Considerations

1. Strong Government Housing Support

There is continuing strong government support for residents to enter the HDB market through subsidies, continuing through upgrading support and various programs to extract equity from paid-up units for the silver generation.

High home-ownership rate of over 90% means just about every family has a vested interest in looking at the market, with a good percentage participating in upgrading, downgrading, switching, investing in another, etc. Thus keeping the market vibrant and inducing developers to bring in new ideas and better designs for each generation demanding better quality and architectural styles.

2. Consistent Government Intervention

The Government has demonstrated it's commitment to temper prices both on the upside as well as the downside. 

"Cooling measures" to cap upward pressures have been attempts to prevent housing price bubbles from forming (avoiding ensuing price crashes). With more stringent lending requirements, buyers need to put up more "skin in the game", namely more cash upfront. Reduced loan quantum will put relatively less strain on future commitments. All these means each new set of "cooling measures" has created a new host of buyers who are on even more financially sound footing than previous generations. 

Preventing froth in the mortgage market also strengthens, or at least, ensures the soundness of such loans on the books of local banks . All these underpins the strong fundamentals of the housing market.

With previous support on down cycles, what this means is that the government management and intervention has created a "low volatility" market in property. Although current market cycle has investors up in arms over a slew of "cooling measures", they should not be distracted from the benefits of "low volatility" and government support through an entire property cycle. The Government has made it clear they are not trying to bring housing prices down. Instead, they are trying to ensure that price increases keep pace with economic growth, and more specifically, wage growth.

Property investment in Singapore thus has the advantage of a Government who not only monitors closely the property market, but is also demonstrably capable of managing it.

3. Government Reserves and Household Balance Sheet

Singapore has no net debt . It has demonstrated fiscal responsibility and long-term planning and budgeting. 

Singapore household balance sheet has reached a net $1.846 trillion as of 2018.

4. Foreign Demand

As of 2018, only 21% residential households were housed in private flats, condominiums and landed properties . The 79% in public housing has always been a pool of potential up-graders to bigger HDB flats or towards private housing options. Furthermore, foreigners who are prevented from buying land and landed properties are in the market for private apartments and condominiums, adding to it's demand.

It is important to note how differently, sometimes, foreigners look at our properties compared to the way we see things. They don't just look at the usual location and amenities, they also look at our entire country, it's systems, infrastructure, government. When they arrive at a decision, they are often quite committed for the long haul. This is significant because our foreign population has grown to 1.64 million as of 2018 (from 0.75 million in 2000).

The other consideration that drives some of these foreign demand is the currency exchange rate. Singapore has a foreign exchange policy of a gradual strengthening of the SGD over time as a hedge against imported inflation. This, combined with some of the devaluation seen in other  foreign currencies, gives added impetus for local properties from these foreign sources.

Thus when we look at the private housing market, we are looking at a small slice of the overall housing market supply, with an active overseas interest.

5. Low Interest Rate Environment

In the theory proposed by Larry Summers, " secular stagnation" has driven interest rates lower by about 300 basis points over the last generation . He (and others) argue this is not your typical market cycle but a "secular movement" that reflects changes in savings and investment propensities (rapidly aging population in rich, developed countries that are driving down demand).

Singapore does not have a US-styled interest rate policy (rather a forex policy ). It is in a strong fiscal position and has no net debt. The relatively low interest rate environment is a strong driver towards asset accumulation. The very fact that general rental yield exceeds the mortgage rate is a strong enabler of shifting into higher risk growth assets. 

Our population is also aging rapidly and if you take secular stagnation that Summers proposed (before the IMF Economic Forum in 2013) even with a pinch of salt, there are reasons to believe that a global low interest rate environment will prevail for many years to come as the global population continues to age.

Even in the US, several Federal Reserves officials " have expressed a strong concern that persistently low inflation may be a more permanent economic phenomenon ." In fact, they have struggled for years to raise interest rates prior in the post-2008 era. The problem of interest rates close to zero (seen especially after the 2008 Lehman crisis) is arguably more serious than the high inflation era of the 1970s. And the traditional tools are not sufficient to address the issue. Thus, low interest rates as a result of a secular shift seems to be the "new normal" for years or even decades to come.

The Outcome

Taken together: strong Government support, high house ownership, strong Government reserves and household balance sheets, persistent foreign demand, low interest rate and low volatility environment; the condition for a shift towards an investment position in private properties is quite compelling.

Generally, there are concerns with the property cycle. Like when is the right time to buy or sell. What does the future looks like in terms of the economy. What happens if another crisis hits. The thing to remember is that buying a property is a long-term prospect. The important consideration is the underlying fundamentals. Do they support an investment position. In our case, you will arguably find it tough to find another similar product that has the same sort of underlying support.

If you need to fine-tune further an investment choice, talk to us, we can give you proposals that will suit your needs and address your concerns. If your sense does not agree, we don't sell. We are here to help.