SINGAPORE (July 8): This past week, an offer I made for a bright and airy apartment located along a quiet street in the Newton area was accepted. In a couple of months, if all goes well, I will be a property owner again. And, unlike residential properties I have owned in the past, I intend to hold on to this one for a long time.

In land-scarce Singapore, investing in real estate is an excellent means of riding the country’s economic growth. Economic activity creates demand for commercial property, while rising incomes and population growth drive demand for residential property. Yet, I have always been leery of investing in my own home, despite the massive gains that residential property has chalked up over the last two decades.

While it is easy to invest in commercial property through real estate investment trusts, there are no such securitised products in the residential property sector. As a result, transaction costs are high and one has to be prepared to hold an asset that is relatively illiquid. Moreover, the rental yields were never high enough to make it seem worthwhile for me to switch from renting to living in my own home.

Then, there is the constant regulatory interference. Nobody complains when stock or bond prices are too high, but a red-hot housing market quickly stokes concerns about home affordability and the risk of a debt overhang in the event of a slump, which inevitably draws some response from regulators.

The last property I owned in Singapore was purchased at launch in 2007, when the market was on a roll. By the time the development was completed three years later, I was receiving offers that were more than 30% above what I had paid. Meanwhile, the government was beginning to introduce measures to deter speculation in the property market. Feeling that it made little difference whether I continued paying rent or switched to servicing a mortgage, and fearing that more cooling measures were on the way, I took the best offer I could find in late 2010 and walked away.

With hindsight, I should have waited a couple more years before selling. It was not until 2013 that successive rounds of cooling measures finally ended the bull market in residential property. Private residential property prices began falling in 2H2013, and kept falling for four years.

Now, it seems that the authorities are trying to contain another nascent property boom. In July last year, the government announced hikes in additional buyer’s stamp duty for all categories of homebuyers, except Singaporeans and permanent residents buying their first home. It also said it would tighten loan-to-value limits for mortgages. This came after a surge in collective sales as developers rushed to replenish their landbank, which excited the whole market. Private residential prices rose more than 9% in the year to mid-2018, offsetting the nearly 12% fall over the preceding four years.

This fresh round of cooling measures drew howls of protest from developers, as they were preparing for a bumper crop of new launches in 2019. Yet, things have not gone too badly for them in recent months. While it is definitely a buyers’ market right now, sales by developers have not stalled. It also appears that developers are succeeding in pushing through higher selling prices, which is necessary to turn a decent profit on the sites they acquired during the collective sales fever two years ago.

In 2Q2019, the private residential property index increased 1.3% to 150.5 points, from 148.6 points in 1Q2019, according to flash estimates from the URA. The index was at its highest since 1Q2014.

Against this backdrop, Monetary Authority of Singapore managing director Ravi Menon indicated recently that there is unlikely to be any let-up in the cooling measures. “We have not seen any impending risks of a sharp selloff or collapse, and there seems to be good balance that’s holding up the market,” he was quoted to have said at a press conference related to the release of the latest MAS annual report. “So, I don’t see a need to shift gears significantly.”

Property investing quirks

My hunt for a residential property began in earnest about a year ago. The main objective was to find an affordable, private, non-landed home, where I would be comfortable for a good many years. But it wasn’t long before I was persuaded by friends with more experience in the property market than me to focus on the established prime locations, where property prices were likely to appreciate strongly over the medium term. Every homeowner, I was told, even those with no intention to sell, is ultimately an investor.

Yet, investing in property isn’t quite the same thing as investing in stocks. Investors who recklessly chase stock prices up to new highs often get burnt. In the property market, the new highs in land values set by developers tend to become the benchmark for everyone else. Just about every property agent I met during my hunt attempted to make the case that resale properties in a particular area were a bargain because some developer had bought a nearby site at a price that would oblige them to launch the new development at much higher prices.

Wouldn’t homebuyers shun these new high-priced developments if they are able to buy a nearby resale property at a much lower price? Isn’t it possible that equilibrium will be established by prices of the newer properties falling rather than prices of the older ones rising? According to the property agents I met over the past year, the answer to these questions is, emphatically, no.

It is not true, of course, that property prices in Singapore can only go up. The luxury property enclave of Sentosa Cove has seen prices steadily slide over the last seven years. Sentosa Cove has marketed to wealthy foreign property buyers from the outset. Notably, it is the only place in Singapore where foreigners can buy a landed home. Things haven’t been the same since the global financial crisis and the commodity bust, though. And, the latest round of cooling measures last year is just making things worse. Sentosa Cove’s problem isn’t just that it is a home for wealthy foreigners, but that it is also a home for the highly mobile capital of wealthy foreigners.

Interestingly, some observers do not see the last round of cooling measures as necessarily negative for the local property market. During the lull in the market from mid-2013 to mid-2017, many potential homebuyers might have delayed their purchases in anticipation of some cooling measures being lifted. Indeed, in March 2017, the seller’s stamp duty was reduced, and became payable for properties sold within three years of purchase instead of four. With the revival of the property market, more cooling measures might be in the offing. And, potential homebuyers might now feel a renewed sense of urgency to jump into the market.

According to one property agent I met, some first-time homebuyers might also be inclined to go for higher-value properties. After all, with hefty stamp duties and tough borrowing limits, it is less likely that they will ever own a second property, so it makes sense to really stretch themselves when they make their first purchase, the agent explained. I realised the argument she was making was utterly self-serving. Yet, I was sufficiently convinced by her logic to spend a few weeks looking at properties with asking prices that were more than $1 million above my budget.

Fortunately, I came to my senses. The property I eventually purchased was exactly within my budget, and in an established prime area. For good measure, it is also located next to a newer (and, admittedly, more salubrious) condominium where asking prices on a per square foot basis are more than 30% higher.

The next big decision I have to make is how to finance the purchase of my new home. When I started house hunting last year, I assumed I would take some form of fixed-rate loan to protect myself against rising interest rates over the next couple of years. Yet, in the time that it took me to find a suitable property, conditions in financial markets have shifted dramatically.

Yields on 10-year US Treasury bonds have slumped to about 1.95% currently, amid expectations that major central banks around the world will adopt an increasingly dovish stance to support a slowing global economy. It was only in October last year that 10-year US Treasury bonds were trading at yields of more than 3.2%, and the market was expecting the US Federal Reserve to push through as many as three 25-basis-point rate hikes in 2019.

At the moment, I am still inclined to opt for a fixed-rate mortgage loan, on the view that rates will not go much lower. Tensions between the US and China and indications that economic activity is slowing are certainly reasons for caution. On the other hand, the steep fall in bond yields we have already seen seem to have partly assuaged these concerns and stabilised asset markets. I will probably make a final decision on a mortgage next week, after talking to some people who know much more about this than me.

As it happens, I will also be moderating a panel discussion at the EdgeProp 360 event on July 10. The speakers include Christine Li, head of research for Singapore and Southeast Asia at Cushman & Wakefield; Alan Cheong, executive director for research and consultancy at Savills (Singapore); and Clive Chng, associate director at Redbrick Mortgage Advisory. I am looking forward to hearing their views.

This story appears in The Edge Singapore (Issue 889, week of July 8) which is on sale now. Subscribe <a href="https://www.theedgesingapore.com/subscribe" target="_blank">here</a>

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