Property has always been favoured as a significant component of investment portfolios by both institutions and wealthy individuals.
While residential prices and rental rates may continue to fall in the short term and the highs that the property market saw two years ago may not return for a while, long-time market watchers believe that there won’t be “fire-sale” scenario any time soon.
“The Singapore residential property will continue to be a compelling proposition for investors over the long term,” says Ms Carmen Lee, Head, OCBC Investment Research.
“Apart from well-developed infrastructure, such as transport, schools, public services and amenities, and close proximity to many economies within a six-hour flight time, Singapore’s long-term economic viability continues to be robust, the quality of its government and institutions remain sound,” she adds.
This land-scarce country will continue playing a key role as the financial and business hub for South-east Asia for the foreseeable future, she says.
This means that the current decline in prices — caused by a slew of measures by the government to prevent prices from rising too much, too fast — may not last very long.
According to OCBC’s analysis of previous episodes, the authorities generally reversed property cooling measures after prices had fallen between 8 per cent and 17 per cent and with significant macro-economic uncertainties in the backdrop. Such policy reversals appear to be “increasingly possible” as we enter into 2016, Ms Lee says.
“While not all the measures will be lifted at the same time, we expect a review to take place and some of the cooling measures will be removed progressively,” she says.
Investors may want to start looking at property or gain exposure by owning the shares of property developers, such as the bigger Singapore-listed firms that hold a diversified portfolio of residential, commercial, industrial and even hotel and hospital assets.
Ms Lee says that these companies provide both “development profits and investment income” and also reduce the risks of exposure to just a single segment.
Commercial and retail assets, for instance, have been fairly resilient despite the softness seen in the broader property market, and continue to provide a steady stream of rental income.
In addition, most developers have diversified outside Singapore and hold assets in several geographical regions from Australia to Europe, reducing the overexposure to a single country.
Owning property counters is also more affordable than owning real estate, as an investor can buy shares in multiples of 100.
Compared to having to fork out huge lump sum payments and monthly commitments for a residential housing unit, investing in shares is fairly easy as they can be easily bought and sold on the local exchange.
If an investor needs another reason to be convinced of the attractiveness of listed property developers, she suggests looking at the value of their shares.
Most developers are cheap — discount to book of about 0.76 times and revalued net asset value of about 0.54 times.
Ms Lee says: “These levels are just marginally above levels seen during the 2011-2012 European financial crisis.
“As such, investors with a medium to longer-term investment time frame can consider CapitaLand, Wing Tai Holdings and Wheelock Properties. For REITs, we like CapitaLand Mall Trust (CMT), Frasers Centrepoint Trust (FCT) and Keppel DC REIT.”
OCBC’s Premier customers can consolidate their property loans with OCBC for holistic wealth management, says Ms Phang Lah Hwa, Head, Group Consumer Secured Lending, OCBC.
For example, Premier relationship managers can help customers review their existing portfolio of property loans.
They can also help customers unlock equity on existing properties to take advantage of other investment opportunities such as equity investment and business expansion.
How then should investors finance their investments?
The relationship managers can also advise them the different ways of financing property purchases in Singapore as well as key global cities such as London, Sydney and New York.
Premier customers also enjoy preferential pricing on local and overseas property purchases. For properties here in Singapore, OCBC offers mortgages with fixed-rates as well as variable rates.
“In addition, we can customise a board rate package with three-month SIBOR, with flexibility to switch the pricing types. For overseas properties, the bank offers loans in either Singapore dollar or foreign currencies,” says Ms Phang.
However, there is no “perfect time” to refinance one’s mortgage, neither is there a one-size-fits-all solution. Here are a few things to consider:
The first is affordability. The implementation of the Total Debt Servicing Ratio Framework in June 2013 requires a comprehensive assessment of affordability.
This is a valuable exercise to help buyers make an informed decision, taking into consideration their present and future commitments, Ms Phang adds.
Homeowners should only re-finance if there are tangible benefits such as interest savings or an additional facility for investment purposes, she says.
- Secondly, they need to look at penalty charges. Some home loans impose penalty charges if the existing home loan is still within a lock-in period. In this scenario, customers should only refinance their loan if the savings from the reduced commitment is greater than the charges.
- At the end of the day, homeowners need to look beyond pricing.
As a home loan is a long-term commitment, OCBC Bank encourages buyers to speak with their mortgage specialists to discuss the pros and cons of the various packages available to help them make an informed decision.
“We always advise customers to take a holistic view that goes beyond just pricing,” Ms Phang says.
“Customers should consider the overall package, including service and terms of the package.
“It is best to speak to their relationship manager to assess the benefits of refinancing and to understand the requirements.”