As we start 2011, forces are shaping up for an eventful year ahead in the Singapore real estate market. We may go off the mark on these trends as the year is long but we hope that we can contribute a better understanding of the real estate market here.
Trend 1 – Higher interest rates
We expect that with the weakening of the US$, oil and commodity prices would rise since the world trade is done in US$. Thus, imported inflation would seep into Singapore. The Singapore government would allow the Singapore dollar to strengthen to a limit to fight inflation, beyond which it would start to choke off exports. At the same time, the Singapore government is wary of competitive devaluations done by bigger economies like China, India or even within ASEAN to maintain/grow exports. Hard balance to achieve. This means that the other tool – interest rate, has to come in. The interest rates may be held back by the influx of capital/liquidity for a while but eventually when the stock market & real estate soaks it up, the interest rates would go up.
Trend 2 – Stronger S$
Linked to trend 1, the Singapore Dollar would strengthen. This is supported by the strong exports that Singapore is enjoying at the moment. Foreigners buying Singapore real estate would enjoy a double gain when they sell their Singapore investment property – capital gains on the property (not taxable) and the currency appreciation. In addition, most foreigners borrow from Singapore banks. The leverage would produce very strong gains for those who time it well.
Trend 3 – Real estate demand continues
With strong employment, it is expected that the Singaporeans would want to upgrade or move to accomodate their children's education. In addition, the net inflow of immigrants contribute to a strong mass market. With strong growth, a bullish environment and transparent/steady regulations, foreign buyers are attracted to Singapore's market. Luxury market segments in Sentosa, Marina and prime areas like District 9, 10 and 11 would do well.
Trend 4 – Rentals would firm
With strong employment rate, the labour market is quickly tightening. This would attract foreign job seekers who want better job prospects. Also, multinationals and large corporates often relocate their officers to Singapore. Some made Singapore their Far East hub, being strategically located, servicing China in the north and Australia/NZ in the south. As such, rents in Singapore would firm and this would improve the yield on real estate investment, pulling in more foreign investors.
Trend 5 – Policy risk
With hot money flowing into Singapore, especially in the real estate market, policy risk hangs over the market. However, this is positive as the Singapore government is pro-active to temper down any exuberance and also quick to nudge the market if it were weak. The intent is a stable market, rising in tandem with the economy & fundamentals and not ahead of it. The government has identified the housing affordability, cost of living and widening income gap as issues they would handle. As such, if the real estate prices run too fast, more measures to cool the market is likely. As a result, short term investors would not find Singapore attractive. However, longer term investors with a view of 3-5 years at least may be the ones who will benefit the most from the steady rising market.
Disclaimer Note that this posting is made for general discussion sake. Real estate investment has risks including the loss of capital and consequent financial impact. Do consult your Financial Advisor before making any investment. Past performance as well as predictions, projections, economic forecasts, real estate market trends are not necessarily indicative of the future nor performance of your real estate. Do note that the author, directors and staff related to this company do own Singapore real estate.