Property Debt
An overhanging burden
Properties, over-priced by 63% five years ago, are now back on earth. A small army of Singaporeans are ver gloomy..
updated Dec 28, 2001

IN some 18 months in the mid-90s, remisier Allan Tay made about $2mil in commissions from a hot stock market and plunged into the decade-long red-hot property market.

Instead of buying one or two condominiums, he bought five with borrowed money.

It was property's golden era, the republic's newest money that turned many developers into millionaires and almost everyone else into speculators.

The smart ones would queue up overnight to book new launches, pay the deposits and sell the option routinely for quick profits of up to S$40,000.

Not so clever (on hindsight, of course) were tens of thousands who bought and held them, thinking the market would continue to rise.

After all, it had been rising for almost a decade.

Tay joined the ranks of 10,000 people (10-15% foreigners) to buy new condos worth some $17bil in 1996 alone. Another 9,600 were transacted in the secondary market.

That bubble burst in 1997 with the financial crisis throughout Asia, revived briefly here in 1999 and fell once more.

Tay's investments had fallen by more than half.

The stock market - which moved in tandem with real estate - was sharply down, so he could not earn enough to service his 25-year property loans.

He couldn't sell them since the proceeds were not enough to clear his debts. He was recently declared a bankrupt - and his properties force-sold.

HSBC estimates nearly 35 per cent, or about S$14 billion out of a total of S$42 billion, of outstanding home loans in Singapore are now in negative equity.

Of these, about S$10billion have an effective collateral shortfall in excess of 20 per cent of the outstanding balance.

Unemployment has risen to around 4 per cent and mortgagee property sales have hit a record high.

About 1400 properties belonging to people unable to service their mortgages were put up for auction last year in Singapore, but demand is so weak that only one in 10 actually sold.

These repossessed properties were more than three times that of the 1998 downturn.

The total number of people who are servicing inflated properties bought during those years would run into tens of thousands, mostly upper-middle class professionals.

They have long become casualties of an old economy gone sour.

Since 1996, horribly over-priced condos have crashed in the used market by an average of 50 percent.

The sufferers are mostly small-time businessmen or yuppies, with family incomes of around S$10,000 a month.

For 10 happy years Singaporeans, mostly aged 30s and 40s, had been buying into property using Central Provident Fund savings or bank loans.

The smart ones cashed out, but the rest who didn't watched their investments plummet.

They are still servicing these 20 to 30-year loans at yesterday's inflated prices, unable to sell because the proceeds would be insufficient to repay the banks.

One message posted in an online discussion, possibly by a Malaysian, recently said: "I am no rocket scientist but I know that housing in Singapore is not value for money."

Many people have more than one property because mortgages are cheap and banks are lenient with loans.

"Imagine if bank rates start to rise, many people will be pushed against the wall and a blood bath may ensue," said Ipoh Boy.

Of course, there are winners, too.

In the hey days, some speculators lived a nomadic life buying and selling, dragging their families from one residence to another and picking up profits each time.

Jeffrey Ng, 35, was featured in a newspaper for having changed homes 11 times in 10 years. He would move into a new flat and sell it a few months later for profits of S$10,000 or S$20,000.

This Singaporean preoccupation with property is incomprehensible to foreigners. Elsewhere a house is a home, bought to live in. Here it is an investment tool.

According to official statistics, close to three-fifths of households have changed homes in 10 years from 1990.

For the nation, this huge overhanging property debt has become a drag on the economy that will affect the future retirement savings of an important segment of people.

Some people say the government, the biggest landlord, which owns more than 80% of the land-bank, should take the main blame.

For too long it had been auctioning land at spiralling prices. The other cause - speculation and greed.

During these bad times, demand for property remains relatively low.

It is still far away from an upturn until the economy picks up or when prices come down sharply.

In the wake of the bubble burst, two things have happened.

Firstly, banks have been persuaded to go easy on foreclosure. Except for the worst cases, a number of debts had been restructured. Most banks own property and have a stake in maintaining values.

Secondly, a price war of sorts has started with major players pricing their units lower than their rivals' projects nearby.

As a result, there has been increased nibbling by buyers.

Fearful of a sustained period of weakness in the economy and consumer confidence, developers are trying to push out their units rather than hold on to them.

Higher-income professionals - the best prospective buyers - are holding back for two reasons: they are scared of losing their jobs, and they expect prices to drop further.

Buying a high-end condo is a 30-year expensive commitment and these days people are less certain about keeping their jobs.

"In most two-income families, either spouse being retrenched could be a financial disaster," said a housing broker.

"Until job confidence returns, people will remain reluctant to commit themselves to buy a property."

As a result, the number of real estate agents, many of whom freelancers, have dropped by half.

Recently, some creative ones have resorted to selling property at the pasar malam (night market).

"It's funny seeing them set up stall among the cheap T-shirts and aroma of roasting Taiwan sausages," said a housewife.

The gloom will not last too long. Property in Singapore will resume its strength when the economy recovers.

"Look, Singapore is a small city. As long as there is stability and a sound economic regime, land will always be a finite and expensive commodity," said an old banker.

Indonesia will be a decisive factor for its turn-around. It has to regain investors' confidence before that can happen.

Besides, the city will need another 800,000 residential units to accommodate a projected population of 5.5 million (now 4.1 million) by 2040. A longer-term view is needed for buyers.
Seah Chiang Nee