Feb 02, 2023 | By Alexander K. Shlaen
At the beginning of a new year, we want to know where to put our money and what to expect from the markets. Let me lay out some of my expectations and observations as we hop into the Year of the Rabbit.
Last year was a tough year for investors, unless you were invested in the Singapore property market, which is still going strong into 2023. But I will return to discussing property later in this article.
In 2022, there was a lot of trough across the financial and property markets all over the world. There were very few bright spots. But that you know already. Now, let’s try to look into the future and predict where is a good place to park your dough this hopping year of the bunny.
According to Professor Roubini of Stern Business School of New York University (NYU), investors must find stable assets that will hedge them against inflation, geopolitical risks and other market disruptors. Such assets include short-term government bonds and inflation-indexed bonds, gold and other precious metals, and real estate that is resilient to environmental damage.
Indeed, yet again, property investment is not just done for the more obvious advantages, such as rental returns and appreciation, but in this new world of relatively high inflation, the property, which is bought in the right places, is a good hedge against inflation.
As an investor, I am always looking for investment targets that will grow in popularity and will attract more investors, making these investments more valuable.
I present to you the following data:
According to Bank of America’s annual Study of Wealthy Americans released recently, which included interviews with over 1,000 Americans aged 21 and older with investable assets of over US$3 million. The interviews were conducted in May and June of 2022.
- 75 per cent of rich millennials do not think the stock market can generate the returns they are looking for
- The report found that 75 per cent of those surveyed aged 21 to 42 felt it was “not possible to achieve above-average returns solely on traditional stocks and bonds.”
- Only 32 per cent of older investors agreed with that statement
- Younger investors are flocking to cryptocurrency, private equity, real estate, and even art
The wealthy millennials surveyed said they allocate 25 per cent of their portfolios to stocks, compared to 55 per cent of older investors. And they dedicate over three times as much of their portfolios, 16 per cent versus 5 per cent, to alternative investments like private equity, commodities, real estate, and even art. Cryptocurrency is popular among these millennials as well, accounting for 15 per cent of their portfolios compared to only 2 per cent for older investors.
My takeaway is that eventually, the overall share of investments of this age group will grow as older investors cash out or exit active investing.
For millennials, one of their favourite investment targets is property, and hence I find it fascinating. One would think that young investors would not care much about the most traditional type of investment, but that turns out to be the opposite. The younger investors prioritise property and alternative investments over stocks and bonds. Therefore I see the future of property investing to continue growing or at least staying on solid ground, pun intended.
As always in my articles, I will discuss property and luxury investing.
So, what is the property market holding for us this year?
According to 100 or so housing market analysts polled by Reuters, housing prices in most major property markets will fall in 2023, but they predicted double-digit peak-to-trough declines will not come close to making property affordable. The reason is that residential property prices in the US, Britain, Canada, Germany, Australia, and New Zealand rose between 25 per cent and more than 50 per cent since the outbreak of the pandemic in early 2020.
Lion City’s property is now a well-established darling of investors. Whoever read and followed my advice on the pages of this magazine for the last several years should be in a pretty position. The prices went up around 11 per cent in the last year and about the same in 2021.
Singapore’s private rentals surged by 30 per cent in 2022. It is the highest annual increase since 2007, when the rental prices shot up over 41 per cent. The rental prices are expected to rise at a slower rate of around 15 per cent next year, about half the previous year’s rate, due to an increase in supply.
As any investor knows, if the rental returns go up so does the property value. Conservatively speaking, I can see the increase in value reaching 4 per cent to 6 per cent during 2023.
The price increase might be steeper for new luxury properties.
We are seeing a wave of high-net-worth and ultra-high net worth mainland Chinese citizens who were impacted by the prolonged Covid-19 closures in mainland China and in Hong Kong relocating to Singapore. While we still do not have the figures, I am predicting a significant number of wealthy and ultra-rich Chinese citizens to move their money, families, and residence and further boost the demand and thus the prices for higher-end properties.
Add to this the tremendous increase in number of family offices being established or moved to Singapore, and you can see a clear trend of the rising demand for high-end property. With these offices comes an inflow of wealth, as the owners and the family members of these offices move to Singapore.
The resale condo prices were up around 10 per cent for 2022. The gap between new and resale property is way too big in my opinion and there is a great opportunity in the secondary market.
The data I see for the outlying districts shows for example, the median price of a newly launched condo unit was over S$2,000 per sq ft (psf), which is significantly higher than the price of the resale condo of around S$1,300.
For the savvy investors, I recommend looking at resale luxury condos in the prime locations of Singapore, which are very undervalued.
Credit Researchers of Goldman Sachs predict the US property market to drop. Prime locations like San Francisco are expected to fall some 13 per cent. Basically they expect all the major cities to drop, except for Miami. With nationwide prices expected to drop around 10 per cent.
Here is a good place to highlight and explain an unusual and interesting trend in the current recession.
This recession might be hitting the higher paid workers, especially the ones in the high-tech sector and mostly skipping the lower-end and blue-collar workers.
Recent layoffs clearly show this trend. According to the US Securities filings, the median worker at Facebook made around US$296,000 in 2021. The median worker at Twitter made US$233,000. Most of the latest layoffs at those places and other tech giants such as Microsoft and Google have largely been aimed at white-collar workers.
So the high paid workers in high-tech are fired en masse and that explains why properties in places such as San Francisco and other prime locations in the Silicon Valley, as well in London and to some extent in Tel Aviv will suffer or will falter, at least in the short term.
Hong Kong mortgage applications from mainland Chinese buyers rose to a record high in the fourth quarter of 2022.
Mainland buyers with Hong Kong residency represented 11.4 per cent of the mortgage applications that mReferral Mortgage Brokerage Services handled, the highest proportion since the firm started tracking the data in 2018.
Immigration interest from mainland Chinese citizens has spiked following the country’s stringent lockdowns and concerns of a subsequent economic slowdown. Hong Kong stands as one of the top relocation destinations, especially after the city’s government introduced a programme to attract foreign talent to reverse a brain drain following political upheavals and social unrest. Though some of the newcomers to Singapore are these mainland Chinese, who got disillusioned with Hong Kong’s epidemic strict policies.
Hong Kong’s government’s effort to attract more talent from the mainland and the rest of the world may also help elevate the city’s rental market. Residential rentals could rebound about 5 per cent in 2023 as more people relocate to Hong Kong, according to Bloomberg Intelligence.
Resale home values declined about 16 per cent last year, with combined new and secondary home sales slumping to the lowest level since at least 1996, according to data tracked by Centaline Property Agency. The border between the mainland and Hong Kong started to gradually reopen starting from 8 January after being effectively sealed since early 2020 as both governments pursued a Covid Zero policy by shutting themselves from the rest of the world for much of the pandemic.
The view of Bloomberg Intelligence is that sales of new residential projects in the city could jump 50 per cent to S$30 billion in 2023, from a nine-year low in 2022.
Around 135,400 pre-owned flats were up for sale at the end of October in Shanghai, an increase of 7.8 per cent from a month earlier, according to Fangdi.com.cn, the official website of the local housing administration bureau.
There is an exodus of sorts of middle class people from the country. Many are heading to European countries like Portugal or North America, where they benefit from citizenship schemes.
The downward spiral is set to continue in Shanghai’s home market as a growing number of wealthy owners plan to sell their properties and leave the country.
As I mentioned earlier, many rich families will be moving to Singapore and to some extent to Hong Kong as well.
Some research analysts are getting bullish on the price recovery here.
A report by Savills is expecting the prices to go up by 24 per cent by 2026, which would see prime central London prices return to their 2014 peak. In 2022 alone, values rose by around 8 per cent.
The prices in London fell 20 per cent, since 2014 in the capital’s most prestigious postcodes, and now the recovery is timely, said the report.
The signs are already pointing toward the city’s anticipated rebound, particularly at the very top end, and it is spreading also to the smaller properties.
In October 2022, London saw the most deals on homes priced at £10 million (US$13.5 million) or more since July 2013. The number of deals on homes priced at £5 million or more, meanwhile, outpaced any other October since 2014.
Belgravia and Mayfair had most of the deals recorded, which shows that the luxury market is leading the way to recovery in the capital.
Customisation is the Pinnacle of Luxury
And staying in the luxury of the Great Britain, it would be interesting to look into some of the grandest brands that the Kingdom got to offer.
British luxury carmaker Bentley reported record vehicle sales for 2022, with strong sales offsetting a 9 per cent drop in China caused by the lengthy pandemic lockdowns.
They had an increase of 4 per cent from 2021, which was itself a banner year for Bentley.
“In what was another year of unpredictability, the business overcame significant headwinds and demonstrated great resilience to deliver the third consecutive record sales year,” Bentley CEO Adrian Hallmark said in a statement.
Bentley has increasingly focused on customisation and that helped them to average pre-tax sales price by nearly 30 per cent to €220,000 a car in 2022 from €170,000 in 2018.
It doesn’t surprise me that the uber-luxury car maker Rolls-Royce sold a record number of cars in 2022 as demand for its US$500,000 vehicles remained strong, despite the recession and geopolitical situation in the world. They didn’t see any slowdown or downturn, according to their CEO.
Rolls-Royce delivered 6,021 cars last year, up 8 per cent over 2021 and the first time the company crossed the 6,000 mark.
The company said the average price of a Rolls-Royce soared to US$534,000 last year — guess what, thanks to its customisation program known as “Bespoke”, which includes everything from silk embroidered headliners to personalised champagne chest.
I believe we will see more and more of this trend expanding into greater demand for big ticket luxury items.
Alexander Karolik Shlaen, Executive MBA, is the founder of the Singapore-based Panache Management Pte Ltd which represents Aston Martin Interiors, Tonino Lamborghini Casa and Formitalia design lines in Asia. Panache Management is involved in real estate and technology investment projects and provides luxury interiors and designs for exclusive real estate, private jets and superyachts. Shlaen has appeared in various regional and global media and has written the Luxury Expert columns of regional business magazines since 2009. He was also the chairman of the judges’ panel for Asia Property Awards and is frequently sought to attend established business forums. Learn more on PanacheManage.com
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