Singapore property game: The winner takes it all

I used to see property investment as a means to achieve financial freedom. That was also the drive to build my first property portfolio in the 2000s.

Sixteen years later, my knowledge on the subject has increased more than tenfold. Now I finally understand that property investment is nothing more than a game.


Property: a popular Singapore game

Many Singaporeans are big fans of the property game. We can’t wait to play it.

But how well do we know the rules of the game?

Are we aware of the unwritten rules?

Do we know whether winning is determined by chance, skills, strategy or position in the game?

How many of us are sophisticated players who can see the full picture, visualize the possible scenarios, and anticipate the moves of other players?

Can we stay calm when surrounded by noises of speculators who constantly stir our emotions, make us restless, create doubts and cause confusions?


Developers are the new property flippers

Over the launch weekend, 315 of the 861 units at The Tapestry were snapped up by buyers.

The units are not cheap. They come with a shocking price of $1,310 psf which is 28 to 38 percent higher than average transacted prices of nearby projects, including The Tropica ($807 psf), Arc at Tampines ($856 psf) and Waterview ($946 psf).

The 21,717.7 square metre URA site at Tampines Avenue 10 was awarded last May to Bellevue Properties, a wholly-owned subsidiary of City Developments Limited (CDL), at a top bid of S$370.1 million.

With a plot ratio of 2.8, it translates to $565.42 psf. Assuming $350 psf for construction cost and $274.63 psf ($350+$565.42 x 30%) for other expenses, the total cost of the project works out to be $1,190 psf ($565.42 + $350 + $276.63).

With a launch price of $1,310 psf, CDL is making a profit margin of above 10 percent.

This is a far cry from the average profit margin of 35.7 percent in 2009, or 22 to 25 percent between 2010 and 2012.

Koh Wee Meng of Fragrance Group lamented that “the Singapore property market has not offered good value for developers” and “developers here are chasing after land (and) hoping for future price (appreciation)”.

No wonder some bigger players are missing in action when the rest (China developers, boutique developers, etc.) are riding on the en bloc bandwagon.

Barely 4 km away, Tampines Court was sold collectively to Sim Lian Group at $970 million last August. A premium of $359 million on top of the sale price was paid to the government to maximize the plot ratio to 2.8 and to top up the leftover of 69 years to 99 years.

The 702,164 sq ft site costs the developer $676 psf and has to be sold at a minimum price of $1,333.8 psf to make a reasonable profit.

Mind you, the “reasonable profit” is achievable based on the condition that Sim Lian can clear all units in five years after obtaining planning approval. Failing to do so means paying Additional Buyer’s Stamp Duty (ABSD) for all the unsold units. On top of that, any remaining units after two years’ of obtaining TOP are subjected to extension charges.

For the last 12 months, bidding and acquisition prices have gone higher and higher. Developers have to mark up and resell new projects at even higher prices.

But how high can prices go?

There is a long queue of projects waiting to be launched. Just in the east area, newly en bloc sites already have Eunosville, Amber Park and Eunos Mansion in the queue. And there is no lack of newly-TOP projects and new projects with unsold units in the same area.

It’s a matter of time before buyers realize the oversupply and shun from the sky high prices.

To win the game, developers are competing with time to “launch first” and “change hands fast”.

Whichever projects launch first can tap the pent-up demand from eager buyers. Whatever units can sell now can minimize ABSD to be paid after five years. Whoever developers can quickly flip the uncompleted units from Government Land Sales (GLS) or collective sales to the buyers can win the musical chair game.


And the overall big winner is …

Isn’t that too obvious?

Besides property taxes, government revenue from properties mainly comes from two main streams: land sales and stamp duty.


1. Land Sales

Last year, developers spent close to $16 billion on government land tenders ($7.65 billion) and collective sales or private land deals ($8.2 billion). Another $5.56 billion were spent on the same as of mid-March this year.

Besides GLS, developers are paying the government top-up premiums on maximizing tenure and plot ratio, as well as development charges (DC), Buyer’s Stamp Duty (BSD), ABSD and Qualifying Certificate extension charges. DC rates for non-landed residential use have just been raised 22.8 percent on 1st March, barely six months after the increase of 13.8 percent last September.

That’s why when owners of Mandarin Gardens set a price tag of $2.48 billion for a possible en bloc sale, , the developer acquiring the one million square feet site can potentially be paying a whopping $3 to 4 billion to the government.


2. Stamp Duty

In Singapore budget 2018, our Finance Minister mentioned an additional revenue of $2 billion from stamp duty collections in FY2017. IRAS collected an average of about $8 billion in recent years from property tax and stamp duty which is “a significant proportion of our revenues”.

To ensure that “those who can afford a higher-value residential property pay more taxes on their purchase”, the top marginal BSD rate was raised from 3 to 4 percent for residential properties with value above $1 million.

And don’t think that you can get away with it. In 2015, stamp duty on share transfer has jumped to $93 million. Between 2013 and 2016, IRAS recovered about $21 million in taxes and penalties from 437 stamp duty audits. Nine percent of the cases involved non-compliance of ABSD.


Investors and landlords are losers in every way

As investors, we all want the markets we invest in to be lucrative and the assets we own to be in demand.

The fastest way to devalue a currency is to keep printing money in that currency. Similarly, the quickest way to depreciate an asset is to oversupply it in the market.

What we investors and landlords are facing now are uncontrolled supply and increased competition of what we possess, while our pool of customers (tenants or buyers) are not growing.

To buy any investment property in this market, we are already facing Loan-to-Value and TDSR (Total Debt Servicing Ratio) restrictions. With 4 percent BSD, 7 to 15 percent ABSD, 4 to 12 percent Seller Stamp Duty (SSD), it is almost impossible to come up with any ROI number that makes sense without using a faulty calculator or setting a wrong formula in excel.

Property is an investment measured by yield (annual rental income over property value). With interest rate and cost of borrowing going up, either rental rate have to go up or property prices have to go down in order to enjoy the same yield. When can we expect to see it happen in this market?

Even if we are prepared to “subsidize” tenants to stay in our properties, or buy an overpriced home for our own stay, how can we rule out the possibility of our new neighbours going for collective sales? If we buy now, who can guarantee us not lose our home immediately after buying it? Not to mention being forced to pay SSD after paying all the BSD, ABSD and legal fee.


How fair is the property game?

It is sad but true that we property buyers are actually the ones footing the bills of every single payment in the property buying game – down payment, agent commission, stamp duties, property tax, housing mortgage, legal fee, home renovation, etc.

We use our hard-earned money to directly or indirectly support all the stakeholders in the Singapore residential property market – namely the developers, builders, property agents, mortgage banks, loan consultants, conveyancing lawyers, stock brokers, industry analysts, property portals and Inland Revenue. And yet we can only play a supporting role passively behind the scene.

We homebuyers are no different from acting enthusiasts.

When the market is good, we are dispensable walk-ons in movies, voluntarily taking up non-speaking roles that fill up the crowd scenes (except we are the ones who pay rather than being paid).

When the market is bad, stakeholders in the movie industry have made their money and gone. But we are left high and dry paying the debts of our depreciating homes.

A game is fun when everyone can take turns to play; when all the players have equal chances of winning; when it is a fair battle for all the opponents.

If this is not the case, is the game still fun to play? Or is it only fun to play for the obvious winner?

Well, it is a game afterall. Whether you choose to play or not, it is up to you.

Let me end this post with lyrics from ABBA’s “The Winner Takes It All”.

I was in your arms
Thinking I belonged there
I figured it made sense
Building me a fence
Building me a home
Thinking I’d be strong there
But I was a fool
Playing by the rules

The gods may throw the dice
Their minds as cold as ice
And someone way down here
Loses someone dear
The winner takes it all
The loser has to fall
It’s simple and it’s plain
Why should I complain?

Did you watch my video “2018 Singapore Property Market – what developers, agents, banks and analysts are hiding from you”? Watch it now!