Home prices in Southeast Asia’s financial center have plummeted since the beginning of 2015. Analysts are now worried the Singapore property bubble could burst soon.

Singapore’s residential property market has underperformed since February of 2015. Home sales fell by a whopping 48% compared to 2014. Meanwhile, prices fell by 4% in 2014. This was while home values in neighboring ASEAN countries boomed.

Christine Li, Director of Cushman & Wakefield’s Singapore branch, expects poor performance in the future. “I think the decline will continue as long as cooling measures are in place.”

“I expect the full year decline for the high-end market to be in the range of 5% to 8%, as most owners still have deep pockets who are able to hold it out,” she explained.

 

Foreign Investment Regulations Under Fire

The government of Singapore has tried to cool its property market and avoid a bubble since 2009. Its measures have mostly targeted foreigners. They include higher taxes, borrowing limits, and restrictions on the number of properties which they can own.

Initial efforts did not push away foreign buyers though. Many have deep pockets, are from countries like India and China, and aren’t letting higher taxes deter them. They see Singapore as a safe place to store their wealth.

The implementation of the Additional Buyer’s Stamp Duty (ABSD) in late 2011 imposed an additional 10% tax on foreigners buying property. This tax increased to 15% in 2013 which led to reduced transaction volume.

Since then, prices have suffered a massive fall. Real estate developers believe the measures to avoid a property bubble have gone too far, destroying Singapore’s luxury property market.

The Real Estate Developers’ Association of Singapore asked the government to ease regulations and stop prices in the luxury property market from decreasing further.

“Not many Singaporeans are buying into this segment. Prices have indeed come down substantially,” explained Augustine Tan, the association’s president.

“The imposition of ABSD on this segment runs counter to the government’s efforts to encourage foreign investment flows into the country, to activate the economy, grow investments and create jobs for Singaporeans.” Tan elaborated.

 

Developers Are Bearish Due to Singapore Property Bubble

City Developments, one of the largest property developers in Singapore, believes the housing market could face foreclosures and fire sales. This will happen as rental demand plummets, making homeowners unable to pay off their mortgages.

“Average residential rents across all market segments, particularly the high-end, are on the decline. This is coupled with a weak secondary market,” warned the chairman of City Developments, Kwek Leng Beng.

“If this trend continues, with prices dipping more, some mortgage borrowers affected by lower rentals may have difficulty servicing their loans, possibly leading to forced fire sales,” said Kwek.

Singapore clearly has a difficult time ahead of it. Eyes are on the ruling People’s Action Party (PAP) to achieve a balance of keeping the city state’s property market robust, yet sustainable at the same time.

With all of that said, Singapore’s commercial real estate sector has higher yields and more potential than residential properties. Smaller investors obviously can’t buy large malls in Singapore, but they can own shares in companies which do.

EDITOR’S UPDATE FOR 2017: Singapore’s residential market faced two straight years of decline since this article was written. For the right type of investor, lower prices mean buying real estate in Singapore might now be worth considering.

About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He’s an accomplished stock trader and property investor in Thailand, Cambodia, and many other places. He’s been featured in publications such as Forbes, Nomad Capitalist, Property Report, and Seeking Alpha. Download his free investment guide by clicking here.

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