Residents in Northeast see $ 396 million Decline in Market Value
According to the Economic Development Board (EDB), Singapore’s aerospace industry has expanded at an average rate of over 10% per year since 1990, and the latest figures show employment of around 19,000 workers.
The development of an aerospace hub in Seletar (District 28) has spurred development of new housing projects and amenities like the Seletar Shopping Mall.
One of the rules that property investors follow is the SRX Urban Planning Rule. This rule states that by reviewing public documents (e.g., URA Master Plan), investors and their advisors can identify areas that are up-and-coming and worthy of consideration for investment in Singapore residential property.
The government promotes its major development projects to the public. For example, during the National Day Rally Speech, Prime Minister Lee Hsien Loong spoke of various developments in the Jurong Lake District, including the expansion of the gardens and a possible terminal for a high-speed train.
This publicity generates demand for properties in the areas that are being developed. Investors bet that developments, like that of the aerospace hub, will increase the value of property in the surrounding areas.
Under normal circumstances, this bet is often a good one. But there are two risks.
First, savvy buyers and investors know the SRX Urban Planning Rule. So, if they have the capital, they move very quickly, bidding up prices for latecomers. If you are late to the party, you can overpay and face difficulty in getting a proper return on your investment.
The second risk is timing. A downturn in the economy, war, government policies, and other external shocks can negatively impact an otherwise sensible investment.
For example, from a statistical standpoint, the Cooling Measures have hit Northeast Singapore particularly hard.
Sengkang and Punggol have the highest percentage of resale flats in the red of all HDB estates. If residents in these estates were to sell at today’s X-Value, about 47-50% would sell at a loss.
Close to 44% of the owners of private flats in District 28 would sell at a loss.
The total loss would be $ 396 million.
This is a cautionary tale for investors.
While an area in the URA Master Plan may seem attractive, no area is immune from a perfect storm.
Homeowners bought with the goal of benefiting from the government’s development of the Seletar aerospace hub. As demand increased, prices increased.
The Cooling Measures then hit before the market could normalize prices. As a result, many people were caught holding overvalued homes as the market turned downward. As prices have come down, an unusually high number of owners have entered into a paper loss.
While this storm shall someday pass, it’s critical to have a financial cushion so you aren’t forced to sell before the market can return to normal.
Source: SRX (05 Mar 2015)