CORRELATION BETWEEN SINGAPORE PROPERTY MARKET AND ITS ECONOMY
The Singapore property market has weathered through 5 crises and is currently undergoing a pandemic :
Asian Financial Crisis
Global Financial Crisis
How does the Singapore property market behave during a crisis?
In Diagram 1, Singapore's GDP growth chart is represented by the green and red vertical bars. Whereas, the URA price index of private residential properties is represented by the orange trend line. Both charts span over the last 30 years.
Let's look at the right bottom corner where it indicated "Q1 2020". This corresponds to the COVID-19 pandemic we are undergoing right now. The GDP chart shows a red vertical line, indicating that we might go into a recession.
A recession is a significant decline in the economy as shown by a fall in the GDP over 2 consecutive quarters. - Investopedia
From the previous 5 crises, the GDP was negative (red vertical bars). The URA Price Index (orange trend line) also dipped. Will history repeat itself during this COVID-19 crisis?
Here's an interesting observation. When Singapore goes into a recession (red vertical bars), it will always bounce back to positive growth after three quarters.
So far, we can see the Singapore Government pumping a lot of money into the economy with the Resilience Package. This is an unprecedented amount of money to cushion the economy from the impact of the pandemic.
BUYING BEHAVIOUR DURING A CRISIS
In Diagram 2, the GDP is represented by green and red vertical lines. Whereas, the sales volume is represented by the blue trend line.
It is interesting to see that the sales volume will first dip momentarily when GDP drops but spikes up very sharply even when the GDP continues to be in recession. This shows that there is a pent up demand for properties.
The Straits Times reports several instances of new launch units being snapped up in the last Global Financial Crisis in 2008-2009.
The new launches cited then were Caspian (District 22), Alexis (District 3), and 8@Woodleigh (District 13).
DID "CRISIS" BUYERS MADE ANY PROFIT AFTER RE-SELLING?
A research was carried out to track the caveats of new homes bought and resold from 2007 to Q1 2020. Out of these, 15,712 were tracked for the three regions in Singapore (Diagram 4) :
CCR (Central Core Region): Luxury
RCR (Rest of Core Region): City Fringe
OCR (Outside Core Region): Mass-Market
As you see, the profitability % increases as the purchases moved outwards in the OCR (mass market) because of the affordability. On the other hand, the average gross profit is highest in the CCR (luxury segment) because of the high quantum.
Depending on your investment strategy and affordability, you can strike a balance between % profitability or high quantum yields.
HOW LONG DID "CRISIS" BUYERS HOLD ON TO THEIR PROPERTIES TO MAKE PROFIT?
In general, it seems that properties bought during the last Global Financial Crisis generally made a very tidy profit. As shown in Diagram 5, there was still profit to be made despite the four-year SSD (Seller Stamp Duty) being introduced on 14 Jan 2011 after the crisis.
So how long did the "Crisis" Buyers held on to their properties before making a tidy sum? In Diagram 6, it shows that they generally sold their properties before 5 years. Those with longer holding power will sell it after 8 years (see red box).
Optimal holding period for maximum profit is after 8 years.
Diagram 7 showed that during the last Global Financial Crisis, optimal profits were achieved sooner if properties were to be bought during this period and held for 3 to 4 years before being resold (see red box).
CAPITAL APPRECIATION OF "CRISIS" NEW LAUNCHES
Here are two examples of condominiums launched during the last Global Financial Crisis.
They are :
(B) Kovan Residences
District: 22 (Jurong West)
No of units: 712
Tenure: 99-year leasehold wef 2008
Developer: Fraser Centrepoint Ltd
Nearest MRT: 5 mins walk to Lakeside MRT Station
Primary Schools within 1 km: Rulang Pri, Lakeside Pri
100% of New Sale to Resale transactions (61/61) were profitable.
Average profit* per unit was $546,000 in about 8.3 years.
Highest profit* was unit #xx-11, 1485 sqft at $844,000
(B) Kovan Residences
District: 19 (Hougang)
No of units: 521
Tenure: 99-year leasehold wef 2007
Developer: Centurion Kovan Pte Ltd
Nearest MRT: 2 mins walk to Kovan MRT Station
98.9% of New Sales to Resale (88/89) were profitable
Average profit* per unit was $434,000 in about 6.5 years
Highest profit* was unit #xx-19, 1765 sqft at $1.1M
Here are the significant patterns on the Singapore property market identified from past crises. They are :
1. Singapore will go into a recession. GDP will contract for about 3 quarters before bouncing back up. This has largely to do with the Singapore government's intervention to reverse the economic downturn.
2. The sales volume of condominiums will dip momentarily, in sync with the drop in GDP. However, it will shoot up in the following quarters even though the GDP is yet to recover. This is largely due to pent up demand on the property market and buyers are rushing in to take advantage of the situation.
3. So for good picks, it's always a good time to buy during a crisis and not wait for the market to buck the trend. The sooner you take advantage when the opportunity presents itself, the sooner you will reach your optimal profit during resale.
4. The highest % profit gain is from new launches in the OCR (Outside Core Region). This is because of the highest affordability. On the other hand, the highest profit quantum is from new launches in the CCR (Central Core Region).
5. To get optimal profit returns, it is best to hold the property for 8 years or longer before reselling. This is provided you have the holding power.
6. The sooner you enter the "Crisis" market, the sooner you will reach your optimal profit levels. From the last Global Financial Crisis, those early entrants took about 3 to 4 years to achieve this.
7. Not every purchase of a new launch property during crisis is guaranteed to make a profit. As shown in the earlier segment of this article, there were people who made losses too. You have to get an experienced property agent to show you a comparative market analysis on where the good picks can be found.
CALL TO ACTION
If you have been looking for a condominium to buy or invest in, now is a great opportunity to look at the new launches.
With so many new launches available, I'm sure the choices are overwhelming. If you are unsure about how to shortlist a new launch that is a good pick, do give me a call.
I will be able to share with you some of the comparative marketing analysis of the various new launches as well as their unique selling features.
More importantly, I can guide you with the list of Do's and Don'ts for investors consider so that they can avoid paying for any "unnecessary" stamp duties with Property Wealth Planning. This will help save you from heartaches, frustrations and loss of profits.
There's just so much more to cover under each of the options highlighted above. That's because your situation is unique and the final strategy has to be customised to suit you.
Do call me for a 90-min free consultation if you wish to have a more fruitful search on your new launch property.
Being certified for ACTA and NLP Masters Practitioner, Anthony has successfully groomed and mentored many top million dollar producing agents.
In 2019 3rd Quarter, Anthony received the award for 2nd Top Recruiter in OrangeTee.
Throughout his career, Anthony has helped many clients grow their wealth by selecting great property investments and managing their portfolios actively through Property Wealth Planning.