The Widow Maker In Real Estate

This post was written a week ago for www.hnworth.com, a site targeting high net worth individuals in Singapore.

Have fun reading…

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I noticed that conversations do not centre around property as much as they used to compared to even as recently as last year, real estate is not the hot topic these days.

Well, my phone number is on some property spam lists and I get about over a dozen SMS-es a week re some real estate deal or other. For instance, this week I received 3 on Cambodia, 2 on Manchester, The Panorama at Upp Thomson, Citygate at Beach Road, Mt Sophia, Tiong Bahru, Ang Mo Kio and a talk on Cambodia.

Flashback to a year ago, given that I have not cleaned up that old phone for a while, there were a lot more SMS-es then. Like the Mega Pioneer Industrial Ramp-Up, Lexicon-Islington, Kallang Riverside Condo, Citygate ?? (again), Bkt Indah Condo (Johor), Cambodia (again), Iskandar Waterfront… wow !

Of course, that was all before the currencies went mad besides all the onshore regulations that started limiting borrowings. Things are not looking too optimistic.

London

“Malaysians who bought units under construction in the Battersea Power Station site from May 2013 have seen costs surge as much as 35 per cent as the pound strengthened against the ringgit. ………………………..

The value of luxury homes in the Battersea and Battersea Park district fell 10 per cent in the 12 months up to June, according to broker Douglas & Gordon. Investor confidence has been undermined by higher sales taxes introduced by Chancellor of the Exchequer George Osborne in December, which climb to as much as 12 per cent of the cost of the most expensive homes.” http://www.straitstimes.com/business/property/foreign-buyers-of-london-luxury-homes-hit-by-currency-squeeze

(we can say the same, to a lesser extent, for the GBPSGD which has risen 7% in the past 12 months)

Singapore

Soured debt at DBS backed by property increased 39.7 percent from last year to S$524 million ($375 million) at the end of June. Non-performing real-estate loans rose to 1 percent of all lending at UOB as of June 30 from 0.8…..

The city had the weakest-performing luxury residential market in the world for the sixth consecutive quarter at the end of June, according to consulting firm Knight Frank LLP.

Office rents posted the first decrease in more than two years and residential prices have fallen for seven quarters in the longest run of declines since 2002.http://www.bloomberg.com/news/articles/2015-08-10/singapore-s-shrinking-economy-worsens-bank-risk-as-loans-slump

Australia would have been a good bet for Singaporeans as the SGD has gained 10% against the AUD in the past 12 months or even my suggestion from last year for Japanese property.

I follow real estate markets as a matter of personal interest because I have noted for years that real estate is really the only practical route to the mass-market wealth effect.

And it has been true with Singapore registering an even slower growth of millionaires for 2014 (source : WorldWealthReport https://www.worldwealthreport.com/Global-HNWI-Population-and-Wealth-Expanded), adding only 2,000 millionaires at a pace of less than 2%, the slowest in 3 years not counting 2011 when the numbers shrank and when the rest of the developed world is slapping on the millionaire count, some at double digit growth pace.

Singapore Millionaires In Trouble, Real Estate and The Mass Market Wealth Effect 3Table compiled last year which excludes the 2014 numbers.

Property supply will peak in 2016, rentals are falling even as interest rates rise which is a double whammy for owners who are leveraged on their property. Thus it is no wonder that the banks are having it tough.

As we noted earlier this year, “residential vacancies are the highest since Dec 2005, office space vacancies are highest since Jun 2012 and factory space vacancies are highest since Jun 2006.

Taking a pinch of salt from the reports we read about prime office rentals that have jumped 14% last year, I personally would not expect the same for 2015.

The residential property market is unlikely to recover soon with heavy supply in the pipeline.”  https://tradehaven.net/equity-focus-the-goat-and-the-real-estate-market/

Take a look at the latest URA property survey published last month. There is still alot of “Under construction” across the board, from residential to commercial units. While “planned development” is registering a sharp drop, the supply would hit some time next year.

The Widow Maker In Real Estate 1

Well, residential vacancies are even higher now with the double whammy of falling rents !

The Widow Maker In Real Estate

It feels bad to be right especially when Singaporeans have 47% of their total wealth tied up in real estate compared to Americans who have about 28%.

How does this double whammy of lower rentals and higher funding costs work ?

to continue reading……