Property
A jaded dream, for now
In the long-term, prospects are very different. By Seah Chiang Nee.
Apr 25, 2004

IF there's one word that will make Singaporeans sit up, it's "property". During the golden era, there was hardly a conversation that did not touch on the real estate market.

For most people elsewhere, a property was a home they needed to live in.

For land-squeezed Singaporeans, property has been a national preoccupation, a dream about buying and selling, upgrading or just moving to places where their children could qualify for the best schools.

Tens of thousands of people, from secretaries to doctors, were lining up overnight to buy private condos when they were launched. Speculators would make a few thousand dollars just by transferring options.

The price didn't matter; what was important was signing the purchase. People made money from the bubble. Now that seemed like another era, another country.

In 1996, the balloon burst.

Since then these investments have fallen by 38%, wiping out billions of dollars in citizens' assets. Office property fell by half.

The fervour was based on the principle of supply and demand although critics blame the government for not putting an end to the speculative run earlier.

The phenomenon had occurred elsewhere in developed cities like Tokyo, Hong Kong, Paris and Brussels, some of which had crashed even more dramatically.

The runaway market largely reflected Singapore's rapid transformation from a Third to First World state.

Its long-term fundamentals were - and still are - strong. The state has limited land despite reclamation work, while demand, which is now stagnant, is likely to resume growing in the future. How fast will depend on economic growth and stability.

Because of the scarcity, the potential long-term (say 20 years) price of a private piece of
property could rise 10 times, conservatively speaking.

For the moment, such talk is hard to absorb. Although the economy and the stock market are recovering strongly, the property market has not followed suit.

During the first quarter when the GDP rose by a surprising 7.3%, property prices plunged to a five-year low.

Those who believe in seven-year cycles of boom and bust now say the current weak market may well last 10 years. The general decline is on its eighth year.

So why is there so much short-term pessimism? Two fundamental reasons arise.

Firstly, despite the 38% fall, prices are still perceived as too high and Singaporeans are staying away because of concern about their job security.

There is still a large overhang of private condos. A suburban flat averages S$650,000 at the lower end. A couple seeking one would need a combined salary of S$6,500 to S$7,000 a month.

If they're graduates who have worked for three years, it is within striking distance if they take a 30-year loan.

The biggest obstacle to a recovery is the fear of losing quality jobs. It involves a 30-year commitment that can run into trouble if one spouse gets the pink slip.

This lack of confidence is reflected by people's choice in public housing.

They are avoiding large, four or five-room Housing Development Board (HDB) flats and going after three-room ones. Singaporeans are not taking risks.

Instead of upgrading into private condos, people are opting to move into smaller subsidised flats.

Secondly, pressed by rising competition abroad, the government remains determined to reduce the cost of doing business in Singapore and that includes bringing down wages and rents.

Last year, Senior Minister Lee Kuan Yew said the government - the biggest landlord here - should have kept a tighter control on the spurt of property prices. He said it would allow values to gradually drop over years.

That would make sense. Any precipitate fall would cause hardship for 90% of Singaporeans who are property owners.

The state, which owns more than 70% of land, will probably remain contented to see a continuing slide for a few more years.

There are other factors as well.

One is to satisfy the demands of the younger generation to be able to buy a condo at lower prices, thus reducing the number of people seeking to migrate abroad.

Secondly, Singapore wants to attract young talented foreigners to come and make this their home. This is a crucial strategy to prevent the city from falling into a long Japan-like stagnation.

An overly high real estate market is not the way to do it.

Some planners are already working on a population of eight million in one or two generations' time. That could require a whole new town planning concept with flats twice as tall.

For that to happen, the republic has to attract four or five million foreigners - businessmen and professionals and their families. Relying on foreign numbers is unavoidable given the current low trend of procreation.

The expansion will increase pressure on space and residential housing in the future that would make property investment at some stage a profitable venture.

For now, Singaporeans who bought property during the past eight years are still licking their wounds and hoping for a recovery.

One good sign is that prices of bungalows, a choice of the rich, rose by 2.7% in the first quarter.

The trouble is that Singaporeans are already highly leveraged on their quest in the past decade to become property owners. They bought and bought as prices rose and rose.

They have spent a great deal of their earnings and old-age savings on their homes and seen their values go down.

The Monetary Authority of Singapore disclosed that almost 15% of housing loans were not backed by sufficient property values as at the end of September last year, due to a drop in prices.

The fall has hurt the financial position of many buyers, resulting in a rising number of mortgage sales. That is when a bank puts up a home for auction because the owner can't meet monthly loan payments.

The authority said it had surveyed five major banks and found that the outstanding value of accounts in negative amounted to about S$6.4bil or 14.4% of outstanding housing loans.

Owning a private property remains a dream but, for the short term, it has become a little jaded.
(This article is written exclusively for the Sunday Star.)