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Is 2018 The Right Time To Start Investing In Private Properties Again?

Wednesday, January 17, 2018

As per the URA, the private residential property index for 3Q2017 has risen by 0.5 per cent. Such an increase has been noted for the very first time, after 15 straight quarters, or close to four years, of decline.

Singapore has endured a lackluster market for four years. So, this news is believed to be worth a good deal of excitement, especially for property experts and real estate developers. However, if you are a retail investor, you should consider a few factors before taking an honest plunge into the market that seems to be slowly emerging as a strong one.

You should be cautious when buying a private property. After all, the market has been declining for 15 straight quarters.

Most of the expert investors believe that whatever goes down eventually goes up.

In fact, most investors count on this logic when it comes to dealing with the local property market. Thus, most of them are anticipating that the prices shall finally rebound in the near future. In order to understand just how long this decline has been, the current market situation needs to be compared to that against past periods when the market has been real stagnant.

It has been noted that as far as declines are concerned, the current period of 15 straight quarters of decline has been really long. It has been true even when compared to periods where there were major recessions.

However, though the period of decline has been prolonged, the size of the decline (12%) has been relatively small. One of the major reasons behind this nominal decline is the fact that the decline has been artificially induced through cooling measures rather than experiencing a market crisis. Such cooling measures were introduced by the Singapore government to 1) stop property prices from climbing upwards due to speculation and 2) ensure a “soft landing”.

Thus, it might be concluded that the government has been successful.

Thus, for would-be buyers, it may not be wise to expect prices to increase as quickly this time around.

There will be real estate agents who would tell you that the property market will ignite once the government removes some of the cooling measures, specifically the Additional Buyer Stamp Duty (ABSD) and/or the Total Debt Servicing Ratio (TDSR). It is likely that they would be right if it happens. Thus, these cooling measures will likely continue to remain in place for the near future.

The en bloc fever is regarded as one major trend for 2017/2018 to watch out for. This is mainly because it’s likely to push the property market forward. As per the most recent news, Amber Park had been sold via en bloc for a record S$906.7 million. Owners are likely to receive between $4.3 million to $8.3 million.

In an exclusive group interview with media analysts organized by the Singapore Exchange (SGX), Oxley Deputy CEO Eric Low rightly marked the difference between land bought through the Government Land Sales Programme (GLS) and the en bloc deal. The former takes millions of dollars out of the property market, as proceeds from GLS goes straight into the Singapore’s reserve. On the contrary, the en bloc deals allow money to flow back into the property market.

Thus, owners of Amber Park will now have an average of about $6.3 million each. With this money on hand, it is pretty likely that the bulk of the $900 million plus proceeds will be invested back into the local property market. If you add a leverage effect to this, the value grows.

Since the total value of private residential en bloc deals is already crossing $3 billion for 2017, and possibly reaching $5 billion by the end of the year, there is a good chance that we will be seeing some of this money being re-invested into the market in 2018.

It has been observed that a large majority of potential buyers in the next few years would be locals buying for their own living purposes, rather than for investment purposes.

According to Lionel Lin, Vice President from the SGX Research and Product team, the current property market includes many barriers to entry such as the Selling Stamp Duty (SSD), ABSD and TDSR, which would-be buyers need to carefully consider. Also, property investing requires large sums of cash upfront and a loan to be taken.

In addition, property investors today have alternate ways of entering the property market aside from just buying purchasing properties.

With a total of 108 companies being listed, real estate is one of the most established sectors on SGX, combining for a market capitalization of over S$196 billion. It accounts for about 20% of SGX market capitalization.

Investors have the choice to invest in up to 43 professionally managed Real Estate Investment Trusts (REITs) and property trusts or Singapore property developers themselves. However, if they are not sure of what to invest in, they can also opt to invest in REITs ETFs.

There are plenty of newer options in today’s market that weren’t available in the past. Smart investors can currently get massive returns from these investments without needing to arrangea large sum of capital upfront or risking overleveraging themselves with property loans.

In case you are thinking of investing in a private property to form rental income, it is worth pointing out that the rental market is still relatively weak. Hence, you cannot expect handsome yields from your properties. One of the other main factors behind the large spike in mortgagee sale in 2017 is the weak rental market.

If you are considering your own home stay, the property market today is attractive for you as prices have rightfully declined. However, in case you are intending to buy a property to generate investment returns, you might consider other property investment opportunities such as REITs or property developers themselves.

News Source: Dollars and Sense

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