Simmering Inflation Fears – Are You Prepared For It

February 13, 2022

Singapore experienced one of its first historically high inflation when prices across the board rose 4.0 per cent year-over-year (YoY) in January 2022, with the core-consumer price index (CPI), which excludes food and energy price components rising to 2.1 per cent YoY.  The 2022 forecasted CPI-ex food and energy figure was last forecasted at 1.0 – 2.0 percent, whereas the headline CPI inflation number is expected to rise by 2.5 – 3.5 per cent from the earlier projections of 1.5 – 2.5 per cent.

Looking into the details of the CPI components for January 2022, it is noteworthy that Housing & Utilities, typically your home rentals, and electricity bills rose 3.4 per cent on a YoY basis, while on a month-on-month (MoM) basis, it rose 0.4 per cent.

With all these figures, along with an expected rise in the cost of living, expected GST hikes, plus talk of ‘Wealth’ taxes in the form of changes to the buyer’s stamp duties, and property taxes, are you, as a property seeker, or home owners, feeling the existing heat that is boiling, and will or ‘explode’ any moment, for the lack of a better word?

What are you going to do next? Or, if you are looking for your next property purchase in 2022, what should you be asking, and how do you cope with rising costs, including the various news headlines talking about rising HDB, and private property prices?

Should you worry about inflation in the first place

Before you start, ask yourself first? Are you worst off or feeling slightly better when comparing to your parents’ or peers’ eras?

Next, what is your financial situation right now? Does your family still have a roof over yours and theirs’ heads?

In a latest United Overseas Bank (UOB) report prepared by the bank’s economics team, it noted that household net worth and liabilities are expected to rise to S$2.32 trillion and S$0.35 trillion respectively.

Source: UOB

This diagram shown above suggests that households, in general, are now less leveraged, and with housing prices rising across the board, be it HDB or private properties, the real asset class that sustains our comfort and safety, continue to be provide us with sustainable wealth protection.

Moreover, just talking about generally, and by theory, real estate, being an immovable real asset class, and illiquid, allows one to accumulate wealth over time, if we know how to maximise its usage, and balance out the leverage being used for the financing of properties, and ff you have a proper grasp of it, inflation fears shouldn’t be one of the concerning issues for you.

Is it possible to avoid inflation altogether

If you talking about 2022, answering this question is guesswork at this moment as we are unsure about the pace of interest rate hikes led by the US Federal Reserve (US Fed) will pan out. Some says seven hikes, meaning each meeting over the course of 2022, there will be a hike announcement after each meeting, or US Fed chairman designate, Jerome Powell, will just be keeping the markets guessing on his next moves.

While, we are not economics forecasters, or fortune tellers, we should, by now, come to some senses that let us not chase for the next property purchases, a new launch, go for the next upgrade, or simply join in the housing frenzy despite risking one’s credit profile. Inflation concerns are generally inevitable considering we have seen considerable rises of the global stock markets led by the United States, and there are always bound to have overexuberance

We should first calculate our sums correctly before even thinking about the next upgrade. We must act more prudently, calculate, ask questions, seek advices for real estate professionals, mortgage bankers, or friends in this real estate line. We need to have a plan because without a property calculated, and fully thought-out plan, if we buy when prices are at its peak, it is challenging to recover if a recession were to unfortunately befell on us, leaving us with no defences, or worst, turning to bankruptcies.

Please don’t do this. Go in with a properly well-thought-out plan with a fully-licensed professional real estate salesperson, and mortgage bankers first before making the next property purchase.

Nothing wrong to downsize

While we kept hearing other people taking about upsizing or upgrading, we hardly hear anybody, including our friends, colleagues, or family members talking about, “I want to downgrade my next property purchase.”

You might ask your peers why they want to upgrade. Well! Based on our on-the-ground observations through the various encounters with different groups of client profiles, we noted one common reason, it is for the kids or for the sake of being near my place of work, schools (usually top-named schools which most of you are familiar with). I do not know why psychologically, we are wired somehow to perceive that upgrading into the next bigger home or the next private property purchase, is something to be proud about. Yes! It should be, but for other reasons, please do not have this impression that downgrading is a taboo thing to do.

There are often unique reasons why you will choose to downgrade. Perhaps, you are young, and unmarried, but you do not need such a big place similar to your parents.

Or you are a family person, but due to some unexpected unemployment, or being laid off, which are sometimes unavoidable, you still need to support your family without taking in more leverage, then downsizing should instead be seen as needed to minimise the stress of paying the bills, while searching for the next job.

Rent a HDB flat if you need to

If you are a Singaporean or foreigner looking for a roof over your heads, be it your first home, or are waiting to move into a new home that is still undergoing construction, and probably to be completed in a couple of years, renting a place to stay could be seen as putting less drag on your finances.

Why do we say so. Well! In the latest December 2021 SRX, and Condo and HDB Rental Property Market report, overall HDB rents, in particular, was quoted to have risen by 10.4 per cent YoY as compared to December 2020, while private condominium prices rose 10.3 per cent YoY, and HDB resale prices rising 12.9 per cent YoY during the same December 2021 months.

You might be asking, then shouldn’t we go for private condominiums if we were to make an outright purchase, rather than renting a HDB flat which might be seen as temporary, and you do not really see the benefits of property ownership.

Well! First of all, let us be educated on the HDB rental rules first. Well! Not all foreigners are eligible to rent an entire HDB flat. As you might know, our HDB flats are highly exclusive to only Singapore citizens and foreigners typically need to be permanent residents (PR) for at least 3 consecutive years of obtaining their PR status before being allowed to purchase a HDB flat.

Moreover, to rent an entire HDB flat for a foreigner, you generally need to be a Malaysian, possess a work pass, and works in the construction, marine and shipyard, and processes (CMP for short) industry categories before even allowed to rent. If not, as a foreigner, you may only rent a HDB room.

So, you are a Singaporean, be it single, divorced, a couple, or married with kids, but are in a so-called limbo mode, meaning, you or/and your other significant one unfortunately just lost your respective jobs. Or, if you are in the midst of moving into a newly bought home, but is undergoing construction, but do not want to take on any unnecessary financial burdens, renting a HDB flat, could be viewed as a financially viable option at least for now.

Inflation is here to stay, but what makes financial sense

Well! Inflation is here, and with all the points we have listed out, there are ways for you to hedge against the price hikes. Most importantly, work out your financial calculations correctly, initiate or seek a financial discussion with a professional real estate salesperson, and/or financial advisers to come up with a viable financial plan.

It is highly stressed upon that a financial plan is needed to manage potentially runaway property prices despite the latest December 16, 2021 property cooling measures. The government has also increased the amount of land supply under the latest 1H2022 Government Land Sales (GLS) programme.

With the government stepping in, along with the GST vouchers, utilities rebates for HDB households, and increased land supply, it is hoped that despite the impending threats of global inflation impacting our domestic economic, the price pressures could ease on the household front.

So, it is up to us, individuals and households to exercise financial prudence, and not to be overly caught up with the upgrading frenzy happening around us. Treasure our loved ones, and be thankful that at least, Singaporeans, in particular, are generally considered well-off, and generally own their homes.

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