Is Singapore Property Cheap Now?

Had a very insightful discussion pertaining to this topic recently on valuebuddies forum and here are my contribution:

Came across this annual housing affordability research with a focus on Singapore(link: here) which rank Singapore 53. 92 being the most unaffordable base on median house price/median household income and 1 being the most affordable. Singapore is ranked out of the critical red zone and is deemed affordable by demographia. It makes for an interesting read.

First of all, Singapore do not have peripheral mainland or the luxury of a competitive suburban market for housing like other countries have. We have 3/4 less gross land than Hong Kong and 3/4 as many residents as Hong Kong. Our GDP per capita is still around top 3 in the world.

If we do a comparison with Hong Kong as per above, it seems to the Hong Kong people, Singapore properties are cheap, in terms of price to income ratio and mortgage to income ratio. Singapore government is very successful in controlling the property market by using cooling measures, 10 so far. that has pretty much controlled the price of private property from escalating since 2013.

Additionally, the TDSR, ABSD, LTV measures implemented by the government has eradicated speculation and flipping here in Singapore. This means all those who own properties here can afford them and are likely long term own stayers or landlords. Evidence from the 2018 enbloc frenzy has shown that Singaporeans have deep pockets and are waiting at the side lines for the right time to contribute to the demand. Despite 20% ABSD to foreigners, we can still see foreign demand seeping in especially from China and Hong Kong because even after the 20% tax, its still cheaper here than their domestic market.

Not forgetting Hong Kong residential land is at most 70 years lease, while Singapore land has freehold option ie no depreciation in land value over time. We cant compare with our neighbour Malaysia as Sg is AAA credit rated with a much higher GDP per capita coupled with a very small land which I feel matches Hong Kong the most in terms of land size, Chinese predominant, corporate governance and international attractiveness. Foreigners now I feel prefer Singapore to Hong Kong because many westerners don't like to put their money under indirect watch of China.

Singapore has one trillion usd in foreign reserve there about, don't think its fair to compare it with any ASEAN countries around it. Singapore is well located, that's why our ports are still one of the busiest in the world. If we look at this collectively, it seems to me that Singapore properties are actually relative cheap, artificially controlled by government policies amidst a pent up demand by deep pocket Singaporeans here waiting at the side lines.

In terms of net passive return on rental, the yield after deducting property tax, income tax and mcst may not satisfy common folks here who is used to reits and other alternative property asset classes. A rough back of envelope calculation shows an avg mid 2 to mid 3% of net yield not including mortgage loan. Rental is dependent on labour forces and supply/demand. The dwindling rental quantum over the years could be due to a more controlled foreign worker influx to Singapore and more supply due to the enbloc period.

The silver lining to the dwindling rentals here is the divergence of our vacancy rate, which is dropping yearly over a four years period since second quarter of 2016 till. This could hint towards a positive rental trend reversal, likely attributed to an influx of foreign PMET to Singapore.

ps: The global covid 19 epidemic will likely cast a dark cloud to this whole theory in the short term to medium term.

To continue the ongoing discussion on valuebuddies, can click on the link here