THE CHINESE WORDS ‘危机’

The Chinese words ‘危机’ (Wēi-Jī) means ‘dangerous situation’. But zoom in on the second word ‘’ (Jī) – it essentially means ‘opportunity’.

These are the 2 most meaningful words for me, of all the Chinese words I’ve learned. I love how this re-emphasizes the understanding of the ancient Chinese that opportunities exist in every crisis.

And indeed, we are in crisis, with COVID-19, recession, regulations unfolding day by day, week by week. The market is in a lot of uncertainty.

But where are the opportunities?

In the last edition, we have gone through the possible scenarios that will occur in all segments of real estate in Singapore – from Office and Industrial, to Retail and Residential.

Some of what we’ve anticipated has already happened, with Facebook, Amazon, Microsoft,
Twitter and Google, the largest leading technology companies saying they’re going to implement work from home until 2021 or indefinitely. We also shared how to start preparing for future market opportunities.

Figure 1: Landed vs Non-Landed vs HDB Property Trends from 1996 to 2019

In this edition, I would like to share more about the past trends in the residential market, namely how real estate has behaved in the past crises, and how it is likely to perform in the next 6 to 12 months.

REAL ESTATE TRENDS

In the last edition, we established that residential property is still needed as a roof over our heads.

Whether it is for future generations or for potential tenants working in Singapore’s COVID-proof industries, a home is essential. In the last Asian Financial Crisis, from 1997 to 1998, we can see that the real estate market went down by 37% for a period of 15 months, and in 1999, it rebounded (Figure 1).

Currently, while volume is down, the prices have not changed much, only because there are no physical viewings. How will each type of property perform? We categorize them as such:

Source: 99.co

HDB

The latest news was that a 40-year-old jumbo HDB was sold at a record price of $1x million in Ang Mo Kio. The floor size was 1900sqf, which is phenomonal for a HDB.

Did that buyer make a mistake? If he has a multi-generational family living in a HDB flat (with dual-key layout) catering to himself, his children and grandchildren, then his children are still free to purchase private properties.

Alternatively, the owner can stay in either part of the house and rent out the other rooms. (More about Jumbo Flats can be read in my article titled: Little Known Facts About Jumbo Flats. It explains how you can capitalize on a jumbo flat property, since it’s an entirely different subject).

Personally, I didn’t think his decision was a bad one, because he wasn’t going to be able to get such a great size if he had looked at condominium instead. What’s more, HDB flats tend to hold their prices well (i.e. lesser fluctuations) during crises based on market trends (Figure 1).

This is because HDB is still one of the lowest quantum purchases on the market with psf starting from $300. When there is uncertainty about business income, wages and jobs, people will look at right sizing or downsizing.

So while prices do not depreciate significantly, they will not appreciate either because of the market conditions.

What to expect in the next 12 months?

Prices will likely dampen for smaller properties. But prices are likely to hold well for bigger homes, especially Jumbo, Executives and 5 rooms.

What should I do?

HDB is like a blue chip stock of good dividends (rentals), which you can keep holding for a long time. For owners, if you have a steady income for the next 12 months and you’re looking to move into an asset class with a more exciting appreciation, you can look at the private sector.

Figure 2: Non-Landed Properties Trends from 1996 to 2019

Source: URA, TPR

PRIVATE APARTMENT/CONDOMINIUM

During the SARS situation, we can see that the market flattened out. However, during the Asian Financial Crisis (1997-1998), there was a significant dip.

Take note that this is for the entire market, meaning that some areas, the dips are larger than others, dragging everyone down. And some blue chip areas, i.e. Orchard, River Valley, Holland, Tanglin are likely to hold their prices.

Rebound was also really fast — as soon as it hits the bottom, the prices went up in a matter of months.

What to expect in the next 12 months?

When we move on to the phase where physical viewings are allowed, there will be a huge volume of sales and excitement in the market. This is the calm before the storm, the one opportunity for sellers to grab and go.

After the pent-up excitement is over, reality is going to hit.

Businesses that are not COVID-proof and/or recession-proof are likely to begin folding. The owners and their employees will start to feel a drop in revenue, a pressure on their finances as their clients start cutting costs. This is when people are likely to start making decisions about reducing costs by downsizing or letting go of their rental properties.

There are likely to be some good buys on the market at any point in time and that would be the perfect chance for buyers.

What should I do?

For sellers, to catch the calm before the storm, which could range from a matter of weeks to a few months at best, you would need to make a decision on your current property.

For buyers or investors, take note that to catch a real fire sale, the fastest mover with the cheque wins.

We understand that you may be too busy navigating your business, your people and your family through the crazy times; but you don’t want to miss out on any great undervalued opportunities. Hence, The Property Runway has set up an Undervalued Property Team focused on securing the best deals swiftly.

As we do not wish to spam you unnecessarily, register here and we’ll keep you updated on any property that suits your ideal location, price range and outcome.

LANDED

Since 2008, Landed has reached an unconventional high price surge.

With only 67,900 landed properties available in Singapore, landed properties are in a class of their own.

Unlike private apartments or condos, landed properties can be completely demolished and rebuilt. Therefore, the high price trend is achieved mainly due to a lot of redevelopment done on dilapidated properties (whose owners have moved on one way or another in life.)

For example, an old landed property of 4000sqf land size in Serangoon Gardens would fetch $3.8 million, but a gorgeously brand-new landed property on a similar land size would easily go for $5.5 million. The difference is of course the time cost, efforts and renovation costs.

What to expect in the next 12 months?

Landed Properties that will do well in the next 6 months are likely to be nicely renovated, as buyers do not need to worry about construction being delayed repeatedly due to the changing COVID phases. There is currently a demand for larger properties for multi-generational families wishing to live together.

What should I do?

For sellers of properties that will require an overhaul, the market will generally take 2++ years to recover to prevailing prices, so swift action is required.

For sellers or developers of nicely renovated houses, your properties will compete directly with those large penthouses or patio units of freehold private apartments or condominiums, so you need an attractive price to get the right buyer in.

Figure 3: Landed Properties Trend from 1996 to 2019
Source: URA, TPR

I hope it’s been a good read for all of you. Please send your questions, and I will address them to you directly, through our blog, YouTube, or through our newsletter next month.

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In the meantime, stay healthy, stay safe and stay intelligent!

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