Asian, Emerging Markets and Singapore get burnt

The MadScientist’s Journal

This is dedicated to the four markets that have been beaten and burnt, all of which hit their downside targets this past week. So what would be in store for these markets, more downside risks and pain, or an opportunistic technical rebound from extreme oversold conditions? Let us see…

FXI, the China ETF, had been very volatile in recent months and having failed the weekly 55EMA, it struggled to sustain the breakdown out of a range. Alas, this week, it was battered into a previously marked downside target zone, and is likely to reach the next downside target, another -5% lower.

The Nifty50 ETF, INDY, has had a terrible four weeks of late, and resting just above a support (formed by a previous Gap & Run). Slightly oversold, if the support can hold, it would be a possible consolidation for INDY. Else, a breakdown of the support line would see…

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Winners, Losers, Opportunities – How does the latest property cooling measures affect you?

The sudden Singapore property market cooling measures on 5th July 2018 had shocked the market as no one was expecting this measures. Many panicked causing a kneejerk reaction which caused developers to launch 3 projects on the very night these measures were announced, find out more about these measures in this article and how it affects you.

In any measure, there will be different impact on different groups of stakeholders. Inadvertently, there are winners, losers and opportunities created.

In this article, four main questions will be discussed.
  1. How does the cooling measures affect different groups of people?
  2. What is likely to happen to a few market segments?
  3. What are the side effects?
  4. Are there any winners?

For those who would like to read more about the cooling measures can do so at the appendix attached at the end. As analyst described the latest cooling measures on 5th July 2018 as a tough one, we look to decode the effects of these latest measures


1. How does the cooling measures affect the following groups of people: 

Home owners 

Going forward, home owners will require more cash/CPF for home owners to decouple and buy two properties going forward. With the new 75% LTV ratio instead of 80%, upgrades would need to top up an additional 5% (or $50,000 if the property is $1 million). With two properties and you would need to have $100,000 more in cash/CPF. This extra amount could have been used as an emergency fund. Henceforth, it will be more costly for families who intend to decouple; buy one property for stay and the another for investment. This also means that in order to own two properties, you now need to pay more and loan less, which essentially is more stable for the market. However, home owners who want to cash out their existing property investments, at a higher price, may now face challenges with home staging due to potential decreased affordability by some buyers.

First time home buyers (Singapore Citizen/SPR) 

First time home buyers or hdb upgraders are likely to benefit from the latest round of cooling measures if they have the extra 5% cash/CPF (LTV 80% drop to 75%). This is because sc or spr buying their first properties are not impacted by the increase of stamp duty. Property Developers may eventually start to offer some discounts to buyers if the demand start to taper. In line with the government’s intention to keep the property prices stable, home buyers will not have to face runaway home prices. First time buyers who do not have the extra 5% which is about $50k for a $1mil property. Will be priced out of the market. What this would do is to bring back demand to Resale HDBs and BTO Flats, which have a much lower quantum, and therefore require a much lower downpayment.

Second property investors (Singapore Citizen) 


For those buying a second property, with an existing loan, they would need to pay additional 12% Additional Buyer Stamp Duty (ABSD), and can only take a smaller loan of 45% LTV instead of 50% LTV. Consequently, they need to pay a total cash/CPF upfront of 71% (55+4+12) of cash and/CPF to purchase a second property (assuming that there is an outstanding loan), instead of upfront cash/CPF 61% (50+4+7). If there is no existing loan, then financing of up to 75% LTV is possible, and the upfront downpayment required will be cash/CPF 41% (25+4+12), instead of cash/cpf 31% (20+4+7) before the cooling measures were in place.

Third property investors (Singapore Citizen) & Second property investors (SPR) 




Singaporean Third property investors would only be able to take loan of 35% LTV (if they are taking a third property loan).  This means that the upfront cash/CPF  is now 84% (65+4+15). For Singapore Citizen third property owners but with a second property loan, or a Singapore PR buying 2nd property and taking 2nd property loan, they would require to have cash/CPF of 74% (55+4+15).  For those who are after the third property but taking first property loan, the upfront cash/CPF will be 44% (25+4+15). Clearly, largest impact of the cooling measure is on Singaporeans who intend to buy their third property.   



Foreigners will now need to pay an additional 5% ABSD, which is a total of 20%. In a case study where Foreigners were to buy their first property with the usual 60-70% loan, let us assume that they can take 70% loan, the total downpayment would be 54% (30+24). If  it was a $2 million property, the initial cash outlay required would be $1.08 million. The tax that they have to pay on a $2 million property has increased by $100,000. This inadvertently implies that only foreigners who have a real need to own a Singapore property will buy one out of necessity. Furthermore, those who are buying for investment may only consider as a form of portfolio diversification of funds and perhaps due to the stability of Singapore’s currency. Foreigners may consider investing in commercial offices or retail F&B shops as these are not affected by cooling measures.


Developers will face higher fixed cost with the additional 5% ABSD, which is required to be paid upfront (non-remittable). Developers have been facing rising costs from increased development charges, increased land cost and now the additional ABSD is essentially a further increase in land cost (acquisition costs). In normal circumstances, the Developers will transfer this cost to consumers (property buyers), but with the new cooling measures in place, it may be a challenge to transfer this costs to consumers. Therefore, Developers will have to look to reduce acquisition costs, and pay less for en bloc or land acquisitions in order to lower the launch prices. Hence, there will be a larger impact on the en bloc market which will be discussed in a later section. 

2. What is likely to happen to the markets?

Residential Rental Market – this segment is likely to remain stagnant, instead of downtrend. Some foreigners who intended to buy may decide that continuing to rent would be more economical, as they may not want to fork out the extra cash for stamp duty.

Private Residential Sales Market – this segment is likely to remain stagnant as well, and for some areas with lower demand, have a bias to the downside. Overall transaction volumes are expected to drop.

En bloc Market – this niche segment is expected to have lower prices due to the new developer’s additional 5% ABSD, added to the recently increased Buyer Stamp Duty (BSD) for properties above $1 million which affects developers having to pay 1% more tax (4% instead of 3% before). The total additional tax is about 6% (Absd 5% + 1%), subsequently increasing the developer’s fix cost by 6%. If they are unable to pass this extra cost to future buyers (due to cooling measures), they are more likely pay less for en bloc sites and land acquisitions. En bloc sales committees may need to consider a lower reserve price in order to attract Developers.

3. What are the side effects?

Property Developers/Agencies Shares – on the 6th of July 2018, we saw listed property developer stocks/shares drop by about 15% and agencies like ERA (APAC Realty) and PropNex stocks/shares drop by 20%. It is likely that we may see the continuation of a downtrend in public listed property stocks, reminiscent to 2013 when similar cooling measures were intensified.

Capital outflow (flight) – in search for better yield, some investors may consider to invest in good quality assets overseas for their investments or retirement plans. The government had already prepared for this phenomena by getting CEA to come up with certification courses like Marketing Foreign Properties (MFP) to improve knowledge and professionalism of local agents marketing foreign properties so that we can better advise on these investments. In a way, some of us already knew that the recent cooling measures were inevitable and imminent.

4. While it is all doom and gloom, what are the opportunities? Who are the winners?

Private Property sellers who want to cash out will likely price their units at a more reasonable price due to the cooling measures. Therefore, First time condo buyers with sufficient cash/cpf available could take advantage of this situation to negotiate for a better deal. First time buyers without sufficient cash/cpf for the increased downpayment for a condo purchase, may need to reconsider a resale HDB or BTO instead, due to a much lower quantum. This coupled with the potential increased demand in resale HDB flats from the En Bloc owners rightsizing, will in turn, helps to bring back demand for resale HDBs and likely will stabilize the HDB market, possibly mitigating a downtrend. Eventually, these HDB owners may upgrade to their dream condominium at a fair and better price. Selling HDB at a fair price, and buying a condo at a better price. (HDB prices revise upwards and condominium prices stagnant consequently close the gap). This is inline with what the government intends, which is to prevent the widening gap of HDB and condo prices.

Source: TodayOnline, URA Image: Widening Gap of Private vs HDB prices

Essentially, the cooling measures ensures that only cash rich investors, can make their purchases.

In addition, many property investors in Singapore have focused their attention on the local market. But in fact, there are opportunities to invest in developing countries at low calculated risks. It may be time to learn and research more about these overseas property investments. Stay tuned for more.

Appendix 1: Latest Cooling Measures 5th July 2018 (Wef 6th July 2018)








Sources: MOF, MND, MAS, ST

REC Insights Part 1 of 3 : Prime property at near Mass market prices?


In the previous article “5 things you must know before your next property investment”, I discussed about higher vacancy rates, rising interest rates and a potential oversupply situation from 2021 onwards. In addition to the previous discussed points, many Singaporeans would say that salary has not risen, or has not risen in line with inflation while property prices gone up, and most recently, gone up a huge amount that numerous property buyers are being priced out of the market. Fear not, there are and will be opportunities if you look hard enough.
Before we go on to insights (please note that this is my personal opinion only, disclaimer applies), it is important to understand what the future selling prices of en-bloc developments and government land sales will be. For the purpose of analysis, I will highlight selected estimated selling price below.
Fig 1. New Launch Price Table Source: Straits Times, Business Times. Compiled by: REC Notes: Outside Core Region (OCR), Rest of Central Region (RCR), Core Central Region (CCR)
Based on the above selling prices, new mass market developments are priced at the $1700psf range, while new city fringe developments are priced at $2000psf or higher range and new prime area developments will sell at $3000psf range.
As an investor, we often have to look for the arbitrage opportunities, or the gaps where not many investors are looking at. In my opinion, there is a window of opportunity in District 1 & 2, Marina Bay/Shenton Way/Tanjong Pagar area. Some properties in District 1 & 2 are selling for $2000-2200psf. Buying a prime CBD property at this price, which is just $100-400psf higher than a mass market / city fringe new development would be a good investment with a good margin of safety entry point. To elaborate further on Marina Bay and Tanjong Pagar Properties as an investment, the following three key factors analyzed are outlined below:
1. Price Disparity
An analysis on the property price difference between the average New Mass market (outside central region) properties and New Central Business District or CBD (central core region) properties was done and the results are shown in Fig 2 and Fig 2.1.
Fig 2. Price Disparity Table  Source: URA, Compiled by REC Research
Fig 2.1. Price Disparity Chart  Source: URA, Compiled by: REC Research
Based on Fig 2 and Fig 2.1, the trend seen is that the price gap between mass market and prime cbd properties have been narrowing. With prices of Mass market properties increasing while prices of Prime CBD property remain flat. Based on current price trends in fig 1, Prime CBD property prices are likely to rise bringing the price disparity from 1 : 1.4 back to 1 : 2.4 in 2012. Using the price disparity ratio, we can attempt to project the future price potential of Prime CBD properties which will be discussed further in point 3, price growth catalyst.


2. Location Growth Catalyst

Fig 3. List of Infrastructure Pipeline and Catalysts  Source: ST, Wiki Compiled by: REC
Marina Bay area has one of the most infrastructure spending by the Singapore government. First, the Marina Coastal Expressway (MCE) which costs S$4.3billion, was constructed to replace the East Coast Parkway (ECP) link to Ayer Rajah Expressway (AYE), creating an additional route to enter the Marina Bay CBD. The MCE would provide improved traffic going into the CBD. In addition, a total of 5 MRT lines converge into the Marina Bay and Tanjong Pagar vicinity with Marina Bay interchange having 3 MRT lines (north south line, circle line and future Thomson east coast line). Infrastructure is the first step in developing an area, after infrastructure is constructed, the government will be able to build more residential and commercial buildings. I believe this is exactly what the government has planned.
Marina Bay will have constant construction and development before it reaches its full potential some 20 years later. The first stage of marina bay’s growth was from 2005 to 2015, we are currently in the second stage of growth where the government is finishing up infrastructure developments till 2025, before more developments can be constructed, with the extension of the area towards Greater Southern waterfront city from 2025 onwards. I personally believe that Marina Bay’s growth timeline is summarized below,
a) Infrastructure Developments from 2005 to 2025
b) Next stage of demand growth from 2018 onwards and likely to have explosive growth from 2025 onwards when central subzone and straits view are built (fig 4.)
The next stage of growth has been kick off by the completion of Marina One by M+S Pte Ltd, a historical collaboration between both Khazanah and Temasek Holdings, the Sovereign Wealth Funds of Malaysia and Singapore Government. Marina One is the heart of Marina Bay, directly linked to Marina Bay MRT. Future developments will spread out surrounding this development. The next masterplan which is released every 5 years is expected to be in 2019, and is likely to cover more details of development plans about Marina Bay as well as Tanjong Pagar.
Fig 4. CBD Planning Overview Source: URA
      3. Price Growth Catalyst
Singapore’s finance industry transformation map (ITM) targets a total of 4000 new jobs (Fig 5.) created in the Finance and FinTech sector annually. This would contribute to higher rental demand which would in turn attract more investors.
Fig 5. Financial Services Industry Transformation Map
Source: Ministry of Trade and Industry
Attracting young well heeled individuals and property collectors, Wallich Residences, which is Singapore’s tallest building and residential development in Tanjong Pagar has seen units transact above $3800psf. With units on sale from $3800 to 4200psf, the trading range of CBD properties will eventually rise. Taking into consideration of the price disparity mentioned in point 1 above, based on 2018 mass market price of $1700psf, Prime CBD price should transact at $4000psf based on the old ratio of 1 : 2.4. It is only a matter of time before prices in the CBD will revise upwards.
With majority of infrastructure ready or waiting to be completed, the next phase of growth has started, for investors who missed the first wave of growth on The Sail, the next window of opportunity is here. Buying at a price of $2100psf range will provide a good margin of safety and good investment returns.
Our Views
Currently undervalued as seen from narrowing of price disparity (point 1) and multi-decade government growth plans, there are opportunities to invest selectively in properties in Marina Bay/Tanjong Pagar area with entry prices from as low as $1.1mil. For investors who have missed out the previous upcycle of this area, the next opportunity is here. If you like to find out other areas worth looking at, stay tuned for the next REC Insights article.

5 facts you must know before your next property investment








Over the past 3 months, the media has been reporting mostly good news about the Singapore Property Market and Local Property Brokers have been upbeat about the property market. Against a backdrop of what looks like a very promising – The Great Singapore Upgrade for the Property Market, this article attempts to provide deep insights that investors should consider as well as questions investors should be asking.

Below are three facts which most investors already know in the Singapore Residential Property Market :
  1. Transaction volumes are increasing
  2. Property price index (PPI) is increasing
  3. Developers unsold units are decreasing
These three facts have led investors to feel upbeat on the market and may have also created a group of investors who have fear of missing out (FOMO) the next property uptrend.
Before making your next property purchase, there are questions and facts to examine to identify whether the property market will go into a sustainable uptrend, or will there just be a knee jerk reaction due to the influx of en-bloc buyers coming into the market. The facts which are discussed in this article will be crucial in making that decision.
1. Interest Rates
Firstly, many people know that interest rates are going up, but to what extent can interest rates can go up to?
Fig 1. Source:
Figure 1 shows that the Singapore 3 Month Interbank (3M SIBOR) is on an uptrend after an extended period of low rates. Although there are many different rate packages one can take, including fixed rates, these rates will eventually increase, as mortgage interest rates are not fixed for the whole loan period. We can see that before the last 2008 financial crisis, 3M SIBOR rates were as high as 3.5% and that would lead to a mortgage rate of about 4%. There is also a possibility that we will see rates higher than 4% over the next 2 years.
Investors who are taking a mortgage should therefore ensure that even if interest rates go to 4% or 5%, they are still able to afford their monthly installments. In addition, if
the property purchased is an investment and rental is required to cover monthly mortgage payments, the next factor discussed is a critical point of consideration.
2. Vacancy Rate
Fig 2. Source: URA (OCR-Outside Central Region, RCR-Rest of Central Region, CCR-Core Central Region)
Based on URA data, vacancy rate of private residential units have been increasing from 2014. The latest Q3 2017 overall vacancy rate was 8.4%, up from 8.1% in Q2.
Investors who rely on rental income to pay for mortgage payments need to consider the following:
  1. If unit is vacant for 6 months, do you have the funds to pay for the mortgage payment?
  2. If rental drops by 30%, ie. From $3000 to $2100, are you able to top up the difference for the mortgage payment.
  3. Will there be potential supply and demand mismatch in the future, for example will there be enough demand to take up the number of units in that area in future.
When buying an investment property for capital gains or rental income, it is important to find out which areas have growth potential to reach that objective. For example, if an investor is seeking rental income, it is important to find out areas where there will likely be increase in future tenant demand or huge existing tenant demand. If you would like to find out where such areas are, look out for our next article about the geographical localities in Singapore.
3. Supply and Demand Balance
To better understand the current market position, we look at the supply and demand balance. Currently, URA data reports and shows only planned and approved supply of units that will be completed from 2018 to 2021 and beyond. These are represented in Figure 4 below as the red bars. Due to the recent enbloc frenzy and aggressive release of Government Land Sales (GLS) sites, it is important to project the number of future supply coming into the market. The recent enbloc sites and GLS from 2017 will likely be completed from 2021 onwards.
In order to project the future supply of both, enbloc sites and GLS, the following future supply (fig 3.) and assumptions (fig 3.) of sites being completed are used.
The projection of the pipeline of supply coming into the market (fig 4.) from 2021 to 2023 and beyond shows that pipeline supply reverting back to oversupply levels, which was seen between 2014 and 2017.


Fig 3. Source: URA, REC Research
There are currently about 3000 enbloc households, which creates the estimated future supply of 20,000 units. Assuming that these households buy 1 unit each, in 2018 there will be 3000 transactions added into the market. This is a 12% y-o-y increase in private residential transactions in 2018. Likewise, if each household buys 2 units, 6000 transactions will be added and a 24% y-o-y
increase in private residential transactions. Either scenario may increase transaction volumes temporarily, but does not soak up all the pipeline supply created in 2017. Overall, there is a net increase of future supply and will likely lead our residential market into an oversupply situation come 2021.
Fig 4. Source: URA, Exclusively collated by REC Research

4. Population Growth & Demographics

Understanding Singapore’s Population Demographics is important in understanding the population’s buying preference for the types of properties they may purchase. Although there are many permutations to what buying behaviors could be, we will attempt to look at it in a practical and logical manner.
We look at the Singapore’s population growth (fig 5.) and note that we have averaged just over a 1% increase yearly. The population growth rate is likely to maintain its current path, as commented by Managing Director of Monetary Authority of Singapore (MAS), Ravi Menon that “the current demographics slowdown is so severe that it is neither feasible or desirable to try to offset it completely through immigration of foreign workers” when he was commenting on Singapore’s aging population (fig 6.).
An aging population means more citizens will be planning for their retirement which would mean potentially right sizing to a smaller home to cash out some funds for their retirement. Some may feel that the house is too big and prefer a smaller house. It is reported that some owners whose houses are enbloc intend to buy HDB flats instead of purchase another private condo as their home. This change in buying preference is not positive for the current enbloc cycle as there may be less demand for the future supply of private residential properties.
Fig 5. Source: Singapore Population Trends 2017

5. Inflow of foreign buyers or talents
A recent report by Bank of Singapore noted that in 2017, foreign buyers bought about 1600 units (5.6% of total transactions in 2017), down from the peak of close to 6000 properties in 2011 (15% of total transactions in 2011). A possible reason for the decrease is due to the 15% Additional Buyer Stamp Duty (ABSD) imposed for foreign buyers. However, even if the government reduces or remove ABSD, foreign buyers from China and Indonesia which formed the majority of buyers in 2011 may not rush back to buy properties here due to Capital Controls and Tax Amnesty imposed in the respective countries.
Foreign talents have also seen a reduction in growth rate over the last 3 years as seen from Non-resident growth rate (fig 5.), which contributes to the increase in vacancy rates for private residential properties. Even if the government starts to attract new foreign talents again for our new industries like FinTech, Cyber Security and Artificial Intelligence Industries, there will be lag time before vacancy rate improves.
Our Views
Our view is that property investment will continue to be very lucrative over the long term. However, against a backdrop of mixed data and noise in the property market, location selection is more important than ever. Property investors 20 years ago could just buy almost any property in Singapore and would make a profit if they held till today. Over the last 5 years, there are groups of buyers who made profits, while also a large group who did not profit. Property selection hence is the key to invest profitably and data based analysis can aid in the process of buying a bargain in a growth area.
If you would like to find out more, look out for our next blog post on the areas to consider for resilient property investment.


Dear Readers, Welcome to Ray’s Estate Clinic !

This blog is created to provide honest insights and deep analysis of the Singapore Property Markets. Hope that all property investors and aspiring property investors will be able to create a healthy property portfolio by making data driven decisions.

I would appreciate and welcome all reader’s feedback to improve future content in this blog for the benefit of all readers!

Raymond Chng
Founder, Ray’s Estate Clinic