Just when we thought the property market was on the back burner, and starting to become slightly more affordable, comes news reporting of yet another record being broken for a public housing property – this was a DBSS (Design, Build Sell Scheme) flat selling at $1.18 million in Bishan sold in late January.
If this makes you question whether property prices have actually come down at all, you are not alone. However, a quick check on Singstat’s HDB resale price index chart did reveal that prices are indeed down by just under 10% since its peak in the 2nd quarter of 2013. This was corroborated by information from data.gov.sg, which revealed prices of non-landed private homes came down by slightly over 7.5% since its peak in the 3rd quarter of 2013.
With this in mind, we look at whether it is still a wise decision to continue buying residential property with the expectation that it’s a “sure-win” investment in Singapore.
Why Your Parents Love Property Investments So Much
In Singapore, anyone asking their parents or grandparents for advice on whether they should consider investing in a property will likely end up being called crazy or another similar term of endearment. It is hard to blame the older folks as they have only ever known nearly constant and drastic increases in property prices since the early 60s.
Ever since Singapore gained independence, our economy has grown from strength to strength. In the past 40 to 50 years, Singapore has transformed itself from a poor backwater region to a highly developed cutting-edge economy. Naturally, this rapid progress had a great impact on the rise of property prices.
While there is no doubt that wages have increased too, as well as the standard of living, rising property prices have seemingly exceeded it. Unfortunately, we cannot find any definitive data to support this beyond certain observations.
One such “get around” observation is a survey detailed in the 13th Annual Demographia International Housing Affordability Survey: 2017, which rates Singapore’s housing affordability as “Seriously Unaffordable”.
The younger generation can also relate to such an observation as well – many of us probably know of friends and family members who have become financially successful in life solely because they were able to invest in a property or two in the 1990s or 2000s. People who started investing in properties even earlier are probably millionaires right now.
While the allure of property investments has definitely rubbed off on younger people or the millennials, in Singapore, a critical question arises – will purchasing properties today guarantee buyers the success that previous generations have enjoyed?
Will Property Investments Continue Delivering Great Returns In Singapore?
For millennials today, we live in a different Singapore from our parents’ generation. We are no longer experiencing rapid growth – Singapore is already a developed nation – and as a country, we are now seeking holistic, sustainable growth rather than just growth.
At the same time, the government has been taking a harder stance on home ownership and affordability as well – as seen by the various rounds of property cooling measures it implemented. In October 2016, the government also came out saying it has to mitigate the “lottery effect” of downtown flats, one of these lotteries is the example cited at the beginning of the article.
Another factor that will impact property owners’ returns is the substantial amount of vacant private properties in Singapore. With more developments still coming online and BTO launches going ahead, this will be another critical area that property investors need to monitor. By tightening foreign labour growth, the rental demand has effectively been suppressed.
All these will have muted effects on the future prospects of property prices in Singapore. And if people are not prudent with their research, decision making and purchases, they can find themselves mired in financial losses.
In fact, The New Paper ran a recent story detailing that boom time property buyers are now the big losers. Further back, The Edge published a study which found that more than 14% of sellers incurred losses in the first quarter of 2016.
This could be quite an eye-opening period as most property owners would rather take a sit-and-wait-for-upside approach rather than to sell their properties at losses. The fact that more investors are now willing to sell at losses means that there is a growing inability of investors to service mortgages, and that more people are being forced to sell their properties.
What The Younger Generation Should Be Doing Instead
While many of the older generation swear by property investments, viewing it as the beginning and end of their retirement plan, millennials cannot afford to do so. Relying on our properties, be it our HDB flats or private properties, to significantly appreciate from now till our retirement is not a sure-thing as it once was. In the near-term, it may even be a bleak option.
We should instead be more financially savvy and have a different mindset.
First, we need to understand that our HDB flat is a home rather than an investment. We should think about its suitability to fit our needs before buying. To have a better chance of retaining or increasing its value, we should do proper research on the property and its location before buying.
We must also conduct stress-test on our ability to hold our property. We must consider the implications of paying for the mortgage in the following scenarios.
- One person in the marriage loses their job.
- We cannot rent out the property, or receive a much lower rent than our monthly mortgage.
- Interest rates rise above current rates.
Next, we have to understand the investment options available to us. For example, we can invest in a variety of financial products that can help us spread our risks and ensure that we are working towards a goal rather than to hope for our properties to deliver the high returns we are hoping for, or to assume our rental income can remain constant forever.
The stock market has the ability to grow your money. In it, we can find our beloved property investments via REITs (Real Estate Investment Trusts) or property developers and managers. The Singapore Savings Bonds (SSB) or other retail and corporate bonds are other financial products we can look at to give us passive income.
On the retirement savings front, we should make full use of our CPF SA (Special Account) which can offer us stable and much safer returns in the long term. We should also look at utilising insurance to offer protection or savings in the event that we are not able to reach our financial goals because of health issues.
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