Why Property Prices in Singapore Stay Resilience
Well, most potential buyers waiting on the byline is waiting eagerly for the property news headline to read “Property Prices in Singapore has hit rock bottom……”
To property owners it may sound cruel but seriously anybody who is trying to time the market and hope to pick up a few bargains is hoping for this to happen. In the aftermath of 7 rounds of cooling measures, sales volume has not been very encouraging in recent months. Indeed the effect of the cooling measures is starting to take effect.
What about the pricing? Has it gone depressed? Well, the residential property price index has gone down by about 5% from the peak in around 2013 to Nov 2014.
This is sounding like a news more pleasing to majority of the property owners, instead of home buyers. Why? Comparing the sales volume transacted in the same period of time you will realize that it has plunged by more than 50%. By Q3 last year more than 12,000 units of all private homes were transacted. Q3 this year saw only about less than 6,000 units transacted.
What? The sales volume is down by 50% and yet the price fell by a mere 5%? This is ridiculous! Well, this is good news in the light that prices in the property market show resilience and it also reflect a relatively “calm” and “mature” market that would not react to the slightest negative movement of the market. So what does this imply? Why the property price is so resilience?
First, why the price is so resilience?
We would be glad to know the market stayed resilience because of good policies, market and economical fundamentals. Below are some factors that are supporting the property market.
1. An open economy that bring stable demand for rental market
2. Early pre-emptive policies to eliminate property speculators
3. A recovering global economy
4. A strong financial system to regulate over-leveraging
5. A very comprehensive and effective plan to manage and optimize the utility of land in Singapore
6. A low interest rate environment
All these contribute to the stability of the Singapore property market. Hence, property owners did not panic and reacted in a negative way even when sales volume plummeted more than 50%. Let look at each one of them.
Singapore has a relatively stable rental market. There are 3 main types of work pass for foreigners to enter and work in Singapore. There are,
1. Employment pass
2. “S’ pass
3. Work permit
The Employment Pass is a work pass for foreign professionals working in managerial, executive or specialised jobs. Currently, there are about 176,000 employment pass holders staying in Singapore each year. The number of “E” pass holders remained very stable at around 177,000 for the past 3-4 years and there is no drastic reduction in the numbers of these professionals. Hence rental prospect remain relatively stable, unless there is a drastic change in policy to reduce the number of these professionals in Singapore. Most investment home can be rented out in a reasonable period of time.
In the earlier slew of property prices cooling measures we see the policy makers targeting property market speculators. These are mainly investors with short-term interest in the property market and would take advantage of a bearish market for a quick profit. In additional the regulators also tightened the financing of property loans from banks, these pre-emptive measures had eradicated certain risk associated with these buyers who would be otherwise be vulnerable and might have reacted in a negative way to any market movement.
The world economy is recovering but it is still in a quite fragile stage. Therefore, it is very unlikely interest rate in Singapore will rise drastically. The state of the world economy also reflected the low interest rate environment currently experienced in Singapore. In additional, lower interest rate translate to lower holding cost for a property, as such most property owners would rather hold to rent the property then to sell at a deflated price.
The fundamental of the property market here is good in my opinion. Therefore, we see no panic selling and price stayed resilient. What this implies is that as long as the rental market is stable, and there is no major economy crisis that force many out of jobs or businesses out of business, the price of the property market will continue to show its resilient. So unless there is a change in foreign policy to forbid many foreigners to work in Singapore and affected the rental market, otherwise we will not likely to see a drastic movement in price. But is it likely this policy to be changed?
Share with us your experience and thoughts.