Is sg property cheap now?

[Scg8866t]

First of all, Sg do not have peripheral mainland or the luxury of a competitive suburban market for housing like other countries have. We have 3/4 less gross land than hk and 3/4 as many residents as HK. Our gdp per capita is still ard top 3 in the world.

If we do a comparison with HK as per the attachment, it seems to the hkers, sg properties are extremely cheap, in terms of price to income ratio and mortgage to income ratio. 

Sg gov is very successful in controlling the property market by using cooling measures, 10 so far. that has pretty much controlled the price of private property from escalating since 2013. 

Additionally, the tdsr, absd, ltv measures implemented by the gov has eradicated speculation and flipping here in sg. This means all those who owns property here can afford them and are likely long term own stayers or landlords.

Evidence from the 2018 enbloc frenzy has shown that sgreans have deep pockets and are waiting at the side lines for the right time to contribute to the demand. Despite 20% absd to foreigners, we can still see foreign demand seeping in especially from china and hk because even after the 20% tax, its still cheaper here than their domestic market.

If we look at this collectively, it seems to me that sg properties are actually relative cheap on the whole, artificially controlled by gov policies amidst a pent up demand by deep pocket Singaporeans here waiting at the side lines.

Own view

[karlmarx]

The data presented is interesting, and should give real estate investors -- both in Singapore and Hong Kong -- some questions to ponder over.

The question, as posed by TS, is whether Singapore real estate is cheap.

In a comparison with HK, through the use of metrics as presented -- which can be said to be reasonably acceptable -- SG certainly looks cheaper. But instead, can it be said that HK real estate is over-priced, while for SG it is fair? After all, real estate of almost any other major city, when compared to HK, will look cheap in relation to HK. But if we are to assume that SG real estate should trade at similar prices to HK, we are also assuming that both markets are influenced by similar conditions. Is that true?


1) Are the condition/causes that have allowed HK real estate to trade at its current prices also present in the SG market?

I have not spent much time studying the details of HK real estate market, but apart from its obvious attractiveness as 'one of the leading financial centres of the world,' most of what came to my mind point to government policy as the chief factor influencing price. The first is oligarchic control of most land by a small number of private interests, which was accomplished over many decades of accumulation and racketeering of small land owners, since the start of its colonial administration. The second is that the government did not sufficiently develop land for public. Instead, land is auctioned to the highest bidder, which in most cases are the private interests. The third is a decision to be almost completely hands-off in the management of the real estate market.

In Singapore, there were also numerous private interests who have been accumulating since the colonial era. The difference in SG, as we all know, is that while land is also sold to private developers, the government kept a large proportion of land for public development. And in some cases, exercised its power to compulsorily requisitioned land from private interests. And where HK has been laissez faire in allow the market to decide prices, SG as we all know, has been hawkish in ensuring the market is trading at a price it deems reasonable.


2) Regardless, can SG real estate still be attractive?

So one argument is that SG real estate should trade at higher metrics, if the SG government relaxes some of its hawkish policies. Albeit for a period of time between 2005 to 2015 -- where they allowed hot money to inflate prices, which cost them a heavy beating at the polls -- the behaviour of the SG government, both past and present, demonstrates that it is more likely to continue to tightly regulate the market than otherwise. They are more socialists than they claim to be, and that has been their source of mandate for the most part. Globally, there is increasing concern by governments on the instability created by income/wealth inequalities. SG government believes that this is one of the threats that may destabilise the country, and has been doing much to raise income of the bottom 20% earners. To secure its own political position, and the stability of the country, I believe that (most of) the property cooling measures will not be removed if the economy's long-term growth continues at its present pace.

Another argument for why SG real estate should trade at higher metrics is that land is limited in Singapore. Limited supply and unlimited demand are the dreams of a real estate owner. Assuming that the highly prohibitive cooling measures persists, foreign investor demand for SG real estate should continue to temper. But what about the domestic buyers, which will certainly increase with the general increase in population? The base of local-born citizens is unlikely to increase, and more likely will decrease, due to falling birth rates. The growth of immigrant citizens and PRs have also slowed; their increase will only be as much as the voter base is willing to accept, and the recent past has shown them to be rather unwilling. Inasmuch as the SG labour force has to grow, or at least maintained, for continued economic prosperity, the government is likely to thread carefully in increasing the foreign workforce. One of their remedy to this conundrum is to push companies up the value chain through innovation, and increase productivity through technology.


3) Bottom line

Apart from the larger macro/political factors influencing price, perhaps the most important point worth considering is the price itself. Does the 2% to 3% gross yield seem attractive, given the risk free rate, and the usual risks and capital appreciation associated with real estate ownership? Apart from period of crisis, the market is crowded, and therefore, bargains do not exist. And most of those who succeed in real estate bought when yields were high. Certainly, there have been profitable transactions during low yield periods, but how likely is one to succeed in these transactions?

[tonylim]

Why the properties in Malaysia across Singapore are so much cheaper ? There is always a reason .

[pianist]

The hot warm weather and smelly air is a minus in sg properties plus unlike hk which enjoys true central convenient location, sg is a pale at equator and towards many 3rd South Asian countries

[Scg8866t]

Not forgetting hk residential land is at most 70years lease, while sg land has freehold option ie no depreciation in land value over time.

Cant compare with Malaysia as Sg is AAA credit rated with a much higher gdp per capita coupled with a very small land which I feel matches HK the most in terms of land size, chinese predominant, corporate governace and international attractiveness. Foreigners now i feel prefer sg to hk because many westerners dont like to put their money under indirect watch of China.

Sg has 1trillion usd in foreign reserve there abt, dont think its fair to compare it with any asean countries ard it. In terms of sg’s location, i think its one of the best in the world, thats why our ports are still one of the busiest in the world. Own view.

[Scg8866t]

The data presented is interesting, and should give real estate investors -- both in Singapore and Hong Kong -- some questions to ponder over.

The question, as posed by TS, is whether Singapore real estate is cheap.

In a comparison with HK, through the use of metrics as presented -- which can be said to be reasonably acceptable -- SG certainly looks cheaper. But instead, can it be said that HK real estate is over-priced, while for SG it is fair? After all, real estate of almost any other major city, when compared to HK, will look cheap in relation to HK. But if we are to assume that SG real estate should trade at similar prices to HK, we are also assuming that both markets are influenced by similar conditions. Is that true?


1) Are the condition/causes that have allowed HK real estate to trade at its current prices also present in the SG market?

I have not spent much time studying the details of HK real estate market, but apart from its obvious attractiveness as 'one of the leading financial centres of the world,' most of what came to my mind point to government policy as the chief factor influencing price. The first is oligarchic control of most land by a small number of private interests, which was accomplished over many decades of accumulation and racketeering of small land owners, since the start of its colonial administration. The second is that the government did not sufficiently develop land for public. Instead, land is auctioned to the highest bidder, which in most cases are the private interests. The third is a decision to be almost completely hands-off in the management of the real estate market.

In Singapore, there were also numerous private interests who have been accumulating since the colonial era. The difference in SG, as we all know, is that while land is also sold to private developers, the government kept a large proportion of land for public development. And in some cases, exercised its power to compulsorily requisitioned land from private interests. And where HK has been laissez faire in allow the market to decide prices, SG as we all know, has been hawkish in ensuring the market is trading at a price it deems reasonable.


2) Regardless, can SG real estate still be attractive?

So one argument is that SG real estate should trade at higher metrics, if the SG government relaxes some of its hawkish policies. Albeit for a period of time between 2005 to 2015 -- where they allowed hot money to inflate prices, which cost them a heavy beating at the polls -- the behaviour of the SG government, both past and present, demonstrates that it is more likely to continue to tightly regulate the market than otherwise. They are more socialists than they claim to be, and that has been their source of mandate for the most part. Globally, there is increasing concern by governments on the instability created by income/wealth inequalities. SG government believes that this is one of the threats that may destabilise the country, and has been doing much to raise income of the bottom 20% earners. To secure its own political position, and the stability of the country, I believe that (most of) the property cooling measures will not be removed if the economy's long-term growth continues at its present pace.

Another argument for why SG real estate should trade at higher metrics is that land is limited in Singapore. Limited supply and unlimited demand are the dreams of a real estate owner. Assuming that the highly prohibitive cooling measures persists, foreign investor demand for SG real estate should continue to temper. But what about the domestic buyers, which will certainly increase with the general increase in population? The base of local-born citizens is unlikely to increase, and more likely will decrease, due to falling birth rates. The growth of immigrant citizens and PRs have also slowed; their increase will only be as much as the voter base is willing to accept, and the recent past has shown them to be rather unwilling. Inasmuch as the SG labour force has to grow, or at least maintained, for continued economic prosperity, the government is likely to thread carefully in increasing the foreign workforce. One of their remedy to this conundrum is to push companies up the value chain through innovation, and increase productivity through technology.


3) Bottom line

Apart from the larger macro/political factors influencing price, perhaps the most important point worth considering is the price itself. Does the 2% to 3% gross yield seem attractive, given the risk free rate, and the usual risks and capital appreciation associated with real estate ownership? Apart from period of crisis, the market is crowded, and therefore, bargains do not exist. And most of those who succeed in real estate bought when yields were high. Certainly, there have been profitable transactions during low yield periods, but how likely is one to succeed in these transactions?

I feel hk is not an open market like u think. Gov there has put out numerous cooling measures like sg to cool the property prices there. Reason hk gov fail to control housing prices is predominantly because during the asian financial crisis they abandoned the public housing project. 2011 restarted it but too late, all the private developers gain hegemony in land ownership and price shot sky high.

Lky on the other hand persisted with the public housing project throughout.

There is no freehold title land in hk, all land there ultimately belongs to the Chinese gov and in 2047 land there has to be returned to China with a potential extension of lease afte(alot of uncertainity). 

You mentioned gov buying the land off from private owners to build infrastructure. They always pay a premium to make it hard to reject. Just see the recent JCC and RCC land and how they compensated the club owners.

[dreamybear]

I think whether its "cheap" is subjective :

- For the middle-class and the older generation who lived thru' the past property cycles, they wld deem property to be expensive at current prices(speaking to neighbours, relatives, etc) ; I think the current prices are at or close to all time high. 

- Super rich(i.e. those who can afford and hold multiple private properties without the need for bank financing) : 2-3% is reasonable as a store of value (potential appreciation in the long run) considering the stable and safe SG environment, currency and also as a form of diversification to shares, bonds, etc). For e.g., a good property may be a better buy compared to the current SIA 3.03% bond offering.

In fact, whenever I happen to pass by Orchard area properties(e.g. orchard blvd/devonshire/st thomas), its very quiet compared to my HDB neighbourhood(yes, I am not rich despite studying and working very hard ). The rich can afford to buy and leave the apartments empty if they cannot find tenants. 

Good or Bad Buy Now ?

The other question is whether or how much can SG property prices rise from the current prices. If one takes the view that the influx of immigrants/PRs/ new citizens is probably close to the max, then the increase in future property prices is probably closely correlated to the inflation rate.

IMO even in a future GFC or AFC, SG property prices are unlikely to fall back to 2003-2007 low levels. There r a lot of cash rich people waiting on the sidelines. I think the only likely chance of property prices falling beyond those levels are the combined reversal of our liberal immigration and economic policies e.g. minimum wage - increase the salary of workers (productive assets) & decrease the yield(rental) of property (unproductive assets). Coincidentally,  this may also help to reduce income gap between working class and the rich.  

BTW, just sharing an advice from my past experience for HDB housing - during a recession, u may not be able to buy your ideal unit even if u want to. This is because while prices may be (much) cheaper but in certain popular areas, existing owners can be reluctant to sell.

SG, HK and Beyond

If I were to choose between HK and SG, I wld prefer to invest in a freehold SG property as I feel the HK property mkt is actually and will probably continue be in "bubble" territory(due to the size of the population and the housing policies/background continued from antiquity - as covered by karlmarx's post in pt1).

But if I am rich enough, I will not purchase multiple SG properties but instead choose to invest at least 1 in either UK, US or Australia and probably get a citizenship there(incl for immediate family members) and at the same time, apply to be a PR in SG, and get the best of both worlds.   Result of having learnt from the "advice" from many PR IT professionals who stubbornly refuse SG citizenship despite receiving numerous invitations from our govt.  

[MOV]

Take a look at last year's UBS global housing report below (released just after SG latest cooling measures in July 2018).

https://www.ubs.com/global/en/wealth-man...-2018.html

Hong Kong is the most 'bubbly' and unaffordable market with price-to-income of 22 times while SG is fairly valued but still high price-to-income of 12 times, barely affordable. A decade of monetary easing and lax interest rates is now leading to a crisis of housing affordability in almost all markets.

Quote from report:
"The growing imbalances stemmed primarily from home prices in cities decoupling from the respective national averages and local incomes.
Most households can no longer afford to buy property in the top financial centers without a substantial inheritance. Rents continue to consume a significant share of income. These affordability issues will trigger further policy responses. "

[Scg8866t]

Take a look at last year's UBS global housing report below (released just after SG latest cooling measures in July 2018).

https://www.ubs.com/global/en/wealth-man...-2018.html

Hong Kong is the most 'bubbly' and unaffordable market with price-to-income of 22 times while SG is fairly valued but still high price-to-income of 12 times, barely affordable. A decade of monetary easing and lax interest rates is now leading to a crisis of housing affordability in almost all markets.

Quote from report:
"The growing imbalances stemmed primarily from home prices in cities decoupling from the respective national averages and local incomes.
Most households can no longer afford to buy property in the top financial centers without a substantial inheritance. Rents continue to consume a significant share of income. These affordability issues will trigger further policy responses. "

Will anyone make money from reading news and report? I dont think so. I can find reports with bullish agenda too.

https://www.straitstimes.com/business/pr...an-stanley

Morgan Stanley was one of the few houses that correctly predicted the surge in 2018 before the absd hike. After the hike in July, they continue to be bullish. Not that I agree with them, just saying how reports and news can conform to our biases.

There is an impartial yearly study on afforability index by demographia here http://www.demographia.com/dhi.pdf

It shows sg property affordabilty to be pretty decent now.

[karlmarx]

I feel hk is not an open market like u think. Gov there has put out numerous cooling measures like sg to cool the property prices there. Reason hk gov fail to control housing prices is predominantly because during the asian financial crisis they abandoned the public housing project. 2011 restarted it but too late, all the private developers gain hegemony in land ownership and price shot sky high.

Lky on the other hand persisted with the public housing project throughout.

There is no freehold title land in hk, all land there ultimately belongs to the Chinese gov and in 2047 land there has to be returned to China with a potential extension of lease afte(alot of uncertainity). 

You mentioned gov buying the land off from private owners to build infrastructure. They always pay a premium to make it hard to reject. Just see the recent JCC and RCC land and how they compensated the club owners.

1) The HK government has never had genuine intentions, since the colonial administration and arguably even until present day, to provide affordable housing to the public. Real estate in HK has always been controlled by a few big players; first the British traders, then came the HK nouveau riche in the 1970s. For a good part of HK history until 1985, these private interests controlled the government through their own representative on the legislative council. Although the electorate now has some say in choosing who to represent them, they may only elect half of the legislative council, with the other half being elected by members of professional, industrial, and trade association (i.e. private interests). The Chief Executive is still elected by a body of private interests.

What happens when you have an over-representation of capitalists in the government? Policies will be pro-business, and hence taxes (on the business and private wealth) will be kept minimal. Since taxes are low, there will be little government funding for social programs. In other words, no money for public housing. Which for the public means that they have to turn to the private market -- whose supply is controlled by few players -- for their housing needs.

The large demand residential and investment demand (from mainlanders, HKers, and global HNWIs) for HK housing, together with the well-controlled supply, is what gave HK her very high property prices.


2) On the non-existence of freehold land in HK, I assume you are making the point that because HK leases are shorter than SG, so SG real estate -- being of longer (or freehold) tenure -- is, in addition to other factors such as SG's high GDP per capita and so on, cheaper compared to HK. I cannot disagree with this. There is no doubt that SG real estate is cheaper compared to HK, by any measure.

But your point on SG real estate being cheap is where I differ, for reasons I have mentioned. To illustrate, a P/E of 50 is cheap compared to a P/E of 100, but a P/E of 50 is still expensive.


3) On compulsory land acquisition by SG government, my impression is that while they do pay a premium, it is usually small. With regards to Jurong Country Club, JTC only offered $90m, while the asking was $168m. So I don't think a premium is offered here. I'm not sure if that is fair, but I think it should be noted that JCC's lease expires in 2035. As for Raffles Country Club, I'm not sure how much the government offered for the land. But since its lease expires in 2028, I think the reaction of most RCC members will be the same as JCC members; very upset.