Volatility in the stock market will send investors scurrying for alternatives
The stock markets have been volatile in the opening weeks of 2016. A second crash in China’s stock market caused the Straits Times Index to fall 4.6 per cent in the first week of trading. The main causes of the crash are a retail investor driven market, China’s poor economic data, and heavy-handed interventionist policies (during the previous crash in 2015, the rush was stopped by authorities barring major shareholders from selling). There is no immediate reprieve in sight – demand for Chinese goods remain stubbornly sluggish, with their PMI falling below 50 (indicating contraction in their manufacturing sector) this year. This may send investors scurrying out of the equities market and into alternatives. While some may turn to the traditional safe havens like gold, others may eye the property sector, in which prices have declined for eight straight quarters.
The Federal rate hike has not been as bad as most people suspected
The Federal rate hike was a gradual 0.25 per cent increase, which saw small and manageable rises in the Singapore Interbank Offered Rate (SIBOR). The much-prophesied doom-and-gloom scenarios in which thousands of homeowners would find their mortgages unaffordable, never came to pass. There is no denying that interest rates will continue to rise – the US economy has mostly recovered, and the Fed will not risk runaway inflation by keeping interest rates low for too long. As is, the rates have been at historical lows since the Global Financial Crisis in 2008. This means mortgages will be more expensive in the coming years. But because interest rates have proven to be more than manageable, a lot of the scare has been taken out of the rate hikes. Investors in 2016 may latch on to the fact that, even with higher property loan rates, rental income and capital appreciation in land-scarce Singapore more than makeup for it.
The Downtown Line 2 (DTL2) progresses and it looks promising for the Bukit Timah area
DTL 2 opened in December of 2015, way ahead of schedule. This consists of 12 new stations:
- Bukit Panjang
- Beauty World
- King Albert Park
- Sixth Avenue
- Tan Kah Kee
- Botanic Gardens
- Little India
This goes from the heart of Bukit Panjang through the school district in Bukit Timah. Property in places such as Sixth Avenue have often been considered to have accessibility issues – if you don’t drive, it can be inconvenient and slow to use the bus. With this problem now out of the way, properties in the area might see a boost in value. The currently moribund property market could mean some good deals lurk in the area. Hopefully, that will attract some investors or profit-minded homebuyers.
The lifting or tweaking of cooling measures just might happen this year
This is pure speculation, but many analysts believe the government will modify or lift existing cooling measures this year. BNP Paribas predicts a seven to 10 per cent price drop in the next two years, and prices have already fallen for nine straight quarters. Beyond the possibility of lifted measures, property investors still have something to cheer about here. The signs suggest that cooling measures are the only thing holding property prices down, and those low prices are artificial. Fundamental demand for Singapore property remains strong.
People formerly priced out of the market may now find housing affordable
If you couldn’t afford a condominium back in 2012 – and I suspect Colombian drug dealers couldn’t afford a condominium here in 2012 – this is all fantastic news for you. The prices are low and still falling; the only thing you need to guess is how low they’ll go (you’ll want to buy when they bottom out). This is, of course, what the cooling measures were intended to do in the first place: make homes more affordable to Singaporeans. Current property investors don’t have to fret if they take the long-term view as well. Once prices are low enough, the buyers will come back – because again, fundamental demand remains strong (see point 4.) It’s not impossible for that to start happening in late 2016, as prices are already looking attractive to upgraders.
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