Is 2007 a Good Year to Enter the Investment Property Market in Singapore?

The residential and commercial property markets in Singapore saw records levels of investment activity last year from a combination of private investors, REITs and also commercial investment interest.  Rental rates for prime commercial space expanded significantly, prices for luxury, high and medium end residential stock climbed impressively, land prices powered ahead and many investors made healthy gains in Singapore’s property markets last year.

But what about the current situation in Singapore – after all hindsight is a wonderful thing but it doesn’t necessarily help those who want to invest today - so, is 2007 a good year to enter the investment property market in Singapore?  Let’s take a look…

It’s fair to say that the residential and commercial property markets in Singapore are in a very positive position in terms of demand and potential price growth at the moment. 

From an investor’s perspective both the commercial and residential property markets will likely remain strong for at least the next 24 months with the possibility that they will expand for the next 34 months taking us to January 2010. 

A strong factor driving the positive market atmosphere right now is the fact that Singapore has an active employment marketplace attracting increasing numbers of professionals to the Republic annually.  This creates increasing demand for both residential and commercial property stock and at the moment demand is outpacing supply. 

This situation is predicted to remain the case for at least the next two full years meaning landlords are best positioned to be profiting from property at the moment. 

The Office Sector – there is room for strong rental price expansion for the medium term in the office sector in Singapore because supply is just so restricted – this means that this is an area of the real estate economy that is likely to be very active indeed among investors in 2007. 

Grade A and office space in the CBD is most in demand, but investors need to be mindful that restrictive rental rate increases by greedy landlords could have a longer term negative impact on the competitiveness of Singapore as a whole which could be bad for the property investment climate overall. 

Fortunately the Singaporean government seems aware of this issue and has taken measures to alleviate the demand stress by releasing more land for sale for the construction of general commercial space to consolidating their occupancy of prime space - but this is one issue that could slow down this sector and be unhealthy for the longer term sustainability of a healthy property economy full stop…if not, then it is an excellent sector to explore for the next few years at least.

The Residential Property Sector – medium and luxury end housing should represent decent capital appreciation prospects for investors until more supply hits the market.  Look to enter the market as soon as possible in 2007 if you want to enjoy the longest period of price expansion, and buy in the best location possible for your budget if you want to maintain decent rental income for the long term.

As has been proven in the past in Singapore, real estate is not a sure bet - and as a result there is only so much direct, private speculative investment commitment in Singapore right now (as opposed to REIT or commercial investment interest).  This is actually good for the market because where individual speculators are making up the majority of investors you can expect a property market crash to follow at the first sign of a slow down. 

So at the moment Singapore makes an interesting market for further examination for investors who prefer not to follow simple trends.  But in terms of how long Singapore will remain attractive - well investors should remember that the Republic has a significant shortfall in terms of the supply of office and residential real estate at the moment and this is the most critical factor to keep in mind when looking at whether the market is still a good place to enter in the coming months.  The fact of the matter is, until at least 2010 this situation will remain so - and even in the face of a predicted economic slowdown in Singapore this year which will be triggered by US economic deceleration, the construction industry is predicted to power ahead to meet strong demand for property stock.

Singapore’s first Integrated Resorts (IR) of Marina Bay Sands and Resorts World Sentosa are also having a very positive impact on the property market indeed and this effect is expected to last for the medium term. 

In terms of what to buy – well investors might like to consider new release mass-market residential projects coming to the market in 2007 which are close to significant location advantages such as Mass Rapid Transport (MRT) stations and which will let out easily, be in demand constantly and therefore be the most likely real estate related assets to return profit for the long term.

General Points to Bear in Mind

Singapore is an expensive market to enter for private investors looking to directly invest in property stock and alternative investment approaches such as using REITs might be an angle worth looking into. 

The Singaporean economy could be adversely affected in the short term by a deceleration in the US economy, a drop in export demand and/or an increase in oil prices – this could have a negative effect on both demand for real estate and overall affordability of property in Singapore.

Having said that, the economic climate in Singapore right now is excellent and there is expansion in terms of job creation and wages being paid out.  Demand for property stock is high, supply is restricted and currently affordability is balanced – this makes a very healthy market situation for investors to examine. 

In addition to this the completion of the Integrated Resorts is likely to push up tourism traffic in Singapore and lead to an increase in GDP and also an increase in overall awareness of all that Singapore has to offer – this could increase demand for property in Singapore to buy and also property to rent out short term and create an even more pleasing environment conducive for property investment success.

Special Reports: Property News for Singapore

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