Every week we flip the local newspapers and we get advertisement after advertisement of overseas properties. Increasingly, Singaporeans are looking overseas to place their monies in bricks and mortar. Why is there such a trend and will this trend taper off? I personally doubt so and here are some of my reasons why.
1) Singapore property prices are too restrictively high.
We are at a point whereby almost every residential property in Singapore has already broken almost every record. With prices in places like Sengkang and Punggol reaching figures like $1,500 per square foot and beyond, it is difficult to substantiate where the potential profits or yields are for the people who have invested in real estate in such areas. Surely not everyone who buys a property in such far off areas do it just for self consumption. Moreover I would always tell my clients, "wouldn't it be nice to have the property that you are living in appreciate in value?" You can still have your cake and eat it in property investment. It is just a matter of timing, patience and just plain common sense.
2) The government is determined to cool the property prices.
Investing in Singapore real estate has come to a point whereby every few months the government would step in and intervene with a cooling measure. What happened to the "invisible hand"? Adam Smith must be turning in his grave! Investing in real estate locally is challenging if there is a new measure every few months. Moreover, foreigners are hugely discouraged in investing in real estate in Singapore with all the additional stamp duties that are levied on them. From the looks of it, these policies will be here to stay for the short to medium term.
So what do investors do? Sit on the sidelines. Place their monies in the bank and suffer the debilitating effects of inflation? The Singapore economy is still going strong. The technical recession did not come and just a while ago the forecast was raised for Singapore's GDP in 2013 and 2014 to 3.8% and 4% respectively.
http://www.mas.gov.sg/news-and-publications/surveys/~/media/MAS/Monetary%20Policy%20and%20Economics/The%20Singapore%20Economy/SPF/Survey%20Writeup%20Mar2013.pdf
This will serve as a good read for those interested in knowing more about where the Singapore economy is heading.
So, no recession in the near future bar an economic catastrophe of some sort. Then what is going to happen to the Singapore property market?
In my opinion, prices of residential properties will take a slight dip. The debt servicing measures are effective and measured the cool the market. In some instances, almost to a standstill. (Good luck to those who have purchased places like Sky Habitat at $1,600 per square foot and above.)
So where do people who want to and have the money to invest go to?
Simple,
The overseas market.
1) Prime property prices in neighbouring cities like Kuala Lumpur, Bangkok and Tokyo are much cheaper.
Affordability is always key. It doesn't matter whether a Ferrari is selling half off, I cannot afford the half off! Buying something at a bargain may be a stretch for some people but when it comes to something affordable in terms of absolute pricing, people will jump in. This is what developers are employing in Singapore. Market a property in terms of low absolute price. Studios in far off outskirts in Singapore like in Pasir Ris are going for prices in the range of SGD$600,000. For half of that price you can get a unit in the heart of Bangkok where the financial districts are situated and likewise in Tokyo, you can get something with a guaranteed rental yield for about a third less. Would it be fair to say that investing in a prime property in Shinjuku at SGD$400,000 is more risky than purchasing a condominium in Punggol at over a million Singapore dollars? I fail to see where the demand is going to come from for properties in places like Punggol. Rental demand is non existent. Demand from buyers should be sporadic since supply in such areas are in absolute abundance and yet more and more houses are being developed in that area.
2) Our Singapore dollar is very strong.
Nuff said. You can feel it when you shop in Bangkok or travel to Malaysia for a meal. The Yen too has dropped like a rock. We Singaporeans are getting a hefty discount when we purchase Japanese property. A 20% discount of what Yen used to be. Will it get weaker? I guess so. For how much longer? I am unsure. The Japanese need the Yen to be low to make their exports attractive. However, when the Olympics inch closer, I would think this "weaker Yen to attract people to Japan" policy will stop and be replaced with "the Olympics will attract people to Japan much more than a weak Yen policy."
3) Air travel is very cheap.
With the advent of cheap air travel, the globe is getting smaller. Buying a property overseas is not as far fetched as it used to sound. We can scoot (no prizes for guessing my favourite budget airline!) over to neighbouring countries at very low air fare!
4) Cities like Tokyo, Bangkok and Kuala Lumpur are safe.
Well, they are safe in that order in my opinion. Tokyo being the safest. Yakuzas don't rule the land for your info! Places like Tokyo are clean, efficient and very very safe. You can walk in the streets in the middle of the night in Bangkok with little worry.
5) Potential capital gain is higher overseas.
With prices in central Tokyo at very very affordable levels (barely 70% the price of a studio in the off core central region in Singapore), Toyko has more upside to come. Perhaps more than Singapore based on current price levels. Not to forget, The Tokyo Olympics is coming in 2020 and the Japanese government has approved 2 casinos. (Flashback to Singapore's 2 integrated resorts and what it did for the economy and property market)
Bangkok is going to have a night race to rival that of Singapore's. This will again put it in the spotlight. Not that it needs the spotlight. Bangkok is already the world's top tourist destination!
Couple all these reasons with the very very affordable prices of properties in these cities, it is not difficult to understand why the demand has shifted overseas!
Keen to invest? Make sure you do your research and buy from someone you trust!
Yours Sincerely,
Daryl Lum
www.daryllum.com
www.daryllum.blogspot.com
