I am no property expert but even I have to say that signs of a property bubble are beginning to show.
While we were still in China, my husband and I have been monitoring the Singapore private property scene for years hoping to buy a condo before we shift back. The price just didn’t seem right. With our rather sudden repatriation back to Singapore this year, we thankfully still have our cosy HDB flat to live in. But like most Singaporeans, we aspire to “upgrade” to a private property. Part of the reason for the shift was to be nearer to our children’s schools so that hours do not have been wasted on commuting. But signs of any property price slowdown, if any, are muted. So, we wait. And we wait.
Just last week, news of the launch of Singapore's most expensive suburban condo, Sky Habitat in Bishan, made me sit up. Almost 70 percent were sold during the weekend launch and majority of them to Singaporeans. Average prices range from $1,747 psf for a one-bedder to $1,642 psf for a four-bedder at this leasehold project. A 3-bedroom apartment would cost about $2 million! If you were to check the URA website, these psf prices are even higher than older but mind you, freehold condos nearer to the city! Twin Regency in Tiong Bahru, for example, was last transacted at $1,500 psf.
Let’s do the Math here for a family of four. Typical median pay of say, a manager, in his late thirties is about $5-6k and even assuming that both husband and wife hold similar positions, total household pay is roughly $12k. To service a 30-year loan of $1.5 million, the monthly instalment alone is close to $5k. Debt-to-income ratio is 42%, already above the recommended 33% and this does not even include stamp duties and other expenses associated with owning a private property.
The above calculations also hinge on a crucial assumption: a thriving economy that can sustain jobs and good pay. The sad thing – as we have learnt in recessions before – during bad times, jobs and salaries get cut or interest rates may creep up in tandem with global rates during bad times. When the odds are against you, a property is not as liquid as stocks – it’s just not something you can get rid of as and when you want to.
It was not so much the high pricing of Sky Habitat, but what buyers of the expensive condo said, that gave me a sense of deja-vu. One civil servant was quoted by The Straits Times as saying he is confident that the value will be higher when he eventually sells it 10 years later. There was also a sales executive who bought two 3-bedroom units before he even took a look at the showflat. With the intention to rent out both units, he commented that he had “not 1 percent of regret” about his purchase.
I remember such optimistic comments being uttered too in the property run-up of 1996, a time when long queues formed at property launches and buyers made their purchases before stepping into showflats. Additionally, there is now a false sense of security because of the historically low interest rates. Rates are not going to stay this low for the next 30 years of the loan term. A one percentage point increase can result in an additional $600-$1k repayment every month, depending on your loan amount. Bear in mind too that much of the repayments in the first few years go toward paying interest, not to the loan principal.
Prices which run up too quickly are bound to come down – this is one of the easily-forgotten laws in any market which are cyclical in nature or for which government measures can have a deep impact. I do not wish for anyone to be caught on the way down but it looks like history may just repeat itself.
Message from IM$avvy Admin: Visit www.cpf.gov.sg > Calculators/Games to better plan your finances via the various calculator.
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