By Getty Goh
Time flies and 2012 is almost coming to an end. As we head towards the end of December, I believe many property owners and investors are wondering what will 2013 hold. Should they buy or should they sell? Would the government take more cooling measures or would they finally leave the property markets alone? Which sectors will shine in 2013? In this article, I will attempt to highlight some of the sectors we think will do well in the coming year.
Looking back in 2012 – How did it turn out?
When the government came up with Additional Buyer Stamp Duty one year ago, many stakeholders feared that the property markets would crash in 2012. We painted two likely scenarios – a “best case” and a “worst case” one. In the “best case” scenario, we opined that countries affected by the debt crisis would continue to flood the global financial system with huge bouts of liquidity to avert any potential crisis. As a result of this, mortgage rates would remain low. However, due to the various anti-speculation measures, most of the new funds would find their way into the non-residential property sectors, i.e. commercial and industrial property sector. This will cause assets in those markets to see price increases, making 2012 the year for commercial and industrial properties (one of the local property bloggers posted our article on his site and you can find it here: http://www.propwise.sg/a-look-back-on-2011-and-looking-forward-to-2012/).
Looking back, the market turned out very much in line with what we shared in the best-case scenario. Apart from the third round of quantitative easing (i.e. QE3), we also know that the URA Industrial Property Index is currently at an all time high (see Figure 1) – indicating that investors have started looking at alternative property investments in 2012.
Figure 1: URA Industrial Price Index
Naturally, the question right now is what will happen in 2013. I will be sharing several developments that investors/consumers should look out for in the year ahead.
Another good year for non-residential properties?
Barring any unforeseen circumstances and continued inflow of money into the Singapore banking system, 2013 could potentially be another good year for non-residential properties (i.e. commercial and industrial properties). To illustrate how investors have gradually been moving into the non-residential market, Figure 2 shows that the proportion of residential caveats lodged from 1995 to 2010 is 90.7%. This proportion dropped in 2011 and 2012 to 88.5% and 84.8% respectively. With all the cooling measures in the residential market, it is likely that the interests in the non-residential property sectors will continue to be strong in the year ahead.
Figure 2: Proportion of transactions for the different sectors
However, some investors may want to focus on commercial properties (i.e. shop and office spaces) instead of industrial properties in the coming year. This is because the URA industrial price index, at 183.3, is presently at an all time high. Looking at how proactive the Singapore government is in managing the property market, it is foreseeable that they may implement measures to cool the industrial sector in the coming months and make it difficult for investors to speculate in the market. In comparison, there seems to be still some scope for price appreciation for office (see Figure 3) and shop spaces (see Figure 4) as the price index for the two sub-sectors is currently still below their peak. Hence that could be the sector of choice for some savvy investors.
Figure 3: URA Office Space Price Index (still below the 1990s peak)
Figure 4: URA Shop Space Price Index (still below the 1980s peak)
Master Plan 2013 – potential changes in land uses
Apart from liquidity, another development that we think will have an impact on the Singapore property market in 2013 is the latest review of the Master Plan (MP). The URA’s MP is reviewed once every five years. The last MP review occurred in 2008 while the one before that took place in 2003. At present, another round of MP review is on the way and it will be released in 2013.
While the URA officers are the only ones who presently know what some of the changes are, some of the places I would pay close attention to are Tanjong Pagar container port, the Bukit Brown location as well as the former Turf Club at Bukit Timah. This is because the areas highlighted are located in fairly prime regions in Singapore and any change in land use would potentially impact the existing value of properties in that location. By keeping a close eye on what the government intends to do to these few pieces of land, investors can have an idea where the next property hotspot could be.
Rounding it up – why it still makes sense for some investors to invest now?
In a recent property talk I conducted for a major Singapore developer, some of the attendees asked me if they should invest in 2013. Specifically, some of them voiced some concerns and felt that they would be better off waiting at the sidelines.
I am always of the view that the decision to buy a property or to stay away from the market should not be solely determined by how the market performs. Investors should instead decide based on their investment goals, time horizon, affordability, etc. As long as they do not over-leverage and invest beyond their means, there are always interesting deals available that could be worth investing in. And even if they do not invest immediately, it is never too early to start learning more about the property market, simply because there are limited property cycles in our lifetime.
So how many property cycles do we reasonable expect to see? Assuming we start working at 25 and retire at 65, most of us would have about 40 economically productive years. If the average property market cycle is about 7 years, each of us will most probably get to see about 5 to 6 cycles in our economic life time.
With the new year, new threats as well as opportunities will arise. Hopefully, some of you will find some of the sharing to be beneficial and incorporate them into your investment considerations and reap bountiful returns in 2013.
Mr Getty Goh is the director of Ascendant Assets Pte Ltd, a boutique real estate research consultancy. He has a Masters in Real Estate and a Bachelors in Building from the National University of Singapore. He conducts frequent talks on the topic of property investing. For more information, please visit www.BuyByeProperty.com.