Suburban private homes have beaten their central region counterparts. Beaten them like the skinny kid with braces on the first day of school. So if anyone out there bought luxury homes, I sure hope it was for pleasure and not a quick buck. Otherwise don’t worry; I brought some tissues for you to cry into. I know, I’m always helpful that way. But the question is why, and in this article, I speculate on the causes:
How Bad Is It?
It’s reported that since 2007, suburban properties rose by 68% in value. City centre properties, on the other hand, grew a measly 38%. The worst performer is the much hyped St. Regis, with a 16% decline in value…and it’s at Tanglin Road.
But why? Well, there’s one main reason, and a number of smaller possibilities:
- Drop in number of foreign buyers
- Growing interest in non-central amenities
- Caution and quantums
- Sheer hype
1. Drop in Number of Foreign Buyers
Mr.Propwise tells me one reason is: “The ABSD has curbed foreign buying”.
Fair enough; rich foreign buyers are a strong market for central region properties. But many of them are investors: They’re looking for fast, high returns. The ABSD inflates prices by 10%, which would chew into their rental yields and resale profits. And even if they’re just looking for luxury homes, well, 10% of a $2 million property might be too much luxury.
End result: Foreign buyers back off en masse, giving developers and agents a smaller market. Local buyers are only now realizing that: “Hey, this place near Tanglin costs the same as my Bishan condo!”
Once the news sinks in, we’ll be rushing to plug the gap. But for now, the sudden departure of a key demographic has caused central residences to stall.
2. Growing Interest in Non-Central Amenities
These days, even foreigners have an interest in non-central amenities. Why?
I asked Matthew Bollinger, a media consultant who’s been in Singapore for two years. He lives in Punggol:
“I’m from Mandurah*. I don’t think a 30 minute trip to town’s a big deal; back home I take twice as long to get to a shop. And I think it’s easier to get my shopping done here. I don’t want to fight the crowd at Carrefour or something for groceries.”
*Mandurah, Western Australia. Primary exports include postcards and boredom.
I also spoke to procurement officer Josephus Yap, who picked a resale flat in Yishun over the MKZ (the most creatively named condo at Mackenzie road):
“In the end I decided I don’t like the environment there. I like to watch football at the coffee-shop, get $10 hair cuts, buy things from downstairs shops. My mentality is a bit kampung. “
No, Joe, not just “a bit”. But you see the point: Some locals are entrenched in “heartlands culture”. And Orchard isn’t so far (or so cheap) that they’d surrender it.
3. Caution and Quantums
The global economy has drawn a lot of comparisons lately. Comparisons like “that cake Ryan sat on at my party”, and “asthmatic sprinter with one lung”.
MNCs (multi-national companies) are expected to cut back on ex-pat packages. Likewise, they’re likely to reduce purchasing budgets. In Singapore, this leads to nagging worry about economic stagnation and loss of exports.
With everyone fearing retrenchment or pay-cuts, no one dares buy something expensive. And central region property defines expensive. Investor Charlie Sng tells me:
“Even if it’s a good deal, the fact is that such properties have high quantums. And when the market is weak, not many people want to lose liquidity from pouring so much into one asset. They may also be afraid that they don’t have sufficient holding power, if their income is affected by the market crisis.”
4. Sheer Hype
There’s been a lot of marketing and noise in the suburban properties market. Apart from over-hyped properties like Sky Habitat, we’ve also seen stories of HDB flats priced at $900,000.
It’s unintentional, but the news focus has distracted us from the city centre. To put it simply: “Expensive condo in Yishun” would cause a bigger stir than “Expensive condo in Tanglin”. The former sends the mass market into a frenzy; the latter is just…expected news.
The discrepancy in capital appreciation is due to this simple market inefficiency. Besides issues of high quantums, I’m convinced that locals haven’t pounced because they’re not paying attention. If the buyers of Sky Habitat were more alert, for example, they’d have found better alternatives in the central region.
What Can We Do?
It won’t last. It’s just a matter of time before central region properties appreciate faster again. But there is an essential lesson here:
Avoid Presumption. You know, things like “This property is near Orchard, so it will appreciate faster than the speed of light.” I’m not saying you shouldn’t take a chance; just be prepared if luck decides to hate you. Shop around for the cheapest possible repayments on home loan comparison sites like MoneySmart.
And make sure you have holding power, so you can wait out freak incidents like this.
Why do you think central region properties appreciated more slowly? Comment and let us know!
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