When I saw the Straits Times headlines “HDB resales hit a 10-year high in Q3 as prices surge” on 26 October 2020, I made a few checks to a few real estate community experts in our 1M65 community to understand the situation on the ground and did some quick research. After that, I was convinced that Singapore’s property market is currently heating up towards a property bull run.
To call out a property bull-run in amid the worst economic crisis ever faced by Singapore in recent decades may appear ridiculous. Besides, I have been very adverse towards property investment in Singapore for the last ten years, given their lacklustre returns. However, the current situation now is unique and maybe a once-in-a-lifetime property bull run of this nature.
These are the reasons why there is a property bull run in Singapore:
#1 Serious BTO Construction Delay Resulted In A Demand Swing Towards HDB Resale Flats
The COVID-19 pandemic has caused the construction industry to be stalled for a few months during the circuit breaker period in April earlier this year.
COVID-19 infected many of the construction workers in Singapore as the pandemic rages uncontrollably in the foreign workers’ dormitories, resulting in a standstill in the construction industry. Even after the circuit breaker was lifted in Singapore and the economy restarted, the construction sector’s productivity remains crippled due to strict social distancing rules imposed on the workers.
This caused significant delays in BTO waiting time of up to 9 months for existing successful applications. BTO flats waiting time are now a long wait of up to 62 months. It is no wonder that many newlywed couples have decided to switch to buying a resale HDB flat – rather than to be forced to wait up to 5 years. Demand for HDB resale flats shot up, and it is not uncommon now for buyers to offer cash over valuation (COV) of S$20,000 -S$30,000 for HDB resale flats. HDB resale transaction volume also reached the highest in 10 years.
There is a ripple effect upstream. Many sellers of these HDB resale flats would, in turn, enter the private property market to buy a condominium or a landed house, in droves. This would then push up the private property market prices. According to URA, the volume of transactions has increased to a two-year high on September 20, and may still increase, thus pushing prices higher.
#2 Many Professionals Now Find Their Home Too Small Because Of WFH
The COVID-19 crisis has resulted in many of us working from home (WFH) since the circuit breaker in April 2020. Soon after, many of us started realizing that our homes were not conducive to work in. WFH productivity is lower as we are plagued by the noise from children, the kitchen, and other family activities.
As it becomes clear that the WFH arrangement will likely last for a long time, many decided to buy bigger houses to accommodate both a family and a working environment. On the ground, real estate agents are reporting many landed properties and large houses being snapped up like hotcakes.
#3 Low-Interest Rate And Government Providing Mortgage Deferment
Central Banks across the world have lowered their interest rates to near zero. As a result, housing mortgage rates in Singapore are now very low, at near 1%, making housing purchases more affordable.
The Monetary Authority of Singapore (MAS) has also extended mortgage deferment measures to help Singaporeans with their mortgage payments; thus the default risk of mortgage payment is very low (for now at least).
Anyone economically impacted by Covid-19 could defer his/her monthly mortgage for property loans significantly up to Dec 31, 2021. As a result, housing purchases is now cheaper with a lower interest rate and a much lowered risk of default for a foreseeable future, thus fuelling the demand for property.
#4 Despite The Pandemic, There Are Winners In Our Economy
Despite the COVID-19 economic recession and a heightened closure of businesses and an escalating unemployment rate, certain sectors have remained unaffected or have even thrived during this crisis. While travel, hospitality and physical retail sectors are hit hard by the pandemic, other sectors such as finance, e-commerce, healthcare, and supermarkets have benefited from the new mode of life in the pandemic. Moreover, investors, heavy into US equities, have profited handsomely from the recent bull-run.
Upon profiting from this pandemic, what do you think the Singapore based winners from the pandemic would do with their money? They would likely invest in the most popular investment asset in Singapore – property.
#5 All Other Investment Asset Classes Are Comparatively Unattractive Now
Gold prices are at a 30-year high now. US equities and bonds have also reached record highs. Singapore stock market is officially Asia’s worst-performing stock market in 2020. Cash deposits in the bank are yielding near-zero returns. The Federal Reserve and other countries’ central banks have been pursuing aggressive quantitative easing measures and this would likely lead to asset inflation especially for property.
No assets other than properties are attractive, which partly explains the buoyant property market now. The property price hike is now visible not only in Singapore but across the US and UK. US housing appreciated 5.9% in August 2020 while UK housing prices rose 5% in September 2020 year on year. The property bull run in Singapore is not unique but likely to be a global phenomenon.
Should We Chase The Property Bull Run Now?
I believe that property should form part of everyone’s portfolio of wealth. However, many Singaporeans are generally over-weighted on property and under-weighted in other assets like shares and bonds.
For those needing a bigger space to handle COVID-19 induced work-from-home arrangements, one should explore the possibility of renting as well, given the very poor rental yield environment now.
Chasing property bull runs in Singapore is always dangerous as our Government has a history of being cautious about property bubbles and would not hesitate to step in with heavy-handed measures like higher Additional Buyer’s Stamp Duty (ABSD) to curb property price escalation.
You can watch this video where I further discuss my thoughts about why there is a property bull run and what you can do about it.
I know my cautious views on property investment are controversial and welcome your comments on my thoughts. You can leave me a comment on the video.
Loo Cheng Chuan, is the Founder of the 1M65 Movement. He developed the 1M65 ($1 Million By 65 Years Old) CPF investment strategy that is helping many Singaporean couples to become millionaires at retirement. He was one of the few non-civil servants to be awarded the Public Sector Transformation award in 2018 for his 1M65 efforts. He runs a 1M65 Discussion Chat Group (Newly launched with a Real Estate Discussion) where he regularly coaches passionate 1M65 enthusiasts on good personal finance virtues. Loo and Kate (his very comical daughter) launch an entertaining 1M65 Youtube video on the property bull run to add more life to this topic.