Not Another Piece On The Property Market

I was reading an article reporting on DBS’s outlook on Singapore property and their expectations for prices to fall and for volumes to contract written a fortnight ago when Zico called and told me about his meeting with some old friends from the private banking business.

His friends are adamant that property prices will not correct because they have a load of clients with cash sitting on the side to swoop down on bargains. Zico scoffs at this because his opinion is that if they are holding back now, they will not be buying when it corrects 10-20% or even 30%.

All of us need a roof over our heads. That is 1 roof. Extra roofs are sensibly welcomed as investments as long as it covers the opportunity costs.

Most people I speak to see real estate as a form of forced savings. Leveraged as well. You cannot borrow a million dollars to buy stocks but you can definitely borrow a million to buy a house. So the gains are exponentially higher when prices rise.

Over the years, we have grown complacent to the belief that prices will only rise and real estate research has proliferated as investors grow in sophistication. Anything you have bought 10-20 years ago will definitely be higher today. Even corrections are not to be taken seriously because, ultimately, prices go up. This is the law especially with the global population nearly doubling to over  7 billion in the past 30 years.

The Singapore government is worried these days as affordability issues mount and public dissent protests loudly.  It makes sense even as our GDP per capita has grown 80% in the past decade, the URA Residential Index has rose 115%. Remember this is borrowed money which means that people are borrowing >100% more than they used to even as they earn more.


The bigger worry is that maxing out leverage leaves the borrower little room for failure. And few people can remember the days of loan margin calls which have left some people homeless in the process. For me, I remember 2003 when I knew of some who had to top up their loans and their extreme difficulties then.

But we are not going to talk about the dreary topic of debt today. I am more interested in the psychology behind the majority’s mindset on property investments that have led to this explosive boom we have witnessed and the latest balloting for that new condo in Bishan that has a few of my friends on tenterhooks on their chances.

It is human nature to believe what we see, hear or read and even better, we experience success. That leads to a belief. Beliefs play out and it becomes a norm. That is our market today. Not a single day goes by without the mention of real estate in the media or in conversations. The reasons are solid – rising wages, rising population, land scarcity etc.

Zico is right, by the way. The human psyche behind those cash hoards on the side and not buying real estate at this moment will be same as psyche that remains on the side when prices fall.

We have not seen a crash and prolonged downturn in a long time for the 2008 crash only lasted less than a year before a whirlwind rebound. A proper crash like the 1995-1998 one is scant in our memories. What do you think the headlines and conversations were like then ?

Some examples.

Bloomberg 1 Oct 1998
Number of Singapore Public Housing Owners in Arrears Soars

Asiaone 21 Sep 1998
Singapore Developers Delay Launch of 5,000 Residential Units
“Singapore, Sept. 21 (Bloomberg) — Singapore property developers are delaying the construction of about 5,000 residential housing units and renting out or canceling
development of another 1,000 units amid a glut in the island state’s property market, the Singapore Straits Times reported.”

Bloomberg 8 Sep 1998
Returns on Singapore Prime Offices Among Lowest in Asia

We can see that times were not as rosy then with property prices down an average of 45% in 3 years.

45% is a lot of loan to top up if you ask me.

A good friend of mine who has bought in London asked me this week if I would invest in Iskandar ? My answer was no. I thought of Zico and my personal psyche. My main problem is that I bought my place too cheaply in 2004, much lower than what the former owner paid for it in 1992. Since then, I have been plagued by a grave reluctance to invest.

I have had portensions of a market correction for some months now. That is a short span of time if we consider that it took an average of 4-6 months to sell an apartment and over a year to sell a landed property in the old days and not the mere weeks that it takes these days.

News out of Hong Kong also points to a slowing of sales despite prices holding up. In Singapore, 3Q property sales rise to a record according to DTZ data, mostly due to investors from China, Japan and Southeast Asia. The new MAS TDSR (total debt servicing ratio) does not apply to foreign buyers, I suppose.

Singaporeans, on the other hand, are choosing to buy offshore to escape the TDSR limits because taking loans outside the country spares them from the new ruling.

My advice is to wait a couple of months for the market psyche to turn. The slow down story has just taken root and needs time to set in even as Li Ka Shing is picking up his heels. We shall see soon enough.


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