Many of us who own a home (or perhaps planning to start our property investment journey) will probably be full of questions as to how the Singapore property market will fare in this current economic climate, especially during crisis periods like this where businesses and jobs are all hanging on the rope.
While no one’s job or business is safe in a global crisis like this, it is also true that during crisis periods is where the best deals emerge as well.
How did Singapore’s property market perform through the past economic crises, including the Asian Financial Crisis, the Global Financial Crisis and then SARS?
Let’s take a look at the data.
When the Singapore economy was hit during the SARS outbreak in 2003 to 2005, everyone was caught off guard and faced the same uncertainty as we’re going through today. However, the property market then went on to experience a handsome 121.98% growth.
Then came the next major world crisis, otherwise known as the Global Financial Crisis. This hit our economy hard – businesses went bust, the stock markets plunged, many people lost their jobs or even went bankrupt.
Of course, Singapore’s property market was not spared either. During that time, there were many forced sales and bank sales because many businesses and home owners had over-leveraged on their loans, and could no longer afford to pay their mortgages. During that time, many of the precautionary policies to restrict debt levels were not in place either.
Thankfully, Singapore managed to overcome this crisis as well, and our property market yielded a handsome 78% growth.
In 2012 – 2013, something very important happened. Our government started to implement major cooling measures and enforced precautionary measures such as the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR). Learning from past experiences, they also revised the Loan-to-Value of our quantum of up to 90%, implemented Additional Buyer’s Stamp Duty and Seller Stamp Duty.
Why was this needed?
The previous crisis made it clear how many people had over-leveraged on their loans to buy property, and since borrowing was easy, many were speculating on multiple properties without financial prudency in place. As a result, when the 2008 financial crisis hit, people found themselves unable to service their loans or pay up the difference.
This was what sent the property crashing.
To ensure that history does not repeat itself, our government then went on to implement prevention measures, including:
- MAS regulation of property loans interest rates are calculated at the previous historical high of 3.5%, to ensure that property owners can still service their loans even if interest rates were to rise.
- Introduced Total Debt Servicing Ratio (60%) and Mortgage Servicing Ratio (30%) to ensure people do not borrow beyond their means.
- Reduce to Loan-to-Value from 90% to 80%, and now 75%. This allows property owners to still have a safety buffer of 25% even if the property value were to drop in times of crisis.
- Significant drop in percentage of loan size for subsequent properties owned, in order to prevent over-leveraging of loans.
- Increased the Additional Buyer Stamp Duty, as a move to prevent short-term speculation that could cause an artificial bubble in the property markets
- Introduced the 5 years Minimum Occupancy Period (MOP) for HDB flats, and the 3-years Seller Stamp Duty for private properties, in order to deter people from flipping multiple properties in the short term
These measures have not only helped to stabilize our property market by preventing speculation, it has also allowed most Singaporeans to have more emergency cash and CPF buffer for times of crisis.
Now coming back to the question – is our Singapore property more resilient now?
Our property market has certainly been on an uptrend. Even while going through various crises in the last 10 years, the Singapore property market has in fact growth by 176.78%!
Even foreigners are uprooting their funds to invest in our property market. Why? What attracts them here?
Beside having a strong sovereign fund, Singapore is also well known for our:
- Political stability
- Efficient health care system
- Strong and stable currency
- Strong connectivity and excellent infrastructure
Is Singapore more likely to ride out this COVID-19 crisis, or are we worse off than other countries, especially where their government debt is so much higher compare to Singapore?
With Singapore announcing $48 billion dollars of Resilience Budget to battle this crisis and with the latest announcement of a further $33 billion Fortitude Budget to help with the economy, working together with the Temporary Relief Measures for Property Sectors, it is quite obvious that our government also don’t want our economy or property to crash.
As a country, are we more prepared than the previous crisis, and is our property market more resilient compare to the previous crises? I leave it up to you.
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