Income ceilings to be raised again for HDB BTO & EC.

Mr Khaw Boon Wan announced yesterday that HDB will raise the income ceilings for Build-To-Order (BTO) flats and Executive Condominiums(ECs) to allow every Singaporean couple a chance to live in an HDB flat.

The current income ceilings for BTO and ECs are $10,000.00 and $12,000.00 respectively.
The ceiling will be raised to $12,000.00 for BTO and $15,000.00 for ECs.

This is good news for young couple with above average income as they can choose between buying a HDB or private residential unit. The price for BTO and ECs are heavily subsidized by government and only citizen get to enjoy this benefit. Therefore, we can expect more couples turning to BTO or ECs in mature estates or promising new estates. However, this is definitely a bad news for the already challenging market for private residential unit. 

From a long term investment perspective, it is better for young couple to own a HDB before they venture into private condo. And since property is a long term investment entity, it is unlikely the couple will buy a second property during the minimum occupation period (MOP) of five years and hence this locking period is not important at all.

As for ECs, it has maintained a good track record of making good capital gain for home owners when it turns to full private status after 10 years. For those with higher income ceiling, it is definitely worth considering buying EC as their first property. The ECs can be both a house and also an investment vehicle after 5 to 10 years.

If you are Singapore citizens and you are excluded from HDB because of income ceiling limit, you should start researching what is available in the market and start going to showflat of ECs to book your dream home when the change is officially announced as policy.

Good luck my fellow Singaporeans.

Pulse Of Singapore Property Market

Pulse Of Singapore Property Market

After a fabulous run of residential property from 2004 to 2014, the property trend this year is nothing but down. There is no single cause for the fall of property price but we can attribute the phenomenons to the following few reasons:-

1. Property cooling measures by government. The seller stamp duty was introduced to remove property speculators and sub-sale has dropped since the introduction of this measure. The heavy additional buyer stamp duty of 15% was introduced to stabilize property price against overseas buyers who can adversely affect our property price if they enter and exit without any restriction. Last but not least, the total debt servicing ratio was introduced to protect Singaporean from over-exposing themselves to debt. Based on the timing of the introduction of these cooling measures and the turn-around of property price, it might be seen that cooling measures are the key factors in price decline. But we should not rule out the following reasons if we are to look at this situation holistically.
2. Immigration control of foreigners. After the general election in 2011, government has heard the voice of Singaporeans on the overcrowding of public transport and also the outcry when population whitepaper of 6.9 million by 2030 was announced. As a result, ministry of manpower has reduced the number of work pass for foreigners and encourage local company to increase their productivity. If you traced the population growth from 2004-2014, you will see that it grows by 31.1% in 10 years time. As population grows, the housing needs will grow accordingly and it is thus not surprising that the price has no more stimulus to grow when the demand is no longer there.
3. Interest rate of USA. With the financial crisis in 2008 and the introduction of quantitative easing and zero interest rate, the world is flush with hot money and Singapore is probably one of the safe place in growing Asia that investors is willing to put their money. You can easily see the sharp drop in price caused by the financial crisis and then the equally sharp recovery. Under any normal economic situation or measures, such fast recovery from the subprime crisis is IMPOSSIBLE. And now, given that the USA economy is normalizing and the FED planning seriously to normalize the interest rate before end of 2015, money will be flowing back to USA and borrowing rate will go up. As a result, investing in property will subject to higher mortgage payment and investors need to think twice before they buy their next property.

What will be property trend of Singapore in 2015?

So far, the property index is only going one direction, and that is downward trend.

I am often asked by my clients on my view on property trend and this is what I usually shared.

From a macro perspective, there is not much upside for property price to pick itself up in 2015.

• Foreign buyers are deterred by the hefty additional buyer stamp duty of 15%. This means that the demand side is under pressure.
• More units are coming online and developers are still struggling with many unsold units. This tell us that the supply is more than demand.
• The residential vacancy rate is expected to reach 9.8% and we are already seeing a softening rental market all across Singapore.  As rental yield is correlated to sale price, we can't expect the sale price to rise when the rental return is low.

On the other hands, the downside risks are quite real and staring at us now.

• USA is expected to raise interest rate before end of this year. If it is true, our SIBOR rate will also go up and many home owners will have to pay higher monthly mortgage. And for property investors who over extend their credit, they might have problem servicing their loan and might be forced to sell their property quickly. This will have downward pressure on price if many owners are affected.
• Greek crisis in EU. The Greek crisis happened in 2009 and is still ongoing. Personally, I don't see how the final outcome of this crisis will be good for EU and the world. Technically, Greek is already bankrupt as they are borrowing money to service their loan. I don't see how their economy can turn around suddenly and pay back the loan. Act 1, if IMF or EU agree to take further reduction in debt, this will mean all the remaining nations of EU is sharing the load and the money will never be returned. As a result, all the members state are tied together and suffered as a bloc. It is unlikely Germany taxpayers will accept to foot the bill for Greek, but what option do they have? Act 2, Greek don't have money to repay and don't agree to austerity measure and they default and exit from EU. If the collapse of a bank (Lehman Brothers) has such far reaching effect on global economy, I don't see why the effect will be smaller if a country go the way of Lehman Brothers. So, fasten your seat belt and hold your breath until Greek resolve this crisis, once and for all.
• MERS outbreak. The MERS outbreak has already claimed its 16th victim in South Korea and what will happen if MERS come to Singapore. Even PM Lee is worried that MERS will visit us sooner or later. I hope we are able to cope with MERS more effectively than South Korea and minimize its damage to the lowest. But if MERS can't be contained and spread like SARS, we will be in deep trouble. 

What should we do then?

Although the prospect of property price appreciation is not good this year, it doesn't mean that the property investment in Singapore is no longer attractive. As property investment is capital intensive and long term, investor should hold a long term perspective when investing in Singapore. There are still many reasons for you to put your bet in Singapore. Reasons are:

• Singapore continues to rank very highly in term of business environment, safety and political stability.
• Singapore dollar is growing in relative to regional countries even though we depreciate against US dollar recently.
• Our population is still marching toward 6.9 million. It has slowed its pace and marching toward its target nevertheless.
• Singapore is situated in the growing Asia Pacific region and we will continue to enjoy the spill over effect from growth in this region.
• Singapore continues to invest heavily in infrastructure and the completion of high speed rail link between Singapore and Kuala Lumpur will bring new opportunity to these two countries.

Therefore, the message is to invest wisely and do your research and you will still find good buy, more so in a weak market as sellers are under pressure to sell.

The graph is extracted from Strait Times and URA,