Saturday, June 23, 2007

Singapore's Property (High-End) & Social Fabric Disintegration

80% of Singaporeans live in HDB housing. Property, especially those in the right districts (9,10,11) rose significantly over the last 2 years. In particular, the two IRs were the catalysts for the boom. The solid success in Macau from the new casinos was basically transplanted to Singapore. The feel good factor from Macau spurred many high net worth Asians to gravitate to the new high end projects. Owing to the sustaininable pricing of the new high end, the existing properties in prime areas looked cheap. En bloc sale then took off as the new pricing was used as a benchmark. In 2006 alone some S$8 billion worth of en bloc sale was transacted. In just the first 5 months this year a similar amount was achieved already. En bloc sale usually prices a premium of 30%-50% minimum to actual market prices. Some have gone higher still. These en bloc sales basically minted many new millionaires or near millionaires. Assuming you have a property worth S$500,000 and somebody offered S$800,000. Even the highest geared owner would have reaped at least S$400,000 in fresh equity.
In total over the last 18 months, some S$16 billion of en bloc sale was transacted. Assuming a conservative figure of 40%, the new fresh equity available to those who sold would come to S$6.4 billion. If you borrow 50% on that it comes to a nice S$10 billion of potential fresh buying in property. This article is not to examine whether the high end boom is fair or sustainable, but a side note: how many will actually live in those super condos worth S$2.0m and higher? There is a market for those willing to pay S$6,000-12,000 a month in rent but the supply side is going to be a lot bigger than a couple of years ago.

Those en bloc sellers basically provided even more new buying power. Thus the demand was self-fulfilling to a large extent. The same owners of S$500,000-S$1,000,000 condos now are buying the spankingly new S$1.5-3.0m condos on offer. That's basically why the present boom in property did not filter down to the masses. If you were lucky enough to be in an en bloc sale, its better than striking the first prize in 4D unless you are the rare type to buy S$200-300 per number. Now there is a new divide in the country, either you have "en bloc experience" or you did not. Taking out the 80% in HDB, probably less than 2% were involved in en bloc sales. The really really rich (net worth more than S$10m), let's put that at 0.5%: now you have this group making 3% of the population among the new class. The IRs was supposed to drive the economy further ahead and create more opportunities for all. Before the dust has settled, the government now wants to double the population via new imigrants/PRs aggressively. Safe to say, the number of discontent voices among the rest of the 97% of population is deafening if they are allowed to be heard. Top that with a humungous pay hike for the sacred few top politicians - its pouring salt to the wound.

The social fabric is breaking rapidly. The new graduates entering the workforce will need to see their pay reaching S$10,000 a month before they can afford decent housing. What used to be 5 years now looks like 15 years before becoming a reality. As far as I know fresh grads pay is still S$2,000-3,000 p.m. Go into the workforce with this new math equation, you are not filled with much optimism.

To attract the professionally qualified new PRs, they will probably take up most of the "lucrative jobs" being offered by the "new economy" in Singapore - why else would they want to come work in Singapore!? Yes, the overall economy will grow and move up the development curve but an awful lot of "native Singaporeans" will not feel they are part of the economic express train muscling past their neighbourhoods. Increasingly, the super rich walking the streets and driving expensive cars will not look like a 'local Singaporean' of the old. Maybe in the not so distant future, a 'local Singaporean' driving an expensive car will more likely be the driver rather than the owner.

How much can the government do to placate the 97% or even the 80%? Refurbish the HDBs again for free? Give token angpows of S$1,000 every year? Retraining skills for free? More will emigrate to other countries, or work in China (where the perceived opportunities are greater with less rules). Singapore is getting to be a lot like HK, its a tough place to live unless you make good money.
So, what's in store for the average Singaporean in the near future? Spanking casinos you can't afford to go to; 3 Michelin star restaurants you won't be enjoying; super luxury hotels you won't be staying at; mega entertainment extravaganza which you won't be going to; night-time F1 around Orchard Road where tickets will be priced out of your reach; etc. Yes, Singapore is moving forward to being a truly non-egalitarian society.


DanielXX said...

Prices will be controlled. Vibes from above are that mass housing and entry-level condos will be affordable, as indicated in the recent release of state land in the heartland estates for new development. It's going to be a distinct two-tier property market though, as there is not much political will to control froth at the top, where the perception is that foreigners are the main source of demand. Hey, we're trying to create a Monaco of the East down here. Graduates now will have to work their way up Maslow's pyramid; eventually they will reach there before they die.

Salvatore_Dali said...

or die before they reach there

Salvatore_Dali said...

yes, i do think singapore will be the monaco of asia ... to succeed, Singapore will need to drive out at least 50% of the population who can't afford to stay there in the end.

DanielXX said...

Two places: down south in our Southern Islands or the Riau SEZ, or up north in the Iskandar Development Region. Haha just joking.

mickey said...

This grandoise "Monaco of the East" vision was conceived by elite think-tank planners years ago. They can't afford to wait for everyone ("the poor we always have with us"). There most certainly will be a 2-tier market and a 2-tier society. The "Haves & the Have Yachts" will live in super condos in Districts 1,9,10,11,15 & the south of Singapore. The vast majority will live in "heartlands" in the North, NE, NW of our Island. New graduates will visit the "city" to ogle. Normal citizens looking for a better life might do well to consider the Iskandar Development Region. I hope Pak Lah does a good job. We'll need it.


The Leakers - Helmed by the often brilliant Herman Yau Nai Hoi (whom I believe was from Malaysia who became a great success in HK films). 7...