The Weakest Link In Real Estate Markets
This is too interesting not to share with folks so I will try my best.
Had a long lunch with my old insurance friend who runs a pretty big portfolio and he had some fascinating insights for me which I had not really thought too hard about.
You see, sometimes when you are fed on headlines, you do not think about certain consequences and the risks.
His take is that the emphasis on over leveraged households in Singapore is a true threat to the entire market because if this group caves in, market prices will be dragged down forcing the mark to market prices of everyone else in the leveraged category, endangering them too.
You see, for although Singapore’s household assets comprise about 50% property and property loans account for 74% of household liabilities.
The household debt-to-income ratio has risen, from a low of 1.9 times in 2008 during the Lehman crisis to 2.1 times in 2012. In addition, household debt has grown more quickly than household assets since Q2 2011.
MAS estimates that about 5-10% of borrowers have monthly debt-servicing burden greater than 60%. That works out to be about 50,000 households, according to Citibank, which is quite a mean sum if we think about it. If 10% of them find themselves out of work or such, that would be 5,000 units out on the streets.
The population is growing at an estimated 0.5% a year, which would mean about 200-250 thousand people. Assume 4 to a family, that would be 50,000 new families each year or more. It is a fine line but luckily for us, the unemployment rate is at its lowest ever which also begets the risk of higher unemployment if the economy slows down in the future.
Some food for thought.
Scary isn’t it? That 204,000 units will be completed in the next three years.
Some simple math tells us the govt is planning for population to grow by some 600,000 people even if just 3 people to a unit.
Already the number of vacant non-HDB units has grown to 6.1% of the housing stock as of Sep 2013 according to the URA doc, that is 17,000+ units (Annex E-1).
Someone was telling me that the COV for HDB flats has turned negative. That is not a good sign.
Wondering if it means that the seller gives the buyer a refund for the COV ?
meaning sell below valuation 🙁
It has probably happened before but not many people will remember, I guess.
What can go wrong? Complacency.
People generally think nothing can go horribly wrong in Asia, despite continued economic and political issues in USA and Europe.
The consensus trade is long CNH.
Already we have seen how poorly INR, IDR, ZAR, TRY, BRL have traded. I for one do not think their problems are isolated.
UOB just called for CNHSGD to go higher again.
CNH/SGD likely to grind higher as long as key support at 0.2053 is intact, UOB wrote in report yesterday
• NOTE: CNH/SGD closed at 0.2059 yesterday, according to data compiled by Bloomberg
agreed with Gus on flight of cheap dollars out of inflated EM mkts…
on the home front govt prob is probably aware of what u mentioned…solution?
1) “tapering” of HDB (before yellen can even grab the microphone :p)
2) limiting of MSR to 30% for EC buyers & reduction of cancellation fees from 20% to 5% effective this wk onwards…works out to preservation of home equity and reduction of loan quantum weighing on banks who also have their basel 3 agenda to work on
wrt SGD the hot money seems to have less reason to make its way here given that AAA status isnt valued when there is no systemic risk in vogue and the presence of negative real rates is exacerbated by a market where property cooling measures have dampened investor’s herd instincts
Hi Blue Lantern,
I am very bad at valuations but if I put myself in the shoes of an investor outside Singapore, all I see is a small piece of very expensive real estate with a highly educated labour force.
The measures for reining in the demand in Singapore appear quite effective. And banks will continue to be arm twisted to go easy on the mortgages in arrears. Thus banks can only look to go offshore to make money and encourage the wealthy to borrow more because they can afford it.
What say you ?