mongers are just shooting away.

The few concerns includes Job Security and Economy Data. Some small scale retrenchment started taking place since Q4 2011. Companies big and small already felt the decline in business perhaps since Q4 2011.

So, to say it will hit shore after Chinese New Year is really shallow. First few ripples have arrived since months ago. The rollers and waves are approaching. It will start showing more signs if more policies and countries in Europe failed.

Economy data would be more accurate indicator of a recession.


(3) Government Policy Making
The government already noticed the European financial situation since years back. Good thing this time they "have yet" to act smart and let the two loose financial canons fire their rounds into failing European banks. We hope they didn't, but we can't trust them either, they did too many bad investments even a novice thought was stupid.

Property Control Policies were implemented since August 2010, with the change in Minimum Occupation Period, Seller Stamp Duty, etc.

More policies were implemented in early 2011, where Foreigner investors will have to pay 10% Buyer Stamp Duty.

On the surface, this is to curb runaway inflation. However, is it really that innocent, to help Singaporeans own homes? Take a look at it from the other side

(3.1) A lot of property price spike were lead by private properties
A lot of the spike were influenced by foreigners who had divert their funds to Singapore property, leading to a spike, and their ROI being huge (as in, purchase and sales price differences).

A lot of these foreigners doesn't even live here. So it doesn't matter if properties are are expensive. They just want to park their money

China took property control measures after seeing their property market inflate tremendiously. So these rich Chinese National has to park in another save haven, Singapore.

Now, given the above, it is very dangerous situation we faced. If these investors were to suddenly pulled funds out, the property market will collapse and a lot of people will go under. So having policies to deter further foreign investment is to reduce the risk of having more foreign cash (hot cash) in our property market and causing a potential crash.

(3.2) Cash Strap Investors Pulls Out - Stamp Duty
If a rich investor faces uncertainty, they will dump their property here and pull cash back to their home country. Now, looking at the Seller stamp duty, where stamp duty applies for property sales within 4yrs, and the foreigner stamp duty (10%?) on purchase, it is also a measure to
stop too much inflow of cash, and prevent investors pulling out overnight.

The 10% Buyer stamp duty will reduce more foreigners from investing into Singapore properties as the price is now inflated 10% above market valuation. A smart investor will not start with a negative (n -10%).

The seller stamp duty :
- 16% within First Year
- 12% within Second Year
- 8% within Third Year
- 4% within Fourth Year
This is a good deterrant to dump property and cash out as they will exit with a negative valuation (as in, sales price less x% seller stamp duty).

This can be a deterrant to these foreigners, making them look elsewhere for cash if the need arise.

Further measure the government could take may include, restriction in foreigners bringing out cash from the sale of property. So even if investors wants to sell their property and incur Stamp Duty, they are not able to bring their funds out, trapping their monies here. However this will be unpopular as investors will be too cautious to invest here in Singapore again.

The European Crisis may take years for the dust to settle. Thus the 4 years tiered Stamp Duty is possibly a good measure yet doesn't over penalize foreign property investors.