The rise of Singapore from a newly-independent city-state with scarce natural resources in the 1960’s, to a developed global city offering high living standards and world class amenities underlines it’s open and dynamic economic landscape. The rapid development of various areas across the country, including the City Center and the Jurong Industrial Estate, has led to the to the growth of diversified industrial hubs and offices, which are directly contributing to a wide range of economic necessities.
Moving forward, the government is making sure to set aside sufficient land for the expansion of various business sectors. This approach has ensured that Singapore maintains a vibrant, commercial friendly environment, that provides an attractive prospect to both investors and the residents. There is a greater emphasis on decentralization. Existing growth centers are being continuously strengthened, while new growth areas and locations are also being introduced to offer more cognitive and stable economic development. The new growth areas are offering investors alternative spaces to expand and develop their businesses, which in turn will generate more employment, retail, and entertainment, opportunities in this global financial center.
The real estate industry, once considered a focal point of investment, has faced more complication in the recent years. The new government measure and policies are partly to blame for such changing market dynamics. Three years have passed since the last measure was introduced, however, talk is rife about a recent surge in the property market. Demand for new residential properties are experiencing an upward curve, with sales rising by nearly 7% when compared to previous years. There is a continuous momentum that depicts the recent boom in the real estate market. New condominium projects are experiencing healthy sales within weeks of their launch. Investors are being lured back into the real estate fold with a vastly improved market outlook, affordable apartments and cheap loans.
Property remains an attractive option when contemplating long-term investment, though certain considerations are still required, beyond providing location and interest rate adjustments. Let’s look at how the growth regions are affecting the property market.
Growth Areas
Woodlands regional Centre
It is one of the four major regional centers that are identified under the Land Use Plan, as a part of the decentralization drive. The aim for these centers is to serve as vibrant business and employment hubs, creating a diverse environment for businesses and churning up employment opportunities.
Jurong Lake District
The Lake District is envisioned as the ‘District of the Future’, a high-end business district for mixed use, that should be redefining the way the residents of the city-state live, work and play. It is aimed to drive Singapore’s economic growth going into the future, as well as cater to the diverse needs for a sustainable economic growth.
City Centre
The City Centre is equipped with distinctive districts offering unique experiences for investors. At its heart lies Marina Bay – Singapore’s largest urban transformation project.
Paya Lebar Central
It is one of the new growth areas market to become an integrated commercial center with retail and public spaces accompanying offices.
Punggol Creative Cluster and Learning Corridor
As a key growth area, this corridor will anchor one end of the North Coast Innovation Corridor.
Impact
The property market shares a close tie with the economy of the Island state, with owners and landlords enjoying a healthy rental income, benefiting hugely from the gradual capital appreciation over the years. However, certain global uncertainties have considerably darkened the growth outlook. Much of this growth is due to the successful transformation of the economy. While GDP growth usually averaged at about 6 % annually, the recent years have witnessed a slower pace of only 2% to 3%.
The 15% Additional Buyers Stamp Duty (ABSD), imposed on foreign investors and residents who are second-time buyers, have aided in making Singapore Property more expensive. When compared to a weak economy, this remains a cause of potential concern for future investors. A decelerating economy, facing potential job cuts and impending hike of interest rate will certainly affect the households’ ability to service mortgages.
Investors who have financed residential units for investment purposes 3-4 years ago, a rising vacancy rate and falling rents, coinciding with such a hike in interest rates would mean a shortfall of their rental income to service the pending mortgage payments. However, experts don’t envisage a market crash as the last 12 quarters have already experienced a decline of 10.8% in the overall price index.
They expect the hike in interest rate to be moderate, albeit a rapid and high interest rate jump without corresponding economic improvements. It is portrayed to have a measured impact overall. The recent URA data has stated that around 44,000 units of private residential properties are set to enter the market within the next few years. The breakdown of supply indicates about 13,000 units to be completed in the calendar year 2017, closely followed by a further 10,000 units in 2018. This fact is sure to put sufficient pressure on both rentals and property prices. As the government continues to tighten inflow of foreigners into Singapore, the population growth is expected to slow down too.
However, on the bright side, the longstanding low rate of interest has relevantly sweetened the deal for home buyers. With the government showing no indication of lifting property curbs any time soon, more and more investors are trickling back into the market to buy.
Time to utilize?
Analysts, having closely followed this sudden economic phenomenon in the growth sectors, advise any investor looking to enter the property market to take a longer-term approach. Though the current sentiment among the buyers and developers are positive and cheerful, there is likely to be a limited potential from short-term gains. The situation has vastly changed, unlike in the past, when property prices used to appreciate by almost 60% over a few years.
As an investor, you must consider the potential cash-flow generation power of the property, whether it’s good enough to cover the running and mortgage expense. In case you are investing in a rental market, always be prepared for a negative cash flow as there will be periods when you will be devoid of tenants.
The experts also expect the market to rectify itself when the domestic economy faces another rough patch, and when that day arrives, the buyers and dealers with zero holding power may have to face harsh consequences.
In any form of investment market, there aren’t any sure bets, so the best bet will be to play safe. The real estate market can be a cruel place, the property prices may start fluctuating even at the slightest hint of any detrimental nuances. The first couple of quarters of 2017 was a buyer’s market while the upcoming ones will certainly be shaped by the prevailing economic outlook in these growth sectors.
