My long-time friend was recently relocated to Singapore a second time. When her stay home notice ended, I tagged along with her to go for rental viewings.
We shortlisted many one and two-bedroom units that met her budget and criteria. They were all in prime districts, from Newton, Orchard, River Valley, and all the way to Marina Bay.
Since she is not driving, we decided to check the actual walking time from the development to the nearest train station and shopping mall. For two consecutive days I had overachieved my daily target of 10,000 walking steps. Saturday alone clocked up a total of 22,000 steps walking under the sun. Sunday was a bit better with 18,500 steps taken on a rainy day.
Where have all the expat tenants gone?
I had been a multiple-property landlord myself for nine years a decade ago. For the first two years, I would be there whenever any of my properties was open for rental viewings. Subsequently, I left everything to my exclusive property agent and didn’t meet the tenants.
I missed the good old days when owners could have preference for company contracts and standard two-year leases. I still recall those coming for rental viewings were HR staff from multinational companies, expatriates with their agent, or expatriates coming on their own. My properties were leased mainly to the Japanese and Koreans. I also had European, American and Australian tenants. There were a few Singaporeans in a quiet market.
Going for a dozen of rental viewings with my friend, I noticed that the rental market is very different nowadays. More than half of the time we didn’t see other parties there. Occasionally there were potential tenants coming alone. But they looked more like locals, or foreigners already settled in Singapore and looking for a new place towards the end of their current lease.
We saw existing tenants who were Caucasians and Japanese using the lifts and facilities. But there were none among the few coming for rental viewings. By coincidence, for the properties we viewed, the previous tenants were all Caucasians and Japanese.
168,000 overseas workers left last year
Under a prolonged pandemic, it is not surprising that many expatriates went home for good. They might leave Singapore because of loss of employment, job relocation, choice to be with their family at this time, or disagreement over Singapore’s handling of Covid-19.
A recent BBC article talked about the discontent of foreigners in Singapore during Covid-19.
“Despite these promises of inclusivity however, some foreigners have felt the impact of the country’s shifting policies.
Like other governments in the region, Singapore has at times during the pandemic had different border rules for its citizens and foreign residents.
There have also been differences in vaccine eligibility, while companies have come under pressure to hire more locals, with foreign-worker quotas for certain industries changed in recent years.
– “Covid threatens Singapore’s business hub crown”, BBC, August 31, 2021
Last Sunday (August 29) during the National Day Rally speech, our Prime Minister reassured foreigners that employment pass criteria will only be tightened gradually and progressively. Nonetheless, whenever the economy is not doing well, it is natural to see countries giving job priorities to the locals to lower the resident unemployment rate.
The BBC article said around 1.2 million in Singapore are overseas workers. Also, the Ministry of Manpower shows the total number of overseas workers has declined by 14 percent in 2020.
This implies that a shocking 168,000 overseas workers (including employment pass and S pass holders) have packed their bags last year. And there is no replacement for the expatriates who left the country. With a shrinking pool of foreigners, landlords are feeling the pinch.
CCR vacancy rate is much higher than 9.6 percent
According to URA’s 2nd quarter 2021 real estate statistics, the vacancy rate of completed private residential properties in the CCR (Core Central Region) is 9.6 percent. However, Singapore private home vacancy rate is derived from premises with no utility account. Thus, the actual vacancy rate can be a lot higher.
Usually, if owners cannot find a new tenant to take over the property the day the previous tenant moves out, they will open a utility account for it under their name. Landlords who don’t bother to do so must have already given up finding tenants. Because agents cannot show a property to potential tenants or buyers if there is no electricity. No tenant will rent a place that is dark, hot and stuffy.
For all the rental viewings we went in the past few days, none of the unit had no electricity. In other words, all of them were not counted in the CCR vacancy rate.
There are two reliable ways to find out the truth of the CCR rental market: Either you are a tenant looking to rent in the prime districts, or you are a landlord with properties for lease.
The URA data may show rentals of non-landed properties in CCR increased by 3.1 percent last quarter. But new developments which just obtained TOP can fetch higher rents, while owners of older projects suffer in silence. Furthermore, only units that managed to find tenants are counted. The bulk of vacant units don’t affect the rental index at all.
Rentals in neighborhood districts versus prime districts
Against the backdrop of a recession, how can property prices go up? There are push and pull factors.
Six percent agent commission from developers and low interest rates are irresistible. Above all, many have suffered long enough at home amid Covid-19. They become desperate homebuyers. Some neighborhood districts such as District 15 and 16 are now heavens for buyers desperate to move to a bigger home.
More owners are able to sell their HDB flats and condominium units at a good price. However, most people own only one property which is their home. After they sell it, they need to find a replacement home in the same area. That is when they realize that property prices are high now. They decide to rent for the time being. With more people like them who are looking to rent, rental demand and rents in the area shoot up. As a result, they are stuck in a self-created dilemma of sell high, buy high and rent high.
On the other hand, residential properties in CCR are often bought for investment rather than for own stay. For homes in prime districts purchased during the CCR en bloc craze in 2007 and the following years, prices have fallen since then. Most investors are still under water. They can’t sell now. They also have difficulties leasing the properties because of competition from other owners sharing the same fate.
(Read my blog post “When a fling becomes a thing” to find out the fate of some past high-profile new launches)
During the previous round of the en bloc craze in 2007, closed deals of collective sales were mostly found in the CCR. Many owners of these projects were property investors. They used their windfall to upgrade to newer homes or acquire more properties. Some developers even offered them priority to pick the units at new projects built at the former en bloc sites. A total of 14,811 new units sold in a single year in 2007, which was 39 percent higher than the new sales volume in 2017.
– Vina Ip, Behind The Scenes of The Property Market
For investment properties targeting the expat community, the locals are not keen to take them up. We have a very different lifestyle than the foreigners. For instance, most Singaporeans will not pay high rent to stay in Marina Bay. The place is far away from our extended families. There is no good school there. It is not easy to find hawker food. Weekends are quiet like a ghost town.
The fate of buying Cairnhill in 2007 and 2011
The last viewing of the day was a one-bedroom unit in the prestigious neighborhood Cairnhill. The development was 18 minutes’ walk from Newton MRT and 15 minutes’ walk from Paragon according to Google Map. To validate the accuracy, we took the trip from Newton MRT in the early evening under light rain.
The walk felt like going up Bukit Timah Hill. I told my friend honestly that I wouldn’t be visiting her if she stayed here. Imagine stepping on the car accelerator all the way up the slope.
We walked past some of the most luxurious condominiums in Singapore, including Reignwood Hamilton Scotts, The Scotts Tower, The Ritz Carlton Residences, Helios Residences and Hilltops. These high-end developments all share one thing in common: Investors who bought at their high-profile new launch during the period 2007 and 2011 suffered huge losses in millions when they sold years later.
The recent Edgeprop article “Unit at The Ritz-Carlton Residences hits $4,580 psf, highest since launch in 2007” comes with very positive headline and content. It gives the impression that prices of luxurious homes in Singapore just hit record high again. The ultra-rich are now buying high-end properties in the Little Red Dot due to limited supply and pent-up demand …
The truth is: The 30th floor unit transacted at The Ritz-Carlton Residences was originally purchased by the Executive Chairman of the project’s developer KOP himself at $15.5 million or $5,088 psf in December 2007. It was record high at that time! After holding onto it for 13.5 years, he finally managed to offload it to a Chinese buyer now at $4,580 psf, writing off a $1.2 million loss.
The buyer who bought one floor up on the 31st floor at $5,166 psf or $15.7 million during launch had it worse. He sold it in January 2018 after 11 years at $3,755 psf, with a huge loss of $4.25 million.
Looking at all the buy-sell transactions, the other five investors who poured their money in the project made a loss from $1.4 million to $3.7 million when they exited.
Yet this Edgeprop article said “Despite being 10 years old today, the project has been able to maintain its prices”. This sounds really sarcastic to the unfortunate investors of this luxurious development.
And we are just talking about one of the many projects in the vicinity.
Delayed construction is killing owners in nearby projects
The unit we saw in a Cairnhill condominium was a peaceful high-floor one-bedder with open greenery view. It was in tip-top condition with tasteful furnishing. The owner was only asking for $2,900 which was almost the lowest asking price among all our rental viewings. The same unit was leased for $3,300 when the project was first completed six years ago.
We went upstairs to see the facilities. There was a big construction site of Cairnhill 16 where units on the opposite side were facing. Not far from there was another new construction site Klmt Cairnhill which is going to launch soon.
One could imagine tenants of units facing this direction moving out as soon as they could because of all the noise and pollution. (That explained why our viewing was scheduled after 6.30 pm.) According to the agent, rents of units facing the construction site had dropped to as low as $2,300. One unit could not find any tenant and had been vacant for a year.
We may read in the media that lack of foreign workers and delayed completion of new projects have pushed homebuyers to the resale market. What about owners whose properties are facing construction sites? Work is carried out on and off depending on availability of foreign workers. Worse still, no one can tell when the nuisance will finally end.
Similarly, no one can tell when expat tenants will be back again, when rental in CCR will improve, and when prices will breakeven for investors who bought at the wrong time.
Food for thought
I checked later that the owner of the Cairnhill unit bought the property at $3,100 psf in 2011 during launch. Unfortunately, the unit below his was recently transacted at merely $1,930 psf.
Assuming the owner is paying 1 percent interest rate, his estimated mortgage is between $4,700 to $5,500 per month depending on the LTV and loan tenure. Even if he can lease it at $2,900, he still needs to subsidize the tenant $1,800 to $2,600 a month (or $21,600 to $31,200 a year) to stay there. The amount excludes maintenance fees and property taxes. That is probably another $9,000 a year.
Property investment can be a very expensive hobby!
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I have been renting in a small development near to KK hospital. There are only 3 units on my floor, and the other 2 units have been vacant since I moved in end 2019. The owners are not even advertising the units, wondering why…
I rented an apartment near Tan Tock Seng Hospital from 1999 to 2003. The owner paid $2,500 per month for mortgage alone and we paid $1,500 to $1,800 a month for rent. After we moved out, the place was left vacant for 4 years (too much work to maintain a dated home and no point subsidizing tenants to stay there) until the development finally went en bloc in 2007. I checked his buy-sell transactions. He didn’t make much even after pocketing the en bloc sum after holding the property for 10 years.
Yr prop soul is quite consistent, one of gloom and doom. Meanwhile, property prices have been increasing over the last 5 yrs. In an extremely small island and with a reasonable economy growth, folks will see property as a great investment. One that is stable, maybe not multi-baggers.
I can be consistent and tell the truth I know because I am not vested in this industry. Whether others buy property or not is not my business. I don’t get any commission or revenue from it either way. I won’t tell when I am buying but I also won’t talk up the market when I am selling.
Any published property data have their own method to present the data and can only be used as a reference. Singapore is a small place but different private residential property segments can perform very differently in the same period of time, depending on target market, district, age, size, etc. Of course if you are not a serious investor but a property salesperson or amateur homebuyer, you will be happy to just generalize the market as a whole.
Fortunately for me , while property investment can be very time consuming, has been very lucrative. If not for my properties, my net worth would have been a small fraction of what it is today.
So i will have to disagree with the general message of this article.
To be fair, I also earned my first pot of gold from property investment. It is not all property investment will end up in disaster. It all depends on what, when, where and at what price the investor bought. I notice one thing over the years: People who made money from properties don’t mind telling others, especially in the media. People who lost money tend to keep mum, especially after the lost their shirt. Unfortunately, there are more who lose money than making money.
Dear Property Soul Administrator,
I have been better enlightened, knowledgeable, wiser, educated and manage to uncover some of the hidden agend, facts and fiction behind Property Soul author Vina Ip soft-cover thick book called “Behind the scenes of the Property Market” focusing on Singapore’s overall residential, commercial and industrial property marketplace. It is unique in that it has had an independent character of her own in not foll0wing and bringing out the hearsay of herd community but come and bring up exclusive and inclusive ideas, feedback, comments etc. that seeks to reach out and engaging readers with independent and invigorating contents on the book as it brings us behind the scenes of the property market in that true sense. For this, I wish to give its due recognition and congratulate it for being applauded added to Readers’ Digest as a vital read. I am current ordinary member of Property Soul.
Hi Kent, thank you for your encouraging remarks. It is my privilege to share the facts I noticed in the real estate market and contributed my two-cents to the communities of fellow homebuyers and property investors. Thank you again!
Hi Property Soul,
Been a great fan of your article. Rivervalley is also part of CCR. Am interested in one particular project there named Rivergate.
Even in this climate, prices has been creeping up. Do you think it will come down soon? Or will it continue to go up?
Thank you for following my blog. Prices of CCR are down again in URA’s flash estimate of Q3 private residential prices. In Q2, CCR prices show upward trend only because of new launches in the region. Owners will have to adjust their asking prices when they can’t find tenants and buyers.