On October 1, seven property investors and four industry experts joined the Property Investor Roundtable Luncheon jointly organized by Knight Frank and Property Club Singapore.
As property investors, we are interested to pick the brains of industry experts, compare notes with our peers, and find out what’s on the mind of fellow investors.
How we qualify the savvy property investors
Property investors at the roundtable are my acquaintances and members of Property Club Singapore. They were invited based on their long-time experience with investing in the property market.
Another prerequisite is that they must hold (or used to own) a portfolio of five to dozens of private properties in Singapore. Their property portfolio must show good capital appreciation and positive cashflow. Above all, they can’t be property speculators or co-owners with many investors.
Given the group’s breath of experience, valuable knowledge, insider insights and inspiring thoughts were brought to the roundtable that lasted almost three hours.
Below are six popular topics I would like to share with our blog readers here.
(Disclaimer: The views of the property market in this blog post are personal opinions of the roundtable participants. They do not represent the position of the blogger or Property Club Singapore.)
1. What we are seeing in the current rental market
According to URA, the vacancy rate of private residential properties is between 10 to 12 percent.
“My friends are having 20 percent decrease in rent,” said Investor A.
“Mine are 30 to 50 percent. One of my properties the rent drops from $18,000 to $10,000,” echoed Investor H.
“Many MNCs are moving their staff out of Singapore because of cost. No market can rely only on investors without real demand. Investors need rental income.”
“Rentals between $8,000 and $10,000 are most competitive. High-end projects in prime districts suffer the most these few years because of a lot of supply, cutback of expatriate housing budget, tightening of immigration, etc.,” explained Tay Kah Poh, Executive Director & Head of Residential Services at Knight Frank.
Investor D shared a personal experience, “In this market, you need to have a strategy. For example, I decided to take back one unit to do some renovation. Some tenants are willing to pay a bit more for that. I even managed to increase the rent.”
“When I see more young expatriates and more foreigners coming to Singapore without their families. I do room rental instead of leasing the whole unit. That property has 20 to 30 percent increase in yield,” added Investor D.
“Location is also very important. My properties are in town area and near MRT stations. So the rental is quite stable.”
2. What we perceive will happen in the Singapore housing market
Tay noticed that, unlike the older generations, the young people are unwilling to be bound by a 30-year mortgage. Many millennials (with about one million in Singapore) prefer renting to buying.”
Alice Tan, Director & Head of Consultancy and Research at Knight Frank, agreed with the statement.
“Not only foreigners are renting. Some locals are renting too. They are waiting for prices to bottom out. The URA data has been showing a healthy leasing volume.”
Debbie Lam, Consultancy & Research Manager at Knight Frank, told the property investors that there are currently over 21,000 unsold units. Given buyers can clear about 7,000 homes a year, it will take at least three years for the market to absorb all the unsold units.
“The questions we need to ask are: What is the rate the market is buying these unsold units? Who is going to rent or buy them? At what price?”
“Every year Singapore takes in 20,000 to 30,000 non-residents. There are 30,000 vacant units next year. The average household size in Singapore is 3.4. We need 100,000 people to occupy these units. Let’s assume the locals are staying in HDBs flats. We need another three years for 100,000 PMETs and their families to come here.”
3. Why we reckon that cooling measures are here to stay
Property Soul admitted that there are members of Property Club Singapore asking her to urge the government to relax the cooling measures. They have been waiting for too long.
“The government wants to see market correction because many Singaporeans are unhappy about the rise of property prices over the last couple of years.” Investor D shared her views about the Singapore property market.
Property Soul said, “Compared with the people who can afford private properties, there are far more who don’t have the money to buy. And it is easy to put the blame on the government. And our government will react whenever people complain.”
“But on the other hand, the government do not want to see the property market crash because that shows the government manages housing badly in this country,” commented Investor D.
Investor D said, “As an investor, I am still holding a sizable investment in properties. Frankly, I prefer the government to come up with some cooling measures than not because you don’t want it to form a bubble.”
Investor A agreed with the thought. “Ravi Menon, Managing Director of Monetary Authority of Singapore, recently pointed out that high property prices is unhealthy for our economy. That signals to us that even if property prices were to appreciate, it would have to be at a sustainable place.”
“It just sucks up too much capital. When all the disposable incomes go into properties, our retail suffers. The younger generation also can’t venture into entrepreneurship.”
4. What we know the rich are doing with their money
Property Soul wanted to find out from the participants their current strategy of property investment and asset allocation.
“Where is the smart money? The UHNWI (Ultra High Net Worth Individuals) buy companies and businesses. They invest offshore.” Tay shared what the Singapore super rich are doing in Singapore.
“For the vast majority, they are holding cash and are not jumping in yet. But some are still buying. They will bargain hunt for something they like and give an offer on the low side.”
Investor H said, “I see some landed properties moving. Singaporeans somehow feel that they have waited long enough.”
Banker D echoed with Tay, “A lot of investors are keeping the powder dry. There’s a lot liquidity just waiting for what they think could be the right moment. They are still hunting. You see people going to the showflats but they are not signing the cheque yet.”
“Many are buying overseas. Foreign properties can give you much better yield. Most properties in Singapore today is 2 to 2.5 percent,” said investor K. “But you must have high appetite for risk when buying overseas. Anything can happen.”
“In a high risk market, people are hunting for safe assets. Investors are still buying high-end condos and offices. They know that prices are high now. They can tolerate low yields in the short to mid-term and bet for capital appreciation in the long term,” explained Lam.
5. Where we think the next hotspots or hot potatoes will be in properties
Lam continued, “But there are always outperformers in any market. Properties close to MRT stations are more resilient. I personally like the mid-tier market near Redhill, Commonwealth and Paya Lebar MRT. They are just a few stops away from Raffles Place. Two-bedroom units are quantum-friendly and very rentable.”
Investor E warned that some of these areas have rental problems and high vacancy rate. Empty strata title shops in Alexandra Central is a good example.
Tan shared the findings from her research, “Prices in Jurong Lake District are likely to rally beyond 2020 after the High Speed Rail is ready in 2025. But during the construction period, prices are likely to fall because of the nose and dust.”
“The relocation of the Paya Lebar Air Base will create a lot of space for development and enhancement of land value, translating to price increase. If you buy into Paya Lebar early, you can enjoy medium to long term upside.”
Lam added, “Woodlands is the weakest in market potential. Unlike Jurong and Paya Lebar which will be new commercial centres, it is still not clear what trades will be in the new Woodlands. And whether there will be high income jobs to attract foreigners to stay there.”
Investor K shared with the group his property investment in Geylang. For easy management, he only signed corporate lease with companies that use his unit as staff quarters.
“For Geylang, if you can overcome the stigma, the rental yields are high in those small-size properties.”
However, the commercial property sectors will remain tough for some time.
According to Knight Frank, there is oversupply in the industrial market, with 5 million square feet of current supply in industrial space. Next year, there will be another 15 million square feet added to the market.
Tan noticed that industrial properties sold in the heydays of 2012 and 2013 which agents promised an attractive rent of $3 psf, they now can’t even rent out at $2 psf. In general, the rents are falling.
“There is decline in office demand too because of new supply of 7 million square feet of office space coming up in the next four years. Now the situation is like musical chairs. Tenants are moving from older offices to newer ones. And everyone is taking a very cautious stand in expanding their office footprint.”
Tay reminded investors to be very careful when investing in commercial properties. The market can be very competitive and is more volatile compared with the residential sector.
Share with us whether you agree with what our property investors and industry experts said. And drop me a message if you are interested to join our next investor roundtable.
I personally feel that most millennium will either stay single or married without kids. They will prefer to rent than buying a place of their own (with high property prices). So I reckon small units (near mrt) will be a popular choice for this group.
Agree. Whether the millennials will continue to stay with their parents, or move out to rent or buy depend on the economic climate and affordability of properties.
If the economic slowdown continues, and unemployment worsens (2 out of every 1,000 were laid off in 1st half of this year), many will delay starting families or getting a place of their own.
Not a good time to buy or invest in all kinds of properties!
3 basic reasons;
1. The Yield will be non-existent! Therefore property asset will not be underpinned by rental yield – Huge downside to valuations! Growing vacancies looming over the horizon!
2. Future is bleak! – worsening unemployment & total disruption. Jobs are permanently lost to disruption. Next Gen will have to fend for themselves. Job-centric world is fast disappearing!
3. Brick-n-mortar structures are facing permanent vacancies – disrupted by e-commerce & online alternative. S’pore high COL is also causing mass migration to lower COL countries.
Sorry for the bleak assessment but it’s the BRUTAL TRUTH! Keep cash if you can, don’t invest!
Think for a moment, is it wise for more and more of a nation capital to be sucked and stuck in non-productive bricks and mortars in the long-run?
Putting all and linking most of its wealth and economic activities to a single risks factor: property, runs counter to the argument that one should diversify and diversify to protect against systemic risks, Singapore economy apparently is not.
Lastly, with the aging population structure and shrinking tax base, investment capital gain tax and the return of inheritance tax will definitely be hot topic soon.
The government welcomes foreign investment but discourages Singaporeans from having too much cash being sucked up in private properties.
You are right that it is risky for Singapore to rely too much on a single industry, especially when the property industry is unproductive and cannot produce any product for export to help a country’s trade balance.
On the Paya Lebar airbase being relocated, IMHO as the base is not exactly at the heart of Paya Lebar the areas that’ll benefit won’t really be Paya Lebar but the area more North East from it.
Another thing is that the relocation will result in ample of land supply because of the huge land area and increase in plot ratio.
Thanks for your comments. I agree with you that it doesn’t make sense to invest your money if the yield is too low.
Just my two cents: The economic structure is changing. If Singapore can overcome the challenges, find the niche to transform, it will survive and may even do better in the future. Similarly, retail will not die but will exist in another form.
If you don’t have any assets or income, you don’t have any choices, you are beholden to the state. Regardless of what the negative media is saying, property investors have a very important … Thanks for sharing!