Property cooling measures - still not clear for me

[Sergei82]

I'm not an expert, I just want some help clarifying certaing things for myself...

Heard on the news recently that latest cooling measures made Singaporeans buying flats as crazies - and that is actually driving the prices even higher. They are afraid that if the government introduces another new round of cooling measures, they will not be able to buy anything, so they buy while they can - right now.
So what do you think - is introducing cooling measures just a disguised strategy to make housing more expensive?
Or maybe those are the kind of "news" made by real estate agencies themselves to fool people that investing in property here is still a good idea?

More than that, there are plenty of articles online - advising to buy flats now. They acknowledge that it is a bubble, but they say that in any case, even if the property prices may go down to extent, the property rent will grow.
This makes me wonder - how property prices and its rental prices are correlated, if at all (I suspect, they are)?
Is it possible for rental prices not to depend on the actual housing prices?
Can property price go significantly down, while its rental price go significantly up at the same time?

[sundaymorningstaple]

KIASUISM

Property prices are solely independent on what the owners think the market will bear. Supply & Demand play some part but not as much as what you would think. If that were the case, why would some LLs leave their properties empty for 6 months at a time just holding out for higher rentals.

[Sergei82]

KIASUISM

Oh hell! How could I not think about it?! That explains everything at once!

[sundaymorningstaple]

KIASUISM

Oh hell! How could I not think about it?! That explains everything at once!

[taxico]

...This makes me wonder - how property prices and its rental prices are correlated, if at all (I suspect, they are)?
Is it possible for rental prices not to depend on the actual housing prices?
Can property price go significantly down, while its rental price go significantly up at the same time?

i think you need to take a look at the bigger picture beyond supply/demand and pricing, eg. liquidity, general market sentiments, interest rates, inflation, statistics such as population (and its ratio of locals:foreigner, young:old, etc).

the emphasis by the govt now is to not sell off your flat - that it would provide a retirement nest egg in future just like how your parents/grandparents have done so. as for how much the property will appreciate between now and in future, it is unknown but what's for sure is the good years have passed (70s, 80s) and people will not be selling their 60k flat for 850k.

unfortunately young people don't seem to see that. they take any paper/unrealized increase in property value to be an actual increase in property value (wow! your flat is now worth 75k more than when you bought it!). they further do no consider all the fees involved in disposing of property in singapore (for me: if my gain is <100k-150k then there is no profit, just experience as it is not cheap to buy, finance and sell a property in singapore).

further, banks have been quick to approve low interest loans to anyone wanting to buy residential property. many of these are young people who've not weathered the stormed caused by a popped real estate pricing bubble. and of course the said kiasu mentality. "better buy now!"

i doubt that they've actually thought about the number of homes that are coming on the market in a few years' time (200,000 by 2016 and counting). who will actually fill these homes, i'm unsure but i doubt there are that many married couples in singapore that will need a "new house" to move into as many stay in multi-generation/family homes (historically: about 20-21k marriages a year and about 7-8k divorces annually).

i can go on and on, including how the above is untrue, but at the end of the day no one will have all the answers. and it's time for lunch!

IMO: in singapore the corelation is broad at best. it is possible for rental rates to not depend on property prices and also depends on the property type (sentosa bungalow with marina vs 3 room flat). rental prices can go down despite property prices going up, and the inverse is also true.

edit: for clarity.

[Sergei82]

IMO: in singapore the corelation is broad at best. it is possible for rental rates to not depend on property prices and also depends on the property type (sentosa bungalow with marina vs 3 room flat). rental prices can go down despite property prices going up, and the inverse is also true.

Interesting - how far can it go? Any reasons for that? Can property market crash into oblivion, while rents go up twice as much?

[sundaymorningstaple]

IMO: in singapore the corelation is broad at best. it is possible for rental rates to not depend on property prices and also depends on the property type (sentosa bungalow with marina vs 3 room flat). rental prices can go down despite property prices going up, and the inverse is also true.

Interesting - how far can it go? Any reasons for that? Can property market crash into oblivion, while rents go up twice as much?

I think that would be a very likely possibility as owner start finding themselves in negative equity and banks hollering for top ups due to falling valuations causing negative equity mortgages. The owners will be trying to save their arses by jacking up the rents. That coupled with the new restrictions on renting out HDBs it's gonna cause some drastic changes, I fear.

[Sergei82]

Wait a second...

Prices go down - owners are jacking up the rent to recover the loss.
Prices go up - owners are jacking up the rent to cover the mortgage and get at least some profit.
Anything happens - owners are jacking up the rent just in case.
You scratch your ass - owners will jack up the rent, so do not do that!

In what case owners will decrease the rent then???????

[sundaymorningstaple]

When the supply outstrips the demand (or at least looks like it will stay heading in that direction for quite a while). The owners of condos that guys at the medium end of the condo spectrum (e.g., the P2 type guys & P1 on low housing allowances) are going to feel it first. Those at the upper ends are still going to have demand as the really high flyers I don't think will be hit as hard by immigration/mom.

[Sergei82]

So the answer to all - get rid of as much foreigners in Singapore as possible so demand would fall...

As my friend said, if all foreigners are to leave this island overnight, the last one should switch off the light in Singapore behind his back when leaving (most likely that light will be at Orchard Towers )

[BillyB]

It's a funny set of scenario's, and puzzles me and most people I know.

No matter how it's window dressed, it's a bubble and it's being controlled and fudged by positive sentiment and control of the money supply (which controls interest rates). I'm surprised the 15% stamp duty hasn't deterred people from buying - there must be some very healthy margins out there or a lot of dirty money.

Inflation (including property) is rising above increases in income levels, and the price of units must be something like 6 to 10 times income for a lot of new graduates entering the work force. Interestingly, REIT's are being downgraded by the ratings agencies (if you still think the ratings agencies are credible) which means something is afoot and they may start to lose their ability to attract high quality capital and borrowing costs will increase for them, which ultimately erodes margins.

If interest rates were to rise in SG by 2-3% (which they unlikely will), banks and borrowers will be in trouble due to the amount of leverage sitting on their books and the increase in repayments, respectively. Although, Singapore does has stricter lending criteria than the West, with LTV's being around 60-70% which gives them some headroom against losses.

Does any of it make sense - not at all! But people continue to buy.....

[Wd40]

I bet you majority people who are buying are not affected by the stamp duty.
They are either locals buying 1st property or Americans, Swiss etc who are not affected by the ABSD.

The HDB resale market is currently dead. Reason being PRs were the biggest incremental buying group off late and the new measures have completely wiped them out of the market. How I know? The house I am renting is currently up for sale by the owner and he is asking for 40k COV and there is very little interest from buyers. Hardly any viewings in the last 2 months.

[taxico]

rental yield is not very high in singapore: an average of 2 to 3% (private property).

so... how low can rent get when it costs so much to buy/own a house?

[taxico]

...The HDB resale market is currently dead. Reason being PRs were the biggest incremental buying group off late and the new measures have completely wiped them out of the market. How I know? The house I am renting is currently up for sale by the owner and he is asking for 40k COV and there is very little interest from buyers. Hardly any viewings in the last 2 months.

my recent experience tells me otherwise. all the jumbos and EA/EMs i've viewed lately have owners who refuse to budge on their COV (80-200k) (yes, 200k COV for an EM at serangoon). and well priced big units (80-99k COV) usually get a lot of interest.

non-singaporean owners. no incentive to move if they can't upgrade, i guess.

i've not viewed 4-room flats and smaller, but only because the PSF is ridiculous, especially in mature estates.

[BillyB]

...The HDB resale market is currently dead. Reason being PRs were the biggest incremental buying group off late and the new measures have completely wiped them out of the market. How I know? The house I am renting is currently up for sale by the owner and he is asking for 40k COV and there is very little interest from buyers. Hardly any viewings in the last 2 months.

my recent experience tells me otherwise. all the jumbos and EA/EMs i've viewed lately have owners who refuse to budge on their COV (80-200k) (yes, 200k COV for an EM at serangoon). and well priced big units (80-99k COV) usually get a lot of interest.

non-singaporean owners. no incentive to move if they can't upgrade, i guess.

i've not viewed 4-room flats and smaller, but only because the PSF is ridiculous, especially in mature estates.

What about the corporate market?