Why are property prices not going down? Ever since 2009, the prices have been higher than a raver at a Eurodance concert. Currently, many Singaporeans won’t be paying off their loans until they’re past 60. And the prices are still rising. Pretty soon our notion of “cheap property” will involve more Zeroes than a Pearl Harbour remake.
To get to the bottom of this, the MoneySmart team set me up with an industry insider. Let’s call him Conan. He’s a property agent with five years experience.
I meet Conan at TCC at Bugis, where he’s having a smoke and a coffee. He tells me being a property agent was his first job, and he mostly works in the Tampines area. He knows all about the spike in prices.
“When I started in ’07,” Conan tells me, “you could get a three room flat in Tampines for $190 – $200k. If you buy today, it would be around $300k. It might even reach the $350k – $390k range.”
“Why?” I ask, which brought up a whole slew of reasons.
1. House Flipping in ’07.
Conan figures the problem began in the last half of ’07, rather than in ’09. He mentions that a lot of stock traders turned to property investments, to diversify their interests. Their buying practices took advantage of the now defunct Deferred Payment Scheme (DPS):
“With DPS, buyers only needed 5 percent down payment, 3 percent stamp duty. The rest of the cost they had to pay within the next 2.5 years.
So what they did was buy first, and during the 2.5 years they would find another buyer. Then they’d sell off the property at a higher price. Even after they pay the remaining 95 percent, they would make a profit.
A lot of people could get into it, because the initial down payment was so small. Some of them also sold before 14 days; then they didn’t even have to pay stamp duty. You can call it house flipping.”
The house flippers weren’t buying property to live in. They were buying only to resell at a profit. So someone who bought a house at $500k would resell at $550k, and the subsequent buyer would try for $600k, etc. Picture this happening at a furious pace, with properties being sold in the span of two weeks. It’s obvious why the prices climbed so fast.
Although the government has put a stop to the DPS, the prices are already set at a high:
Let’s say I bought property at $600k while the DPS was in place. If the DPS is gone, I may not have a buyer at $650k. But rather than sell it at a loss, I can also hold on to the property, either renting it or living in it. As such, I have no reason to budge from my $650k price, and my property price remains high.
2. DBSS Flats and Private Condos
Design, Build, and Sell Scheme (DBSS) flats were introduced in 2005. These are HDB flats, but they are built by private developers.
In other words, they’re government housing that looks like anything but government housing. DBSS flats are usually made from more expensive materials (homogeneous tiles, timber, etc.) and have extra regulations. Namely, your neighbour can’t tint her windows bright blue, or hang her crusty undies on a clothes pole and stick them out to dry.
Conan says the high prices of DBSS flats are pushing up prices, especially for condos:
“Recently we had a DBSS property, a four room at The Pinnacle @ Duxton. The price was just over $600k and it still sold. Imagine if you are a condo owner and you’re living nearby. If a DBSS can sell for $600k, wouldn’t you expect that your condo can sell for more?
The mindset of most condo owners is: how can a DBSS sell for more or even equal to a private condo? If Pinnacle can go for $600k, mine can be $650k , $700k, maybe even $800k.”
Which leads to the third cause of rising property prices…
3. Home Owners
Ultimately, property prices are determined as much by sellers as by the agents. And according to Conan, home owners’ expectations are high.
“One thing I have to say, Singaporeans have a lot of holding power. Most Singaporeans are not under urgent pressure to sell. They will ask for the highest price, and if no one meets it, no problem: they just continue to stay there. No one buy also no loss to them. So why wouldn’t they hold out for the highest price?
And owners today are not like in the past. They are smarter. They will do their research. When they find out the neighbour can sell for $500k, they will expect $550k. Next door sell so much, mine can sell for more. In the end the agent must work with the seller, and the price the seller wants is very high.”
I ask if agents aren’t also responsible, by jacking the price to take a bigger cut. But Conan disagrees:
“Buyers are also well informed. If you are going to buy property, isn’t it simple to check the price in the area? Most buyers know how much to expect from different districts. If we jack up the price, it’s not as if they won’t know. Then who will buy?”
4. The Influx of Foreign Buyers
Everyone wants a piece of this island, however insane the cost. Foreigners keep buying property, even at ridiculously inflated prices. This buying behaviour is motivated by our combination of global prominence, good infrastructure, and limited land space.
“Look at places like Sentosa Cove,” Conan says, “costs up to $10 million. Still, foreigners can just buy without even thinking. For locals…I think most of us can never afford it. If you ask me where their (the foreigners’) money comes from, I also don’t know. But while there are foreigners willing to meet the price, it will keep going up.”
According to Conan, the foreign influx also has an impact on renters:
“Rental rates for condos are still going up. Because when a company brings in expats, they don’t want them to stay HDB. They worry that expats cannot handle the experience, that they won’t want to put up with things like people burning incense.
If you look at developments like City Lights, rental is around $3040 a month. This is a $400 – $500 increase from 2008 rates.”
Naturally, this also means condo owners will hike their prices when selling. High rental rates means condos are an asset. And it’s not just condos that are affected:
“Even HDB also foreigners want to buy. Not unusual for PRs to go after it. It got to the point where, in ’08, the government had to restrict sales of HDB flats to foreigners.”
Conan refers to Chinese billionaire Li Ka Shing, who said that no matter how bad the situation or how high the price, he would take any opportunity to buy land in Singapore.
Hey, even if we end up sleeping under a bridge while foreigners take the penthouse, we can keep that sense of national pride.
5. Limited Land Space
This one is a no-brainer, and a problem that (for now) has no solution. Singapore is small, and just about every patch of open ground is covered with a building.
“There’s no land to build on,” Conan says, “and there are always more people. Plus you know how big our government is on population. They’re always saying we need to replenish our population. So they keep bringing foreigners in, and the price of housing keeps going up.”
Not All Doom and Gloom
Conan predicts that the prices will continue to rise, but he doesn’t foresee a catastrophic shutdown:
“I don’t think the market will crash. I think it will eventually change to rectify itself. But it will still rise; if you buy a house in two or three years it will be more expensive. But the good news is the value will probably keep growing for the next five years. You will still earn.”
For readers about to buy, Conan leaves us with a warning:
“Don’t overcommit. Don’t be greedy. Even if you have the money, think before buying high end. Some people assume that property will always bring profit, but that’s not true.
If anything goes wrong, if you lose your income, how long can you hold before you are forced to sell? If you have no holding power, and your property bills are high, you will probably have to sell at a loss. So make sure your property bills don’t take up more than half your monthly income. Ideally, it should not cost you more than 30 percent. Anything more, you are in the red zone.”
Travel + Leisure: South East Asia
Do you have your own theories about why property prices keep rising? Comment and let us know!
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