Staying up at this hour past midnight to write this article is done with lots of hesitation. Why? Because of the past experience of what I have seen in the last 20+ years in the financial services industry, has made me to rethink about what is so different about this current COVID19 situation as compared to the past crisis that I have seen.
I have readers that asked me on whether this is the best time to buy. Honestly, I don’t have the answer for you but I do have the facts for you. You have to understand the facts in order to make an informed decision and not based on feel good factors again. I have always been an advocate of facts when it comes to investments and buying a piece of a real estate is no different from other investments. We being Singaporeans do not have many options to make our money work harder than us. Singaporeans are actually quite well-paid as compared to our neighbours and also as compared to 20-30 years ago.
From the time I started reading about the news, I remember reading about the oil crisis of 1985. The oil price was so high of that time that it crippled the world economy. Everyone was just getting so concerned about the glut in worldwide oil supply. Singapore’s economy was not sparred and this resulted in the government making adjustments to the CPF contribution. Lucky for SIngapore, the rebound came shortly in 1986 and everything was roaring upwards all the way to 1997 when the Asian Financial Crisis came about. I remembered that back in 1995, everything was just heating up. The auntie that was employed to maintain our pantry and office was chatting with me on which stock she was betting on and was bragging to me on how much she has made from her recent killing in the stock market. COEs for cars were at an all time high of more than $100,000! Everything was just heading for a disaster. Everyone ws making good money and as usual, people have short memory of what happened in 1985. In 1997, the COE came tumbling down to $50 for a large car category. Yes, you did not read wrongly, it came crashing down from $100,000 to $50. Notice the zeroes….
Property took a hard hit this time. Everything was just falling off from the sky. Marine Parade was badly hit. Once known as the millionaires’ playground became a fire sale playground. Everything along here was going for a steep discount. Bayshore Park was selling at about $380,000 for a 2 bedroom unit. Rent was cheap at rates as low as $1200 for a 2 bedroom in those days. This was the result of uncontrolled bank borrowings. Everyone was borrowing to buy units and renting out to tenants. Just imagine, 1 income, 10 loans? how does that work? Using rental income to offset your next mortgage payments. All it takes is just one tenant to break the lease or default, everything falls apart. A big major discount of up to 45% was seen in the prices in those days. High debt ratios and low savings rates was the recipe for this major disaster for SIngapore’s property market.
We did not see any much of reprieve from 1997 to 2006 in the real estate market in Singapore. Even though during this period from 1997 to 2006, there are some minor economic hiccups but none was as long as this. Unemployment rate was high, businesses were struggling to sustain with high financing costs and Singapore was no longer the competitive economy it used to have because of cheaper alternatives in the region and the rise of China. In 2001, the September 11 incident left everyone in the world worried about terror attacks on a worldwide basis. Everyone was talking about terrorism. Everyone was concerned about the world economy being held ransom by terror.
Markets came tumbling down, airline stocks were dropping and losing market cap. As compared to this time round, SIA has cut capacity by 96%! Talk about disaster. Is this time a worst situation as compared to the previous? Just when the market was recovering from the 2001 9-11 incident, some strange virus started attacking everyone again. SARS came about in 2003 and this virus brought about the crisis in the economy again. Everybody had renewed fears again. Everybody was worried. No one was buying anything. In those days, The Sail at Marina Bay was launched at an all time high price of more than $800 psf. That was a 99 years leasehold project in Singapore and that price can get you freehold in Marine Parade and Hillview. Only that few who saw the opportunities were able to ride the benefits of the economy. The Sail was transacted at a later date in 2007 at approximately $2500psf.
In a crisis, there will always be an opportunity. The only element you need is time. Just buy and let it be. There is no need to worry about whether it will regain back. The real estate market in Singapore has always been resilient. This time round, governments around the world are more prepared to tackle this issue.
The big question to ask is whether should you be buying real estate or not but very much of what is different about this current crisis. Singapore has been experiencing a steady growth since the last financial crisis since 2007. It has been a good 13 years. We are encountering an unprecedented event. An event that no one could have predicted. Economic analysts would never have been able to predict this COVID19 situation. This is similar to the SARS situation in 2003. The difference is that this is a pandemic. Countries are taking a lock down option to prevent the community spread of new cases.
Countries are seeking ways to contain the spread. All are concerned with the spread that are infecting people by the thousands in some countries. All are just scrambling to solve this issue. Social distancing has been encouraged but some, enforcement is implemented.
The difference of what we see today, low debt ratio in SIngapore. High savings rates in Singapore. No over leveraged situation as compared to 1997. All thanks to the TDSR in 2013 that has ensured that borrowing is kept within the tolerance limits of borrowing limits. Jobs and businesses are protected with immediate fiscal policies to safeguard and protect the economy. Banks are not allowed to penalise borrowers. Deferred payments for mortgage payments are introduced. The government is very proactive in ensuring that nothing is left to chances. Some say elections are nearing but I would say that the government do understand the situation. Singapore is seen as a global metropolitan. A developed country with a good government. This is being showcased worldwide, foreigners like Singapore thus resulting in foreign buyers heading to Singapore to buy real estate. A stable political situation ensures a stable economy and these are key attributes of real estate markets.
With a strong savings ratio in Singapore, it would be difficult for a fire sale situation to happen. I have buyers who are seeking out extremely low prices, hoping that the owners will relent by giving in to low ballers in the market. But bear in mind that owners are not desperate to make an exit. The holding power is strong, there is no need to agree to unreasonable low prices. They only need to ride out this current situation and everything will be back to normal if not higher. Buying into new launches may actually be a better option as compared to resale units now. With the drop in foreign buyers, Singapore is still seeing a healthy number of sales in the real estate market with units changing hands. Developers have been selling quite well and once the travel ban is lifted, we can expect a strong flow of buying frenzy from foreigners again. This time, it will be strong. Why? it is simple, from this incident, foreigners read Singapore as a country that has proper leadership and proper controls in place to handle a situation like this. Strong healthcare system is a key selling point of Singapore. As compared to the rest of the world, we are rated as one of the safest countries in the world as of now.