Why NOT Singapore or Hong Kong?

Beautiful skyscrapers of Singapore

The growing imbalance between household income and house price growth has caused a severe affordability crisis. Most households can no longer afford to buy a property in major cities without a substantial inheritance, not to mention rents that continue to consume a significant share of the monthly income.

The skyscrapers in Singapore, though magnificent and tall, are proof of the island’s lack of space — after all,  with land so limited, the only way to go is up.

Singapore was rated by S&P Global Ratings as the second highest region in Asia for house prices, thanks to growing foreign demand for private housing.

The increase in Singapore property price index in 2018 from Urban Redevelopment Authority (URA)
The increase in Singapore property price index in 2018. Source: Urban Redevelopment Authority (URA).

Prices of private homes are still inching higher, albeit at the slowest pace in five quarters (June 2017 – June 2018). Data by the Urban Redevelopment Authority (URA) shows that private residential prices in Singapore increased 0.5% in the last 3 months, compared to a 3.4% advancement in the June quarter.  All this despite additional property curbs imposed by the government, the latest being the implementation of the Additional Buyer’s Stamp Duty (ABSD) and Loan Limit,  to avoid a property bubble burst, which potentially has the risk of destabilizing the nation’s economy.

ABSD imposed by Singapore, Source: Knight Frank
Latest cooling measures: ABSD imposed by Singapore government.  Source: Knight Frank

The ABSD rates were raised by 5% for citizens and permanent residents (PRs) buying second and subsequent homes, and by 10% for entities, said the finance and national development ministries, as well as the Monetary Authority of Singapore (MAS) in a joint release. There will be no change in rates for citizens or PRs who are first-time buyers.

“The government has been monitoring the property market closely. We are very concerned that prices are running ahead of economic fundamentals,” said Lawrence Wong, Minister for National Development in an interview with Channel NewsAsia.

Among Asian countries, Hong Kong, Singapore and Tokyo are at a bubble risk, with Hong Kong being highest on the list.
Among Asian countries, Hong Kong, Singapore and Tokyo are at a bubble risk, with Hong Kong being highest on the list. Source: UBS

The UBS Global Real Estate Bubble Index 2018 shows Singapore and Hong Kong amongst major cities at risk of a property bubble burst, Hong Kong being the top of the list at a whopping 2.03%. Singapore, though rated fair-valued (0.44), is close to being overvalued.

Ultimately, the growing imbalance between household income and house price growth has caused a severe affordability crisis. Most households can no longer afford to buy a property in major cities without a substantial inheritance, not to mention rents that continue to consume a significant share of the monthly income.

Stratospheric Property Prices at the Fragrant Harbour 

The Hong Kong property market has retained its vibrant momentum. Residential market prices have risen again by more than 10% over the last four quarters (as at Sept 2018), raising the city’s UBS Global Real Estate Bubble Index score higher within the bubble-risk zone.

Since 2008, property prices have doubled while rents have gone up by 15% and incomes have remained unchanged in real terms. The market is chronically undersupplied. Over the last decade, its affordability has fallen the most among many other cities in the European and Asian region.

Even for highly-skilled workers, property ownership is now out of reach. With citizens priced out of their own market, political measure has mounted to curb price growth. Recently, the government announced an occupancy tax for vacant, completed units to encourage developers to sell them as quickly as possible, in an effort to improve supply.

As high as the initiative taken by the authorities to prevent further crisis in the market and to decelerate house price growth, a sharp correction seems nearly unlikely.

A Change of Focus

It is now apparent why investors from Singapore and Hong Kong are looking beyond their own shores to invest their money. Countries such as the UK and Australia are a top choice for property investors looking for good returns.

In the UK, investors are  increasingly shifting their focus from London  to regional cities such as Manchester and Liverpool, due to growth potential and market demand.

The latest data from Private Finance has shown that Manchester and Liverpool are among the UK’s top 10 cities for strong rental demand, promising prominent rental yields of 4.8% and 4.6%, respectively.

Meanwhile, the increase in the foreign student population  continues to drive demand for accommodation, adding to the appeal of the UK property investment market, particularly in top university cities.

Shaun Church, Director of Private Finance, commented that while recent (April 2016) stamp duty changes may have dampened landlords’ appetites, buy-to-let property still remains a viable investment. He added that strong rental incomes matched with declining mortgage costs mean that investors can still enjoy a level of return on their investment they’d be hard pressed to find elsewhere.

Investing Down Under

House price growth in Australia has slowed in recent months, led by Sydney and Melbourne. A forecast done by BIS Oxford Economics suggests that the Australian housing market is in for soft landing.

Taking inflation into account, BIS predicts that modest price declines will take place in most capital cities over the next 12 months, but that the situation will turn around, transforming into growth over the next 3 years.

The growth potential of Australian housing market over the next 3 years
The growth potential of Australian housing market over the next 3 years. Image credit: Michael Yardley’s Property Update.

Hence, despite the current downfall, the Australian housing market — supported by low interest rates, a relatively stable economic environment and a strong and promising population growth — is unlikely to  crash.

The high number of skilled foreign migrants flocking Down Under will further strengthen the underlying demand for houses. This may well be a good time to have an eye on the Australian market.

Image Source: https://edition.cnn.com/travel/article/singapore-50-reasons/index.html