Originally Posted by Unregistered

Who will fill up the empty homes?

By Ku Swee Yong
TODAY - Published: June 5, 2015


In the 2015 AT Kearney Foreign Direct Investment (FDI) Confidence Index, Singapore dropped six places to 15th. The index, published yearly since 1998, “examines the overarching trends in FDI” and is “a forward-looking analysis of how political, economic and regulatory changes will likely affect countries’ FDI inflows in the coming years”. Among the countries that overtook Singapore were Japan, France and Mexico.

The fall in ranking implies that either Singapore’s political, economic and regulatory changes are negative for FDI, or that other countries have improved in these areas and leapfrogged the Republic.

Most likely, it is a combination of both. So, what happens when Singapore loses its competitiveness and FDI into the country slows? And what happens when this scenario is coupled with recent housing and manpower policies?

The Ministry of Manpower has stressed that Singapore needs to keep its manpower growth tight and produce a lean and productive workforce. Therefore, significant headcount growth from foreigners holding work permits, S-passes and employment passes should not be expected. The National Talent and Population Division is also very selective in granting permanent residency to and naturalising immigrants. So, population growth in these segments will also be limited.

Anecdotal evidence of an increasing number of foreigners walking away from their property loans and investors dumping their luxury apartments at big losses does not put Singapore in a good light among high-net-worth individuals worldwide.

Several high-net-worth families who had invested in private equity funds to qualify for permanent residency did not get the positive financial returns they were looking for. Like it or not, Singapore’s high-net-worth PR population will decline if they walk away from bad investments to seek better returns elsewhere.

This may not be a bad thing when viewed from the electorate’s standpoint. Voters, in general, do not want Singapore to be overcrowded with too many new citizens, PRs and foreigners. However, property investors are breaking out in cold sweat as the number of tenants dwindle.

According to the National Development Minister’s blog, 182,506 residential units will be completed between this year and 2018. About 85 per cent of these have been already sold.

The total increase in residential supply during the 10 years from 2005 to last year was 151,475 units, catering to a booming population growth of 1.3 million during the period. The population growth expected from this year to 2018 will be lower, with about 80,000 to 100,000 each year, or a total of 400,000 at the top of the range over the four years.

Let us assume a very optimistic case for the private residential segment, and exclude Housing and Development Board flats and Executive Condominiums. If we assume that the home take-up rate of the past eight years (8,206 units per year) will carry over the next three to four years, the massive increase in the supply of private residential properties will still result in a vacancy rate of more than 12 per cent (more than 45,000 vacant units) in 2017 and 2018.

That will weigh on rental values, and the downward pressure on investment returns may be exacerbated by the expected rise in global interest rates.

This is the optimistic scenario. Things could be worse with the uncertain outlook in the European, Chinese and South-east Asian economies. The prolonged downturn in oil and commodities prices will also lead to headcount cuts here, given Singapore’s top rankings in offshore rig building and commodities trading.

Add to the above the tightening foreign-worker policy and the slower growth in the number of PRs and new citizens, and the new residential units will be challenging to fill up.

What if some of the cooling measures, such as the Additional Buyer Stamp Duty, are removed? Will this bring back buyers standing on the sidelines? I believe there may be a knee-jerk reaction if the cooling measures are removed, but astute investors will not jump in to catch a falling knife.

Why invest in real estate when the oversupply and tighter immigration policy will lead to weak and inconsistent rental income on the back of rising interest expenses?

Smart investors look for a growth reason to enter the property market. At this moment, the “Singapore product” does not seem to have an economic catalyst or a significant event that will bring it up to a new product life-cycle. Therefore, regional investors are giving it a miss.

It was just over a decade ago when the Singapore private property index slumped and remained stagnant from 2000 to 2005 on a large backlog of supply. What if the same stagnation is starting now? If this situation drags on, we might ask: What if Singapore becomes irrelevant to investors? What if investors looked beyond the Republic to better investment destinations? What if Singapore becomes a “has-been”?