S’pore’s Housing Oversupply, and What You Can Do About It
By Ryan Ong | MoneySmart – Thu, Jun 14, 2012 12:00 AM SGT
Last night I had a vision: I saw the sky darken, lit only by flames of burning money. In the distance, towering condos leered at mewling investors, who shook their fists in rage. Which is either the most cinematic property analysis ever, or a direct result of eating mouldy Cheetos. Doesn’t matter, both mean the same thing: A housing oversupply is looming. In this article, I examine the causes, and what you can do about it:
"Take a good look at that sky. Once we're done building you'll never see it again."
What’s This About An Oversupply?
Wing Tai Chairman, Mr. Cheng Wai Keung, sees it coming. Simply put, we may have too many available houses entering the market. If you’re a potential buyer, you may now commence your lewd victory dance*. If you’re a seller, act fast; or you’re going feel like a jerk who just opened the 400th laksa stall in Katong.
*Do it in public, because Singaporeans are known for their sense of humour.
The causes of the oversupply are:
- Buyers’ Herd Mentality
- Low Interest Rates
- We Made Developers Aggressive
- Harsh Transition From Past Undersupply
Of course I can deal with this. I used to be a property developer.
1. Buyers’ Herd Mentality
Try this: At any social gathering, raise the issue of property. I guarantee it takes five minutes, tops, before some blowhard explains ”How my property made me so damn rich”. If it’s not them, it’s someone they know.
This “property cures everything” notion has become a disease. Thanks to the hype, everyone’s rushing to throw money at the first patch of dirt they find. Doesn’t matter if the walls are dried dog poop and the architect was an orang-utan with a crayon; Singaporeans will buy it.
Case in point? Even nonsense units like OCR (out of central region) shoebox flats are selling well. And condos are bought regardless of price (see Sky Habitat).
Since the herd mentality translates to high demand, developers have been building non-stop. And now, all their products are going to hit the market at the same time. Coupled with a crop of 8000 HDB flats, property prices are going to droop like a fat man on a treadmill.
"No Ma'am, you can't pre-order any projects we might start in 2040."
What to Do?
If you’re a buyer, wait a while before buying. When more houses flood the market, your desired property may drop in price. Even if it doesn’t, you’ll have a wider range of alternatives.
If you’re selling, you better move fast. If you find you’re too late, and prices have started to drop, then sit tight and hold; you’ll have to wait for the next upswing.
2. Low Interest Rates
If you’ve been tracking the 110+ plus packages on the home loans market, you…need to get a hobby. A documentary on cow grass would be more exciting. But at least you’d know the rates hover near 1%, which is fantastically low.
And because of that low rate, Singaporeans have little reason to hold back. The rate of capital appreciation far exceeds the home loan interest. Property investor Charlie Sng agrees:
“If you choose the right property, it will more than pay for itself. If the value of your property is growing by 5 or 6% every year, but your loan interest is just 1.2%, then you are making a lot of money.“
But will oversupply change this? Mr. Sng says:
“There is a lot of liquidity in Asia right now, especially Singapore. The oversupply will not change that. I believe interest rates will remain low.”
Maybe I need a better plan than "Whichever bank I can shout to from Starbuck's".
What to Do?
Take advantage of the cheap bank loans. If you haven’t changed your loan package in a while, now is good time to refinance. Visit sites like SmartLoans.sg for comparisons. However, do not feel rushed into taking out a new loan now. Chances are, you’ll still get a comparable deal later (even if housing prices drop).
3. We Made Developers Aggressive
Singaporeans are more willing to invest in a nice house than in retirement funds. We are undiscerning about property price, and encourage developer aggression. Mr. Sng feels that:
“Developers have been so aggressive at bidding for land, so aggressive and…start projects one after another. Why? Because they have the confidence that Singaporeans will buy.
Singaporeans will buy no matter the price, because their retirement security is not their job or their business; their retirement security is their house. And they will put everything into it, no problem.
But of course, houses are the same as cars in Singapore. There is limited space. When developers build so aggressively, there will definitely be oversupply.”
"House? We're building the pit for the developers' death match."
What to do?
If you’re a long term home owner, oversupply shouldn’t be a worry. There will always be cyclical dips in the property market. Mr. Sng says that:
“Don’t worry; if you are a true home owner and not a speculator, oversupply is more or less irrelevant to you. Five, ten years…probably a lot less…and your property will go up again.”
Mr. Sng also adds that oversupply can be an opportunity to upgrade:
“You can also sell now when prices are high. Later when prices drop, you will be able to get another nicer property. If you can time it right, this is a good opening.”
4. Harsh Transition From Past Undersupply
Singapore’s property market is like a car with two speeds: Too fast, and not moving. If you’re riding in it, prepare to be jerked around like a first time home buyer in a bank office.
When we faced undersupply (as far back as the late 90′s), homes were too few and too expensive. Now, we’ve over-compensated. This isn’t the first time, nor will it be the last: Population and property are not exact sciences.
Still, we can be grateful that an oversupply will hit the rich (who can afford it) before the poor.
"In my day there were no flats here. All jungle. And you had to kill your own brontosaurus for meat."
What to do?
Visit the URA building and look at the master plan; that’s the best way to predict oversupply.
You’ll also see where the future parks, MRT stations, and malls are. Don’t cling to fast, easy assumptions about different districts. For example, did you know that Bedok will host the world’s first arena for giant robot duels?
I’m totally not making that up to boost my home property price.
SERS in Singapore: Compensation Doesn’t Fix All The Problems
Hey, anyone know Rochor Centre? The multi-coloured flats with the hawker centre? HAH! You lie! It doesn’t exist! Well, not for long anyways. The government recently took a sledgehammer to the place, through the SERS. Most residents are about as happy as a bulldog with its tail on fire, so HDB has gone heavy on the compensation. So why are people complaining of a raw deal? I explore the issues in this article:
"I HOPE it was SERS. Otherwise, I really shouldn't have dumped that cigarette on the carpet."
What Is SERS?
The Selective En Bloc Redevelopment Scheme (SERS) is an urban redevelopment scheme. It deals with old buildings; disease and insect pits so run down, you get conjunctivitis just by looking at them. At least, that’s the ideal.
When HDB invokes the SERS, they evict current residents and tear down the building. Hopefully in that order. The residents then :
- Receive compensation, equal to the prevailing market value of their former homes, and
- Residents eligible to retain their flats get a replacement flat, at a subsidised price.
"What's more, your replacement flats double as the army's training facility. Imagine the added safety."
Because Singaporeans can literally nag a charging elephant to death, they often succeed in getting extra freebies. As an example, the recent SERS in Rochor also yielded the following benefits:
- Residents were allowed to pick replacement flats from brand new BTO flats (99 year lease).
- Residents were given priority, even when picking from the BTO flats.
- The Resale Levy can be deferred if they sell the replacement flat.
So What’s The Problem?
In terms of sheer dollars and cents, the compensation looks generous. But there are problems that go beyond the fiscal. Also, there are adverse effects on properties surrounding the re-development area, which need to be addressed.
These are the main issues, which compensation doesn’t help:
1. The Value of Surrounding Properties Will Fall
"There's a great view out the window. Assuming you wear protective goggles."
Have you ever lived next to a construction site? It’s about as pleasant as your neighbour hosting a Metal Guitar contest at three in the morning. And you couldn’t inhale more dust if someone fire-bombed an archaeology department.
When the SERS kicks in and the demolition starts, surrounding property values will fall. The construction of new flats takes years, and surrounding residents won’t see good resale values for the duration. This may scuttle some upgrading plans.
2. Traffic Congestion
"And when they reach the last sign, we'll have civil defence guys run out and perform a road safety skit."
Just imagine the roads in surrounding areas. Yes sir, more congested than a fat man’s arteries at a Pizza Hut buffet. For nearby residents who are motorists, the SERS means a sudden surge in road diversions and traffic jams.
Of course, the residents being evicted aren’t affected by this. But their neighbours will be on Xanax and anger management courses for years. Anyone who thought traffic was “okay” when they settled in the area just got royally messed with.
3. Accessibility Issues
"Come on Mei. Just another nine kilometres and we'll be home."
Some residents bought their flats for location specific reasons. For example, some residents forfeited better deals to get a flat close to work, or close to their children’s school. Compensation from the SERS doesn’t make up for their forced change of location.
In the case of the SERS at Rochor, for example, residents were initially offered replacements at Kallang. If not for their incessant complaining, the option to select new BTO flats would not have materialized. Future residents affected by SERS might not be as lucky.
A forced re-location can add valuable commuting time to work, school, or medical facilities. In these cases, the fiscal compensation may be meaningless.
4. Issues With Repopulated Areas
"Good thing we're here on a weekday. You should see the crowd otherwise."
Picture a few hundred people moving into your neighbourhood, all at once.
Yeah, you know that already crowded carpark? Now you can grow your fingernails a good three inches, while waiting for a parking space that’s too far from your block. And just wait till you experience the heightened noise pollution!
Hey, when SERS clears out residents, it has to drop them somewhere. And if that somewhere is your neighbourhood, you can’t do anything short of hurl four letter words at a brick wall. Don’t count on getting compensation for your troubles; you don’t factor into the SERS.
5. Issues Beyond Compensation
"You're right, some things are worth conserving. Tear everything down except the 7-11."
Remember the Tiong Bahru incident in 2010? 12 years after moving the original residents, the flats there were converted to a condominium. The monthly rent for the condo (Global Residence)? Around $4800 – $5000 a month.
Some of the original residents must be reading this, because I heard their blood vessels pop from all the way over here.
Unfairness isn’t the only issue. HDB is supposed to place Singaporeans first, and part of that policy is to prevent foreigners buying flats. But what’s to stop them from demolishing existing flats, and then turning them into condos that foreigners can buy? On a national level, this goes beyond issues of simple compensation.
And let’s not forget: We lose a part of our national history, whenever the authorities start playing Godzilla-on-a-rampage.
The Wrong Things to Look at In Singapore Property
Buying a house is now a process of filtration. Buyers don’t lack information any more; if anything, they’re flooded with it. Notable features, projected rental yields, resale figures, architect names, they all lead to the same thing: A stunned buyer staring into the headlights of an oncoming truck. Property professionals know better: They stick to the simple basics of location, and don’t get distracted by:
So anyway, it was an awesome view, but I should probably have looked IN the house before buying.
1. Interior Design
First time home buyers are like excited puppies; you can distract them with anything. Throw them a rag and they’ll be entertained for hours. Well in housing, that rag is interior design.
Veteran property investors know better. When they go for a viewing, they keep their emotions bottled up. Usually next to an impressive collection of empty vodka bottles. These people make money because they’re jaded, stressed, and soulless. But more importantly, because they’re not the least bit moved by a nice feature wall.
For another $15,000, we put your face on them. Talk about real class and value huh?
Here’s some advice from Mr. Charlie Sng, procurement officer and property speculator:
“The most important things are price and location. I am not interested to hear which designer or what finishing, or granite or sandstone or whatever. The only question is: What is the surrounding value, what are the returns? End of story.”
So don’t be dazzled by design. Look at the hard numbers, and keep to your budget.
2. Early Bird Discounts
Most property developers have a sales target of 70% on launch day. In fact, anything below that is considered quite disappointing. When word gets out that a particular development had “very few” buyers, revenue plunges faster than necklines at the STAR Awards.
For this reason, developers like to offer “early bird” discounts. This ranges from direct price discounts (pay less per square foot) to absorbing certain stamp duties. But blink and clear the smoke from your eyes: These discounts are trivial compared to the 10 or 15 year commitment of a home loan. Also, no discount will compensate for inaccessible location or bad amenities.
Of course there's a discount. I'm discounting your intelligence right now.
Finally, check that all the discounts being touted apply to you. It’s not unheard of for amateur buyers to be enticed by the absorption of stamp duties, only to discover those stamp duties never applied to them in the first place. American buyers, for example, do not pay the 10% Additional Buyers Stamp Duty.
3. The Showflat
Showflats don’t resemble actual interiors. For starters, showflats are built on very expensive budgets. Unless you have an extra $50,000+ in the bank, you won’t be getting the same set-up. Yeah, this might be the only business where the display unit is 70% inaccurate.
I’m not just talking about sofa sets and lights here. Sometimes, doors are repositioned, extra windows are thrown in, and entire walk-in wardrobes or kitchen islands are installed. You might find none of these in the actual flat, so don’t base your decision on what you see.
I dunno, I got a suspicion it doesn't come with everything I see here.
To be sure, ask the sales staff which features are part of the property, and which are just for show. Be especially wary of sliding glass doors or balcony features, which are favourite ways to make the space seem wider.
4. Easy Rental Promises
A favourite promise by property agents is easy rental income. The loan repayment will work itself out, they’ll say, because everyone wants to rent that location. Look at the surroundings: They’re in high demand, and vacancies are filled in days.
But Mr. Sng suggests you shouldn’t be swayed by this argument:
“Of course got no vacancy. Everywhere also no vacancy if the price is right. But the question is how high can the rent be?”
Actually, I think your toilet sewer pipe *doesn't* count as a basement.
Mr. Sng also feels that rental should not be the sole consideration when buying property. He feels that, even if a property can be rented at high prices, the major considerations are resale and a high COV.
“Don’t be so optimistic. When times are bad, expats will go home. Rental market is the first to suffer. Don’t just think about rent, rent, rent. Think about your holding power. No holding power, don’t buy. Don’t care whether you can make from rent.”
5. Word of Mouth Reviews
The Internet magnifies everything, including idiocy. Case in point: Large crowds of property buyers, who prompt each other into aggressively higher bids.
But the best property investors are intensely hype-averse. They’re so allergic to bull crap, they break out in hives just walking across a paddy field. And these are the people you should be looking to. Your info should be coming from H88, iProperty, or Mr. Propwise; not from Mr. Su Ka Liao next door. Preferably, get a copy of Secrets of Singapore Property Gurus for some general outlines.
Hey, you out there. Yeah you. Is this place worth buying? You have the better view.
Don’t jump in with the herd. When a property agent squeals that “Everyone is buying! We’re already getting cheques!” Just take a deep breath and find a quiet spot. An old Warren Buffet adage applies well to Singapore’s property market:
Be greedy when others are fearful, and be fearful when others are greedy.
(On an irrelevant note, the same adage is terrible for picking a food court).
Can Renovations Raise Your Property Value?
This question has started more flame wars than a “Twilight sucks” comment on a teenage forum. Some people insist the answer is yes, renovations raise property value. But those people tend to have job titles like “Interior Decorator”, or something that involves making money from renovation. Other people, like property investors, say they don’t care. Which is funny, because when they’re selling you a house, the expensive flooring is a big issue to them. In this article, I look at the half-truth behind this question:
All our renovations are functional. That sofa, for example, conceals the burst toilet pipe behi…oops.
What Are The Factors?
For the most part, renovations don’t play a big role in the official valuation. But when you take into consideration extras like cash over valuation (COV), renovations do result in a higher sale price. The factors that make renovation matter are:
- Buyer’s Experience And Intent
- Current Median COV
- Designer or Contractor
- Prevailing Design Trends
- Functionality of Renovations
In conclusion sir, the buyer's reluctance has less to do with your flooring, and more to do with your referring to her as a stupid cow.
1. Buyer’s Experience and Intent
If you’re selling to a property investor, your renovations are as relevant as your hair style in a bar fight. Most property investors are not looking to move in, so it doesn’t matter how pretty your chandelier is.
Property investors will stick close to the valuation. If they’re interested in rental yields, they only care that the place looks neat. In fact, if they’re looking to rent, renovations can even be a disadvantage. Can you imagine renting a house with vertical gardens or a crystal chandelier to college students? There’d be European debts smaller than the monthly repair bill.
Perfect for anyone who spends their life watching TV, drinking beer, and staying unemployed. (i.e. The clientele of every Lucky Plaza KTV).
With home buyers, the situation is different. Comfort is their main focus, so renovations can prompt them to pay more. Also, home buyers tend to be less experienced than property investors; they may not know the hard rules of location and resale value. As such, they may prize the cosmetic features of the property over its real value.
2. Current Median COV
However pretty your renovations look, the current median COV will be the main determinant. The COV determines the amount paid for the property above the official valuation; it’s a sensitive issue, because a bank loan does not provide for it.
So before forking out for renovations, take look at COV prices in your area. If the median COV is low ($10,000 or under), then don’t expect your renovation to “pay for itself”. Singapore’s property market is highly efficient; with sites like iProperty, H88, and SmartLoans, there’s almost no chance of suckering a buyer.
If the median COV in the area is $10,000, then paying for a $50,000 renovation gets you…well, 40,000 reasons to take up adult maths classes.
Here come the viewers. Get ready: Once Block 76 signals their new asking price, raise ours to match,
3. Designer or Contractor
Yes, a contractor can double as an Interior Designer. But that’s as clever an idea as getting your car mechanic to double as your dentist.
Interior Designers and contractors seem similar, but they’re not. Interior Designers are up to date on current trends (see point 4), and prestigious design firms can lend branding to your property. Contractors are execution stage, hands-on people: They’re the ones who stick on the tiles and drill into the walls.
When will the contractors get started? What do you mean? This IS the end product.
In Singapore, the term “Interior Designer” is not heavily regulated. At some point, contractors started calling themselves designers as well. And home owners started wondering why, after $30,000, their flat still resembles the set of Prison Break.
Since renovations in general aren’t cheap, it’s best to fork out a bit more to get a recognized design firm. Remember: If the renovations are anything short of spectacular, they won’t justify your asking price.
4. Prevailing Design Trends
Like the fashion industry, interior design has its own trends. Back in the 80′s, art deco was all the rage in Singapore. As of ’05, the industrial look has grown in popularity.
If you’re not intending to stay long, picking something “in vogue” might help. Contemporary styles (all chrome and mirrors) can make a HDB flat resemble an upmarket condo. That’s why few showrooms use traditional design schemes; they’re counting on a “wow” factor to halve the buyer’s IQ.
But if you’re not intending to sell for a while, it’s inadvisable to follow trends. The industrial vibe may be cool today, but in five years, your viewers might be wondering why you live in a factory supply closet. Traditional design schemes (e.g. country house, east Asian, high modernist) are a safer bet. They may not raise your property value, but they won’t detract from it either.
Excuse me, I think you missed a few spots with the wallpaper.
5. Functionality of Renovations
Functional renovations are the biggest contributor to COV. That is, renovations that do something besides look good. Local favourites are:
- Walk-In Wardrobes
- Wet Rooms
- Kitchen Islands
- Any sort of partitioning that allows the kitchen to double as a study room or TV room
- Bar counter seats (sometimes attached to the kitchen island)
These renovations count for more than cosmetic features, such as materials used in tiling, or a ceiling motif. The downside is that these renovations also cost more; so while they may raise your COV, your asking price still may not cover them.
It's a shoebox apartment. Can we count the entire design as a single walk-in wardrobe for billing?
In general, renovations can raise your COV, but do little to help the official valuation. Also, it tends to be high cost renovations that justify a higher asking price. Even if those renovations raise your COV, you may not see a return on investment.
As such, it’s best to treat renovations as a luxury to enjoy, rather than an investment of any sort.
Why Some S’poreans Prefer Resale Flats to New Flats
Shopping for resale flats is like shopping for a Mac. Listen as salesmen explain, according to extraterrestrial logic, how it’s “actually not that expensive”. Since our ears are filled with enough bull dung, I’m going come right out and say this: We know when our purchase is over-priced. Okay? There’s no need to spin. We’re not buying because we’re gullible morons, we have our reasons. And in this article, I’ll explore the ones behind buying resale:
In Singapore, everyone has a choice. You want expensive, more expensive, or too expensive?
1. Mature Estates Have More Amenities
The biggest attraction of resale flats? They’re in mature estates. These are places like Bedok, where building more flats is about as viable as starting a rice farm in your bathroom.
And mature estates are desirable. By virtue of being older, they have more supermarkets, provision stores, coffee shops, etc. This is different from places like Woodlands, which is a prime location for the next Survivor series.
Aging Singaporeans, especially, seek the amenities of mature estates. Susan Pereira, who recently moved into a resale flat in Bedok, tells me that:
“I am too old to go gallivanting and I don’t cook. And I don’t want to burden my grand-daughter with driving here and there. That’s why we chose this place; everything is a few minutes away.”
Susan and her grand-daughter paid $45,000 COV for their flat.
S'pore housing is about choice. You want coffee shop near but too crowded to sit, or spacious but too far to walk?
2. Government Grant
Assuming you meet the requirements, there’s a $30,000 grant for resale flats. If you stay within 2 km of your parents, you get $40,000.
There are some drawbacks though:
- You’re living within 2km of your parents. Sadly, some people consider this a disadvantage.
- You can’t sell the resale flat for 5 years.
- You can’t purchase another HDB flat or Executive Condominium
There's also a new government grant for motorists.
3. More Living Space, Less Parking Space
Most older (i.e. resale) flats are bigger than their new counterparts. Some even have an additional storeroom or balcony. Remember, these were built when Singapore wasn’t more crowded than a Viet Cong tunnel in an air raid.
Then there’s the lack of multi-storey car parks in old estates. This works both ways: On the one hand, the flats are bigger because there’s more land space. On the other, parking is so limited you better hope visitors are law-abiding. Josephus Yap, who recently bought a resale flat, tells me:
“Always have non-residents come and park illegally, because of the coffee shop. Police fine, wheel clamp, also no use. There’s still the immediate problem right? Where to put my car? I have to sit and wait like a clown until someone drives out.“
"As part of our new scheme, flats will now cost $1000. However, parking spaces will cost $400,000.
4. Negotiable Prices
New HDB flats have fixed price tags. With resale flats, you can haggle with the former owner. Which uh…isn’t as big an advantage as most people think. According to property investor Charlie Sng:
“It still costs more because of the COV right? You bargain $10,000 or $5000 cheaper, it’s still priced above the valuation. Unless you can really bargain so well, or the seller is desperate.“
Mr. Sng says these situations are rare; he’s only seen it once, when a couple made a snap decision to migrate:
“They stayed in the flat for less than a year. Newly renovated some more. In exchange for a fast sale, I’m told they actually sold at a loss.“
Oh, that’s nice to hear. People want to leave our country that fast. Anyway, there’s a chance you’ll get a better deal if you bargain. And that’s an opportunity new flats won’t give you.
I did NOT bet our house on a Poker game. It was Blackjack.
5. You Can Move In Right Away
Sometimes, you need to find your own place fast. Maybe your parent’s house is too cramped. Maybe your children have school in the area. Or maybe the neighbours are unreasonable, and won’t let you dance to “Born This Way” in your underwear with the front door open.
Anyway, you want a resale flat for such cases. It’s ready to move into, unlike a BTO. There’s no long line of applicants, and you don’t have to wait for construction to end. In some cases, buyers have even asked for furnishings to be included. Josephus says:
“When we moved I just took some of the furniture that’s already there. I didn’t bring over our big dining table, our big white sofa, and that antique table your broke. It saved a lot of work.”
If it lasted 120 years it should have survived my weight, dammit.
Moving into BTO flats.
6. Walking to the Rubbish Dump
The newer flats have centralized dumping areas. Everyone has to drag their trash there, so if you lived with me you’d hate it (I’m heavy). The older properties have chutes that go straight from your flat to the dump.
If you’re a young couple, taking the trash out is trivial. But if you’re elderly or handicapped, it’s a serious annoyance. While I doubt anyone buys a resale flat just because of rubbish chutes, it’s sometimes the tipping point in the decision making process.
An E-mail from an anonymous friend:
“I guess I am a bit lazy, but I have my son, my cousin, my uncle, and my parents living under the same roof. All of them are too lazy to throw the rubbish. At the end of the day there’s a mountain of rubbish.
I hurt my back working three years ago, I cannot carry the big rubbish bag all the time. That’s why I wanted a place with the chute.”
Can Renovations Raise Your Property Value?
This question has started more flame wars than a “Twilight sucks” comment on a teenage forum. Some people insist the answer is yes, renovations raise property value. But those people tend to have job titles like “Interior Decorator”, or something that involves making money from renovation. Other people, like property investors, say they don’t care. Which is funny, because when they’re selling you a house, the expensive flooring is a big issue to them. In this article, I look at the half-truth behind this question:
All our renovations are functional. That sofa, for example, conceals the burst toilet pipe behi…oops.
What Are The Factors?
For the most part, renovations don’t play a big role in the official valuation. But when you take into consideration extras like cash over valuation (COV), renovations do result in a higher sale price. The factors that make renovation matter are:
- Buyer’s Experience And Intent
- Current Median COV
- Designer or Contractor
- Prevailing Design Trends
- Functionality of Renovations
In conclusion sir, the buyer's reluctance has less to do with your flooring, and more to do with your referring to her as a stupid cow.
1. Buyer’s Experience and Intent
If you’re selling to a property investor, your renovations are as relevant as your hair style in a bar fight. Most property investors are not looking to move in, so it doesn’t matter how pretty your chandelier is.
Property investors will stick close to the valuation. If they’re interested in rental yields, they only care that the place looks neat. In fact, if they’re looking to rent, renovations can even be a disadvantage. Can you imagine renting a house with vertical gardens or a crystal chandelier to college students? There’d be European debts smaller than the monthly repair bill.
Perfect for anyone who spends their life watching TV, drinking beer, and staying unemployed. (i.e. The clientele of every Lucky Plaza KTV).
With home buyers, the situation is different. Comfort is their main focus, so renovations can prompt them to pay more. Also, home buyers tend to be less experienced than property investors; they may not know the hard rules of location and resale value. As such, they may prize the cosmetic features of the property over its real value.
2. Current Median COV
However pretty your renovations look, the current median COV will be the main determinant. The COV determines the amount paid for the property above the official valuation; it’s a sensitive issue, because a bank loan does not provide for it.
So before forking out for renovations, take look at COV prices in your area. If the median COV is low ($10,000 or under), then don’t expect your renovation to “pay for itself”. Singapore’s property market is highly efficient; with sites like iProperty, H88, and SmartLoans, there’s almost no chance of suckering a buyer.
If the median COV in the area is $10,000, then paying for a $50,000 renovation gets you…well, 40,000 reasons to take up adult maths classes.
Here come the viewers. Get ready: Once Block 76 signals their new asking price, raise ours to match,
3. Designer or Contractor
Yes, a contractor can double as an Interior Designer. But that’s as clever an idea as getting your car mechanic to double as your dentist.
Interior Designers and contractors seem similar, but they’re not. Interior Designers are up to date on current trends (see point 4), and prestigious design firms can lend branding to your property. Contractors are execution stage, hands-on people: They’re the ones who stick on the tiles and drill into the walls.
When will the contractors get started? What do you mean? This IS the end product.
In Singapore, the term “Interior Designer” is not heavily regulated. At some point, contractors started calling themselves designers as well. And home owners started wondering why, after $30,000, their flat still resembles the set of Prison Break.
Since renovations in general aren’t cheap, it’s best to fork out a bit more to get a recognized design firm. Remember: If the renovations are anything short of spectacular, they won’t justify your asking price.
4. Prevailing Design Trends
Like the fashion industry, interior design has its own trends. Back in the 80′s, art deco was all the rage in Singapore. As of ’05, the industrial look has grown in popularity.
If you’re not intending to stay long, picking something “in vogue” might help. Contemporary styles (all chrome and mirrors) can make a HDB flat resemble an upmarket condo. That’s why few showrooms use traditional design schemes; they’re counting on a “wow” factor to halve the buyer’s IQ.
But if you’re not intending to sell for a while, it’s inadvisable to follow trends. The industrial vibe may be cool today, but in five years, your viewers might be wondering why you live in a factory supply closet. Traditional design schemes (e.g. country house, east Asian, high modernist) are a safer bet. They may not raise your property value, but they won’t detract from it either.
Excuse me, I think you missed a few spots with the wallpaper.
5. Functionality of Renovations
Functional renovations are the biggest contributor to COV. That is, renovations that do something besides look good. Local favourites are:
- Walk-In Wardrobes
- Wet Rooms
- Kitchen Islands
- Any sort of partitioning that allows the kitchen to double as a study room or TV room
- Bar counter seats (sometimes attached to the kitchen island)
These renovations count for more than cosmetic features, such as materials used in tiling, or a ceiling motif. The downside is that these renovations also cost more; so while they may raise your COV, your asking price still may not cover them.
It's a shoebox apartment. Can we count the entire design as a single walk-in wardrobe for billing?
In general, renovations can raise your COV, but do little to help the official valuation. Also, it tends to be high cost renovations that justify a higher asking price. Even if those renovations raise your COV, you may not see a return on investment.
As such, it’s best to treat renovations as a luxury to enjoy, rather than an investment of any sort.
5 Common Types of Over-Investing in Singapore
There’s a fine line between optimism and stupidity. Of late, too many Singaporeans (home owners especially) have failed to spot that line. And it’s not just property buyers: On a daily basis, Singaporeans wipe out their savings on stock trading, tuition fees, or investment schemes less stable than Charlie Sheen. In this article, I look at the most common forms of over-investment:
$120k in stocks, $50 million in property, but Excel? Sorry, no budget.
What is Over-Investing?
In personal finance, over-investing means putting more money into an asset (whether it’s a house, stocks, ungrateful son, etc.) than the asset is actually worth.
In terms of psychological appeal, it’s a very easy misstep. Our brains are wired to assume anything worth doing is worth over-doing, so even veteran investors fall for it. But let it get too far, and you’ll compromise your financial security. Typical sources of over-investment are:
- Renovations
- Rental Properties
- Tuition
- Trading Seminars
- Private Transport
I heard time is money, so I blew my life savings on these.
1. Renovations
Renovations are a substitute. Because a new house costs too much, a do-over is the next best thing. It’s like how I buy expensive jeans to make up for being fat. (Shut up, it works if I say it does).
A combination of shows like Renovaid and cheaper reno loans are also taking effect. Elton Koon, a general contractor, mentions that:
“Last time only private housing, like (owners of) bungalow or semi-D, will call designers. Today a lot of HDB flats also like to have design.”
That smell is because it has to double as my kitchen.
According to Elton, the most popular renovations involve walk-in wardrobes, “open concept” layouts, and kitchen islands. In fact, Elton’s last project was a HDB flat in Woodlands, which racked up a bill of over $45,000.
Come on. Is it that important to squeeze a walk-in wardrobe into your HDB bedroom? No offence, but I’ve seen products at Singapore casket with more breathing space than HDB walk-ins. And the tremendous cost involved (it can reach $12,000 – $18,000) is impossible to justify.
When the median cash over valuation (COV) in your area is $30,000, a renovation fee of $45,000 is a serious over-investment. Any appreciation in property value is chewed up by that extra cost.
2. Rental Properties
I’m not just referring to shoebox flats. I’m referring to the crazed desire for rental income, which has rookie investors buying property on a whim. There are two impressions at work here:
- Home loans are cheap, so forget playing it safe. As long as I make the monthly repayment, I don’t care.
- Rental income is predictable
First off, home loan rates are low. This is different from cheap.
Home loans can be low compared to loans in 1998. They can be low compared to HDB rates. But they are never cheap as in baseline, “value meal at McDonald’s” cheap.
Cheap = Something you can buy with trivial effect to your finances.
There are plenty of places with low rent in Singapore.
Just because home loan rates are low, that doesn’t mean you should get presumptuous. We’re still talking 15 or 30 year loans, with repayments that chew up much of your income. Nor are the rental incomes predictable. If oversupply grows, for example, or a global financial crisis forces ex-pats to head home, rental income may fall far below loan repayments.
In the event of decreased rental income or vacancy, your rental property is worth far less to you than you’re paying for it.
3. Tuition
Beyond a certain point, tuition just becomes a waste of money. It should be simple to evaluate: Put the money in, see if results improve. No improvement? Get someone else. Otherwise, leave it as is.
But that’s not how Singaporeans behave. If they aren’t hiring multiple tutors for the same subject, they’re piling on repeat tuition sessions. The assumption seems to be: “One session a week good, three sessions a week better”.
Mrs. Ng, a tutor who teaches A-Level Chemistry, disagrees:
“I always tell parents there’s no point hiring me for so many sessions a week. Between twice a week and three times a week, there’s no difference. Beyond that I’m just helping with homework.”
Does this story also involve returning wallets and misbehaved students? Because I'll stab you.
And what about multiple tutors for the same thing?
What, if one tutor improves the results by 10%, three tutors will rack it up by 30%? Is that how we think it works? Take a closer look. I think you’ll find that improvement remains fairly static, tied to the work of the best tutor, rather than multiple tutors.
Hire the good one; the rest are not a paying investment.
4. Trading Seminars
Oooh, look, a trading seminar that teaches you how to make a million bucks. Or another entrepreneurship talk, or motivational speaker.
I’ll let you in on a secret. These seminars don’t really sell information. They sell a temporary buzz. You go there to have people yell in your ear, real loud, that YOU CAN DO IT MAN. Then you come out all fired up, make plans and phone calls, and give it up a week later.
Then you see another seminar in the papers…etc.
I know I can succeed, because I've paid well-dressed people to tell me I can.
There are real seminar addicts out there, who invest anywhere from $800 – $2500 a month on these things. Apart from the “high” of a pep talk, few of them can translate their investment into actual dollars. The next time you go for one of these, check your bank book two or three months later.
Is there any extra income you can attribute to the seminar? Or have things mostly stayed the same?
Look, if all you want is a pep talk, send me $20 and your address. I’ll send you a recording of people clapping and cheering, and maybe a clip from Rocky.
5. Private Transport
Your car, your van, your bike, whatever. You know that most vehicles can only depreciate right? Unless you’ve got something that’s going to be vintage, you’re just wasting money on any upgrades.
Wow, I sure get to places faster now I have this car. Almost three minutes faster.
Even with “classic” vehicles, you might be spending more on maintenance than you’ll ever get back. To keep a car running past the 10 or 15 year mark, you need skilled mechanics, a workshop worth of tools, and a lot of luck. And even if you do keep it working, the sale price may not cover the years of care and effort.
An even greater waste is the use of body kits or engine mods. These can wreck your insurance claims, raise maintenance costs, and add dubious value in a resale. This isn’t Need for Speed: You’re driving a glorified cart to work and back, not a race car. Tuning it is like buying a donkey and trying to race it at the Turf Club.
The April Record: Why are Private Home Sales Still Rising?
Hey there, Singapore. Houses! That’s right: Despite five rounds of insane cooling measures, private home sales still managed to rise in April. While the local authorities double their order of aspirin, let’s look at why it might be happening:
There are no sharks in the pool. Property agents aren't allowed to bring relatives.
What Happened in April?
What happened is 2,487 new units got sold by developers. That’s a 3.9% increase from March, and the biggest record in three years. It’s also the third straight month that private home sales exceeded the 2,300 mark.
And just days before, the Ministry of National Development (MND) claimed cooling measures “are working“.
Yeah, sure they are. They’re “working” like I work after five on Fridays.
While cooling measures have caused modest price declines, the growing sales volume suggests nothing’s under control yet. Resilient demand, coupled with unrealistic investments (i.e. shoebox apartments, Sky Habitat), are propelling Singapore’s property market toward a potential crash.
Why’s it happening? I put it down to:
- Uninformed Optimism
- Low Interest Rates
- Shoebox Apartments
- HDB Prices vs. Private Home Prices
With great pleasure, I present our government's new community plan.
1. Uninformed Optimism
To the layperson, Singapore’s property market is the Nirvana of the investment world. It’s been spiralling upward since 2007, despite efforts at government control.
It doesn’t help when tycoons like Li Ka Shing claim that, no matter what the price, they’ll buy property in Singapore. Because of our herd instinct (yes, I’m flat out saying it, and I’m Singaporean. So Moo moo), we skip other investment options.
Insurance? Too slow.
Structured deposit? Too complicated.
Forex or stocks? Too risky.
No, the answer is property. Property will cure all our financial ills. It will ensure our future, bring social status, and cure lung cancer.
It's half full of course. Anyway, I have an alternative investment selling life insurance in Iraq.
You laugh, but until educational intervention takes place, this irrational optimism will keep plaguing the property market. Mr. Charlie Sng, a successful property investor since ’93, mentions that:
“The government should run free courses at community centres. Teach people what will happen if they have to default on their loan. Show them what are the realistic returns when they buy their shoebox flat, or how the bubble has to burst.”
2. Low Interest Rates
SIBOR and SOR have stayed low for some time, and home loans are at their cheapest in years. To Singapore’s growing middle-class, this is an opportunity to move into the property market.
There is a notable disparity between HDB loans (2.6%) and the typical bank loan (little over 1%). Because newcomers to the market are unfamiliar with the terms (e.g. pre-payment penalties, lock-in clauses, collaterals), bank loans can create an illusion of affordability.
And for my next trick, I'll make *logic* vanish.
“Why get a HDB flat on a HDB loan,” some are thinking, “when we can risk getting private property on a bank loan?”
Often, this question is answered when they’re in the queue for charity porridge.
So if you happen to think this way, please do your homework. At the very least, make sure the bank loan is really as cheap as the banker claims. Visit sites like SmartLoans.sg, to compare the latest interest rates from all the banks.
3. Shoebox Apartments
Oh for the love of…are people still buying these? I already have two articles about this, and the Minister for National Development (Mr. Khaw Boon Wan) has repeatedly warned against it. The MND even threatened to start taking steps.
(Hah, I’d like to see what those “steps” are. A strongly worded letter? A disapproving glance? Spitballs?)
No, I don't know. What CAN you and your friends do with those fists and bike helm…arggh, my face!
There’s been a glut of shoebox flats lately; apartments that are 500 square feet or below. Because shoebox flats have low quantums and high rental yields, they’ve become a “get rich quick” scheme for amateur investors. These investors expect similar performance to central region shoebox flats, so they’ve been buying like aunties at an OG sale.
I’d comment on their expectations, but I’ve been told to cut back on words like “ass”.
4. HDB Prices vs. Private Home Prices
Ever since November 2011, HDB prices have been climbing at significant rates. The property market needs to invent a technical term for this, and I suggest “scary as hell“.
Thanks to a variety of reasons, such as rising median COVs, HDB flats are threatening to hit prices that were once exclusive to private housing. There have been reports of HDB flats hitting the $900,000 mark; and while a bumper crop of 8000 flats should help, it doesn’t change the fact that HDB flats aren’t as cheap as before.
Save money? Dude, the only thing cheap about this place is you.
To some buyers, such as Ms. Adeline Tay:
“Whether it’s private housing or HDB, it’s both quite expensive anyway. So if in either case I’m going to be paying for 30 years, I may as well just bite the bullet and get a condo. I think the price difference isn’t big enough to prefer HDB over a small condo any more.”
Why are HDB Prices so High?
HDB prices are supposed to be cheap. That’s the whole point of mass housing. But unless you’ve been living under a rock (get it? – ed.) you’ve probably heard complaints. Newly-weds are struggling to afford their home loans. Low and middle-income families are living off Maggi mee. And the elderly or disadvantaged are staring at Oscar the Grouch’s trash-can with undisguised envy. What’s going on here?
1. Then and Now
Most people have a great memory with regard to two things: their salaries over the years and their home prices. This point illustrates how the Price to Income has changed for HDB over the years. A long long time ago (like the 1970s), as the older generation would tell us, HDB flats were going for $20,000. Back then the pay was like $600 per month, so price to income was a mouth-watering 2.8x! And nobody wanted them! Okay maybe that’s too ancient and not so relevant. Let’s look at 2007. According to the HDB website and Singstat, a 4-Rm HDB was going for $241,000 and our median household income was $59,000 or so. That’s still a cheap 4.1x compared to 6.4x today.
So while HDB is still cheap today when compared to other Asian cities, it is definitely much more expensive compared to its own past. Our incomes have not risen as fast as home prices. Everybody knows that. Well… except the government. Or maybe they just had a different agenda, such as building the country’s reserves.
2. Sour Raisins
To make things worse, our low income households bore the full brunt of higher prices. In 2000, the monthly salary of the lowest 10% was $1,276. In 2007, it went up to $1,221. Sorry, it actually went down by $55. Finally in 2010, it went up to $1,400. An increase of a whopping $12 per year from 2000 to 2010! How impressive! Meanwhile the top 10% grew from $14,959 to $23,684. Close to $10,000 increase. Answer to the recent poll: 17x difference.
Okay, that’s a bit dramatic. But the point here is that the lower to middle income group hadn’t had it easy. While the top 20% to 30% of the population enjoyed higher salaries, got to eat at fancy restaurants, drive new cars, upgrade to better 5-Room or Executive HDBs or even condos, these low income families are eating from hand-to-mouth. It’s not even sour grapes, it’s leftover sour raisins. And they have to share with their kids while servicing their 35 year mortgage.
Frankly speaking, it doesn’t really matter to them whether the price to income is 5x or 10x, to them it’s always 35x. They definitely don’t benefit if prices go up, because it’s their only home and they cannot sell. The government seriously needs to do something here, although they are already lending a helping hand, just that it’s not publicized much.
3. Policy Blunders
While HDB prices are inexpensive, I guess what really gets on peoples’ nerves are various policy blunders that led to lower quality and poorer service, like diminishing floor area, supply-demand issues and the stupid $8,000 rule.
On lower quality, it’s no secret that home sizes are shrinking. An old 4-Room HDB is now as big as a modern 5-Room. Maybe in another 10 years, a 5-Room would look like Mickey Mouse’s toilet. Because they counted the floor area of your balcony which is now bigger than your living room, the aircon unit, the common corridor and staircase as well! Why is this allowed to happen? Talk about major policy blunders!
The quality of finishing also had some hiccups. Remember the aluminium window frames that fell off? Or wall tiles that kept cracking? Well, admittedly, some of these issues have been resolved.
On poorer service, this is actually tied to the supply-demand mismatch. Basically new HDB owners have to wait on average 2 to 3 years before they get their flat thanks to HDB’s “policy” of building behind the curve and in a roller coaster fashion. Just as an example, they overbuilt in the earlier part of the decade, flooded the market with tens of thousands of flats in Boon Lay and Sengkang. Then they decided not to build anything, which led to the current situation of newlyweds having to wait 2 to 3 years between ROM and the customary ceremony. Meanwhile we want higher birth rates!
And now HDB decided to go all out and build 40,000 flats in the next 2 years, staging the market for the next cycle of boom and bust.
So despite paying up for a more expensive home, Singaporeans have to wait longer to live in a smaller unit with probably more defects and subject to illogical rulings like an $8,000 income limit for a $780,000 flat.
I guess that is the ultimate unforgivable deed.
4. Broken Dreams
So far, all the analyses are being done on HDB. Prices though not as expensive as other Asian cities, are rising too fast too furious and policies are crap. Hence there’s a lot of dissent on the ground. The far more important piece of the puzzle is actually the private condo market. Even without doing any detailed analysis, most rational people would come to the conclusion that the Singapore property market is frothy. Just a quick glance at two measures: Price to Income is more than 20x if you use median household income, or 13x if you use the 90th percentile. Rental yield is closing in on 2%, i.e. Froth-on-your-Tiger-Beer level. Any frothier, it’s either going down the throat or the chute.
But the biggest setback posed by the private home market is this: It destroyed the 5Cs dream. THE Singapore dream. An average condo now costs more than a million bucks. Actually the average price is probably like S$1,875,000 (using $1,500 psf times 1,250 sq ft). This means that 80% of the population with an annual income of less than S$100,000 cannot afford to upgrade to a condo, no matter how hard they try. Because it will take them close to 20 year just to earn that face value, assuming they spend nothing. With the new ruling of only 60% LTV, it means you need at least S$750,000 in cash or CPF to buy an average condo. Well, if you have S$750,000, I guess it’s better to buy yourself 20 years worth of food and staples in preparation for retirement. Because those are the next items to skyrocket in prices.
Maybe the situation will rectify itself, but we haven’t got all the time in the world. Singaporeans are really feeling the squeeze, and the relevant authorities need to act fast. In the meantime, it’s best to compare prices carefully, and tread with caution when looking for a home.
Article contributed by 8percentpa, who runs investment blog Eight percent per annum.
Do you have trouble paying for your HDB? Comment and let us know!4 Reasons Why Resale Flat Prices Aren’t Dropping
There was a time when resale flats were budget buys. When we couldn’t afford a new place, the resale market was the last resort. It was cheap, it was available, and the only “cash over valuation” was paying off the previous owner’s loan shark. But not any more: These days, resale flat prices are sky high. And despite cooling measures, they’re clinging on tighter than your girlfriend at a horror movie. In this article, I explore four possible reasons why the prices aren’t dropping:
We value resale flats because of creative architecture, right?
1. Higher Rentals and Permanent Residents
Great, now I have to discuss Singaporean PRs and local property. This’ll turn out like an inter-faith dialogue at an Al Qaeda conference.
Here we go: Since the new cooling measures, rental rates have been at an all time high. From the start of 2012, rental hikes of 5 – 10% have become a reality. Rental costs, even for HDB flats, can hit the $2,500 – $3000 mark.
Great news for landlords. But a significant portion of PRs depend on rented or sub-let HDB units; and right now, they’re feeling like over-milked cash cows. We’ve mentioned elsewhere that rental money is wasted money; the advantage of rental is supposed to be lower cost. But since rentals are now at the $2500 – $3000 mark, they’ve become comparable to a home loan anyway. There is, in effect, no advantage to renting over buying. On top of that, high rentals mean PRs need to purchase fast; the longer they wait, the more money they’ll blow on rental.
The result on the resale market is rapidly rising cash over valuation (COV), which is reaching medians of $50,000 in some districts. And considering over 80,000 PRs joined us in 2011, this trend won’t stop any time soon.
As far as most new residents get, before their savings run out.
2. Supply Crunch
Between 2003 – 2007, construction of new HDB flats fell by 75%. Someone must have taken a seriously long coffee break, and what we’re seeing now is the fallout from that.
Nothing much to say here: It’s demand and supply. There are now more people who want resale flats than there are resale flats. So long as that’s true, sellers can charge whatever they want. Their advertising may as well consist of dropping their pants, mooning you, and asking “What are you going to do about it?”
There has been some government response to the supply crunch: A large number of BTO flats were launched in 2010, but many of these aren’t even complete yet. And knowing the speed of the average contractor, you might be interested in a different type of home by the time they’re done. Namely, a retirement home.
Property expert Colin Tan, from Today Online, predicts that the supply crunch won’t ease till 2017.
Don't worry, there's enough housing for everyone…once we finish the Moon Base.
3. Upgraders Holding On to Their Flats
If you currently own private property but buy a HDB flat, you are required to sell the private property within six months. This caters to HDB’s core purpose: it’s about essential housing, not investment opportunities for speculators.
Before this law, upgraders (people moving from HDB into private housing) were quick to sell their old flats. Now, it makes more sense for them to hold on to the old flat, renting it out to service the new home loan. After all, if they do sell their HDB flat, they won’t be able to buy another one again; not without losing their private property. In effect, the new law makes it harder to eventually own two properties, and discourages reselling.
This contributes to the supply crunch in point 2.
In addition to this, higher rental yields make it more viable to rent rather than re-sell. Previously, upgraders might have needed to sell their flat fast, in order to service their new home loan. But the increased rental income now covers a significant portion of their loan repayment, which also discourages selling.
"…and every 20 minutes I check if the flat's still mine. I'm not obsessed or anything though."
4. Demand Can’t Be Siphoned to New Flats
The demand for resale flats isn’t easily diminished. Even with a lot of new flats (which take time to build), there is a core demand that remains unaffected. There are three groups that comprise this:
- Permanent Residents
- Downgraders
- Location Dependent Buyers
Permanent Residents
PRs can’t directly buy new HDB flats. As such, the availability of new flats only affects them indirectly, and they maintain the consistent demand for resale flats. It’s not their fault: Their alternatives are private property (often too expensive), or renting (see point 1).
Downgraders
Resale flats are a favourite purchase amongst downgraders. For example: The children of a retired couple move into their own house. The retirees, who are now living on their CPF, have no need of their five room flat. Their most obvious choice is to downgrade to a resale two or three room flat, using the money from the sale to cover their retirement.
Location Dependent Buyers
These are buyers who have specific location requirements (e.g. near a particular school or hospital). In some cases, the only property that caters to their requirements are resale flats. This is especially true in older districts, where there’s barely room for a new Mama Shop, let alone a new development.
Can't you guys just…hang around the parking lot till we're done?
Still Want a Resale Flat?
With current COV prices soaring, you’d be advised to think carefully about buying a resale flat. Remember that COV is not covered by a home loan, so you need to have cash on hand.
To make sure your financing will suffice, visit SmartLoans.sg. This free website will pick the best home loan package for you, which might make that high COV more bearable. Just key in the details of your property, a loan amount you can manage, and the site will find the best options. You can also talk to the site’s mortgage specialists, who will advise you on your financing needs.
Singapore’s Inflation Continues to 5.4%, When Will It End?
In news that’s about as surprising as “Apple overcharges customers”, Singapore’s inflation climbed to 5.4%. If you recall, it’s projected to hit 6%, so at least we so saw it coming. Does that help, that we predicted it? Does it help if I calmly lean over and whisper “We’re about to hit that bus and die” seconds before a head-on collision? I hope so, because that’s all we’ve got. Well, that and MoneySmart’s speculation on when the madness will end:
Question
- : What do you see in this picture?Answer: Nothing you can afford.
Remind Me Why It’s is So High?
I’d rather not; it causes me physical pain. Check out my previous article though. Anyway, two official reasons from the central bank and Trade and Industry Ministry:
- Private Transport
- Accommodation
Supposedly, these two factors account for two-thirds of April’s inflation. A quick explanation:
Private Transport
COE prices are at an all-time high. And if you’re a salesman, or have a medical condition, a car’s about as optional as your left leg. Likewise, people with children or special needs are sometimes stuck with buying one, whatever the price.
End result: These buyers push for raises or seek higher pay, and companies start to elevate prices.
It's not a luxury okay? I have a skin allergy to non-Mercedes car seats.
Accommodation
Accommodation costs are higher than Charlie Sheen on stage. I’m not just talking about buying houses; rent is also (awesome pun) through the roof. The ABSD channelled demand away from private properties, and right into the rental market.
Landlords have raised prices by 5 -10% since late 2011. And with the property market overheating like a cheap laptop, buyers are taking out bigger loans with heftier repayments.
End result: Same as private transport. People push for higher wages, and prices go up.
But when will it end?
I'm not buying. If the taxi driver can pronounce it, it's not upmarket enough.
1. The Singapore Dollar Strengthens Sufficiently
A strong Singapore dollar means imports get cheaper. In case you haven’t noticed, we import practically everything. Food, sand, rich ass-hats with Ferraris, etc. The stronger the Singapore dollar, the more stuff it will fetch from overseas. This has an effect on your purchasing power. For example:
Say you want a laptop, and the retailer imports it from the US at a cost of $1200. Because of the exchange rate (currently SGD$1.27 = USD$1.00), you’d pay around $1533 for it.
But let’s say the currency exchange is SGD$1.10 = USD $1.00.
Now the laptop would cost (1,200 x 1.10) = $1320.
In effect, the more the Singapore dollar strengthens, the cheaper imports get. The cheaper imports become, the lower our overall cost of living. For the strengthening dollar to tame inflation, however, it needs time. Even when the Singapore dollar is strong enough, expect to wait several months before we feel the benefits.
Fine, I'll stand on it. But I don't think this is what the boss meant by strengthening our currency.
2. COE Relief In 2013 – 2015
Some hopeful speculation here: COE prices might shrink between 2013 – 2015. At around 2005, the vehicle quota was quite high. Following the COE’s 10 year cycle, many of the cars bought in that period will start being de-registered by 2013-2015. In theory, this should lower COE prices.
There are two worries here: One is that the vehicle quota has been dropped to 0.5%, which means that even following mass de-registrations, demand for COEs will still be tight.
The second worry is that COE holders from 2005 will not be attracted by PARF rebates. They may cling to their COEs tighter than I did mum on the first day of pre-school, because current prices are too high.
But whatever the case, some relief must come the wind-down of the 2005 – 2015 batch. Assuming it makes cars more affordable, we might see a dip in inflation. Also, don’t forget the government has plans for COE relief in the works.
From now on, NO MORE COE! That said, we'd like to propose a 15,000% increase in petrol tax.
3. Shoebox Oversupply Kicks In
The oversupply of shoebox flats is only a downside if you bought one. In which case, you have as much right to complain as a mugger getting punched in the face.
Watch for a natural market correction: Once there are too many apartments for rent, the demand and rental rates will decrease. And the number of shoebox flats is set to quadruple (from 2500 to 9700) by 2015. Also, problems overseas (like the Eurozone crisis) may result in a cutback on expatriate packages, which means a lot of sudden vacancies.
In any case, it’s good news for tenants. Lower accommodation costs are great for young, working singles, whether local or foreign. Even if you don’t rent a new place, you’ll have wiggle room when re-negotiating your current lease. For all you know, that central region bachelor pad might become a reality come 2015.
Hmm, I like this shoebox, and you have no business sense. Here's an idea: You buy it and rent it to me.
Is There a Fixed Date to All This?
Look toward the last quarter of the year, probably October, for all of this to kick-in. The most important condition is the strength of the Singapore Dollar. But even after MAS brings it to the right level, it will take time to sink in.
Even if the exchange rate improves, the purchase orders made at an earlier date are “locked in”. An example:
Say I put in a purchase order for 5,000 items from the US, at an exchange rate of SGD$1.27 to USD$1.00.
A month later, the exchange rate changes: SGD$1.20 to USD$1.00. Hurrah, imports are now cheaper.
Exchange rate's down in 10 minutes. Tell that cashier to hold the line open.
But even then, my customers won’t see my products get cheaper. I’d still sell that shipment of 5000 products as if we were on the older exchange rate, because that’s what it cost when I placed the order.
It’s only after that shipment of 5,000 is through that I’ll adjust my prices (assuming I’m honest).
So the Singapore dollar is strengthening as expected, but the cost of living won’t transform overnight. In the meantime, keep your budget tight. Don’t even think of buying a car or house. At least, not till you can survey the situation in October.
