Singaporeans love buying property. Indeed, Singapore property prices have gone up a lot in the past two years. Singapore Residential Property Price Index increased by 10.6% in 2021 and another 8.4% in 2022.

The price raised so fast that it definitely caught the eye of the Singapore government. Another round of property curbs was swiftly announced in Sep 2022. At the same time, property tax will be raised for 2023 and 2024, which adds an additional burden for property investors.

What is in everybody’s mind now is that:

• Will Singapore property prices continue going up in 2023?
• What is the implication of the property market for people who bought it for retirement?

In this article, I will dive deeper into this topic.

Why did property prices go up so fast?

First of all, we need to understand why property prices go up so fast.

Since Covid broke out almost 3 years ago, there are two main drivers for the property market.

Unlimited money printing and zero interest rate – which started to be rewound in 2023.
Huge delays in construction works and a shortage of housing due to the prolonged lockdown.

So the distortion of supply and demand is obvious. You have more demand (people who need housing and have more money from leverage) and less supply (upcoming projects were halted).

People who need housing have no choice but were pushed to transact in the secondary market at a premium.

At the same time, with a sluggish stock market and fear of inflation, investors turned to property as an “inflation hedge” or “safe asset”. There is also a saying that because of the macro backdrop of “common prosperity” in China and geopolitical tension in Russia-Ukraine, more money is flowing into Singapore. A big chunk of this money will inevitably flow into the property market since Singapore’s capital market is relatively small.

Now, if we understand these are the main reasons for the rapidly rising property prices, the question we should ask ourselves is that, “will these continue?”

• Are we seeing a loosening or tightening monetary policy?
• Are we seeing more property launches in 2023 or less?
• Are we seeing an economic recovery or recession?

Are we looking at an overdue property market correction and yet ignoring it?

Why is the Singapore property market a “Grey Rhino”

I call the Singapore property market a “Grey Rhino”.

You probably heard about “Black Swan”, which is an improbable and unforeseeable event. A “grey rhino” is a highly probable, high-impact yet neglected threat, like the elephant in the room.

Many Singaporeans believe that narratives that property prices can only go up. If you look at Singapore residential property price index as below, it is evidential.

A higher property price is more the benefits to many people:

• Developers made their profits;
• Agents pocketed their commissions;
• Lawyer earned their legal fees;
• Media made revenue from advertising;
• Banks made more money from construction and housing loans;
• The government collected more tax revenue.

But who foots the bill?

The property sector is not a standalone industry in the financial system. It moves many other sectors and industries.

Additional Reading: How does the property market affect the stock market? 

So while everybody sort of understands that the properties are overpriced now (compared to Singapore’s economic development and employment earning power), most people will choose to ignore this big Grey Rhino in front of us.

Is property purchase a booster or sucker for your retirement?

You may have heard a lot of people talking about how they made money through property investing and some are so  “generous” that they want to teach you. But the hard truth is that, as the lines in “Pirates of the Caribbean”,

Dead men tells no tales!

How many people have bought a property at a record-high price and sucked their retirement savings for years and had to push back their retirements?

If you relook a the property price index chart again. For people who bought properties during the Asian Financial Crisis, it took them nearly 15 years to break even. For those who bought in 2014, it was another 7 years of waiting.

And did they really break even?

How about the transaction costs of stamp duty, ABSD, agent fees, loan interest, and maintenance fees?

I talked to a few investors last year who bought the properties. Almost all of them severely underestimated the costs of owning a property.

You may have budgeted the property purchase price, but have you calculated the cost of stamp duty, legal fees and renovation costs?

You may have budgeted your mortgage loan with a 1.5% interest rate, but now the loan rate is more than 4%. Have much more mortgage repayment do you have to fork out every month? Will it affect our lifestyle?

And even if you can afford it, are you even getting a 4% rental yield to cover your interest rate? Not to mention the principal repayment and MCST cost?

The property price index is an illusion

Property bulls talk about the property price index a lot.

What people don’t realize is that even if you see the property price index goes up, it doesn’t mean that your property price goes up.

Stock investors understand that even if the S&P 500 or Straits Times Index goes up, their stocks may not perform the same. The same goes for the property price index.

The thing is that the rising property price index is an illusion!

People are talking about many condos in suburbs that are transacting above $2,000 psf (per square foot), and they thought everybody must be selling at this price.

Is it true? Look at the chart below, the high prices only happened in a particular month due to certain new launches while uninformed buyers were flopping in to buy the properties at a hyped price.

This data set showed a large number of properties were transacted more than $2,000 psf in July 2022. But this is because it was the month when AMO Residence sold 98% in the first-day launch. The average price for AMO Residence exceeded more than $2,100 per psf.

The buyers may feel that it is the last time they can get on the train at a good bargain, only to realize that the market price quickly resumed the norm the next month.

People may argue it is a new condo. But the new condo will become an old condo very soon. When you buy a property at 25% above the market price, how many years do you think it will take for you to break even?

Similar headline-grabbing news has played out in the public housing market too. In July 2022, a five-room resale HDB flat in Dawson Road was sold for an eye-popping $1.418 million dollars!

It is tempting for uninformed house buyers to conclude that homes will fly off the shelves like hotcakes. However, zooming out to get a macro view and you will realize that these transactions made up less than 2% of the total transactions.

Are these skyrocketing property prices in Singapore norm or extreme cases?

Buy a property with an investor’s mind

Some years ago, I wrote an article to discuss how people really get rich through property investment in Singapore.

I talked about two important aspects which are less practised by most property buyers.

• Optimal leverage
• Insane discount

All successful property investors share the same trait, “calculative“.

They are very focused on the numbers of probability and profitability and are not easily swayed by emotions when it comes to putting their money down.

Let me conclude by saying that if you treat the money spent on the property as an investment or retirement portfolio, you need to really think about it like an investor.

Don’t get over-excited about the twisted marketing message given by marketing agents and developers who have a vested interest in pushing you to make a transaction.

2023 could be a dangerous year if you buy a property without knowing what you are doing. So do your calculations before you sign the dotted line.

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