Wednesday, December 5, 2007

Singapore’s property market is running a fever

Singapore’s hot property market has become the latest noteworthy conversation topic and it is not just the private property market that sees massive rises in Singapore’s house prices over the past year, even the local HDB residential market has seen record transaction prices.

It was only a month ago we read in the news that two Marine Parade 5-room flats were sold for record prices of $750,888 and $730,000, and a 3-room HDB flat was sold for $380,000. Crazy isn’t it? For $380,000, you could easily afford a resale HDB executive maisonette in areas like Bukit Batok.

Although the resale price index stated on the HDB’s website seems to show a continual healthy increase over the previous quarter in 2007, it would be interesting to note that the number of resale applications registered seems to have started to decrease across the board for all flat types in the 3rd quarter of 2007. While I do not deny this could be a normal fluctuation, it would be a sign for concern should it continue to drop in the 4th quarter of 2007.

I must declare I am no expert in the property market but I believe there must always be a “tipping point” in the price of goods which is ultimately dependent on the supply and demand forces of the market. When the demand for resale flats come down as a result of a lack of affordability by most buyers, the price of flats would also drop naturally.

While we are still far from the 1997’s resale price index peak range of 130s, I think it is not prudent for any buyer to pay high prices for a resale flat during this period even though industry experts have been assuring us that residential property is still a good long-term investment. Why do I think so?

Scenario 1:

If we were to follow the trend on HDB’s resale price index, it is barely 1 year before the property market overheats. Give and take, let us say 2 years before the property market starts to crash, the buyers who have bought their flats recently would not be in time for their next sale if they intend to because they cannot meet the minimum occupation period (MOP) of 2.5 years from the effective date of purchase if the owners takes a loan from HDB and without CPF Housing Grant Scheme(otherwise MOP would be 5 years) . And even if they do not take any HDB loan for the purchase, the window period would still have to be a minimum of 1 year. It would thus be a risky short-term investment as no one can predict exactly when the crash will happen.

Scenario 2:

Even if the buyers decide not to sell but hold on to their newly purchased, already over-valued flats while waiting for a better price, they would be caught in a difficult financial situation where they have to finance their house loans and at the same time, see their flat values drop until asking prices are adjusted to the clearing level. The actual total loss at the next sale may be unimaginable. The 1997 property market crash victims know it.

So it’s time we take the inherent risk seriously as once the property market crashes, it is hard to stop. Potential buyers should not try to stretch themselves too much. We certainly want our money to be more liquid so that we can all survive through the impending recession and cope with the relentless rising cost of living.


Anonymous said...

do you know poor analysis will lead to your poverty?

Anonymous said...

who wants a rock and roll housing market? the no braino answer is: the rich investors. when the market is down, they buy up properties and thereafter LAMENT about the poor property market. when the market turns for the better, prices shoot up they sell sell sell to make huge profits. next, they then LAMENT about high property prices bad for competitiveness blah blah blah. this is of course to SKIN THE CAT and make another killing in the property market by buying up these properties at a low price again.

all these are done at the expense of the genuine home owners and even hurting the poor. a downward pressure of the home market will also aggravate the business climate and wide out jobs.

let's be smart and not be played by the rich. opt for a stable and healthy home market that benefit all instead and not spook the market for the rich

Anonymous said...

I agree that we do need to take notice of the potential risk. I think most of the buyers want to have value-for-money properties for personal accommodation. In such a speculative market, the winners are the rich people who are constantly pushing up the property prices.

Anonymous said...

If PM Lee still wants his job, he better understand the people.

Anonymous said...

the latest release of land for new homes is rather puzzling.
consider this: the mass market has not fully recovered from its losses. some areas, the upper bukit timah side for instance( which is just a stone throw from the boomed bukit timah area), is still seeing 10 to 20% loss from its decade ago peak. truth be told, owners can ask for high prices, but seriously, very few buyers bite( in the mass market especially). check the number of transactions in the mass market and you will know what i mean.
apparently, the boom is not realized by the mass market segment( except for a few lucky ones). it probably have not dawn on the propaganda machine that MANY HOMES ARE THAT SALABLE. there are still many cheap picks if you care to look around. problem is: today's buyers have become sophisticated( picky) and SPOILT!
they want NEW (cheap if possible) so they can turn in a profit later.

and guess what? the government is feeding this demand for more and more new homes. granted. this country population is slated to expand. but the expansion is make up of immigrants and voracious investors. if they don't stick, we are going to see another decade of doom(not boom) just like in the mid 90s. and this time round, it maybe worse because of too homes for too little of own people as the actual local population is not growing since the 90s.

to cut the long story short, the boom and euphoria are mostly restricted to EXCLUSIVE SEGMENT or hot areas. the lucky 'exclusive homeowners and investors' are benefiting from the boom( including enbloc sales). of course, the 'luck' fell on A FEW record breaking hdb homes in HOT AREAS like marine parade. other than that, pretty ho-hum and the rise for many..modest compared to the mid 90s( or just below the peak level).

so why the panic and release so many new homes to feed the 'spoilt demand'( read: want cheap to make profit later?) when there are so many homes for sale in the resale market?

they have probably submitted to 'foreign pressures' amongst other economic reasons. but mr mah did point out correctly that too many new homes( danger of over supply) will weaken the resale market. what it means is that, the new homeowners may not find a market for their property when it is time for them to sell unless they're prepared to sell at a loss or no profit at all!

but this other reason( speculative) could be the push to dampen the mass market: the financially desperate( some to clear debts as reported weeks ago) are selling off their properties( of course for real profit) adding pressure to demand for more rental homes that the government can sustain etc.

to cut the rant short: very troubling if i will to continue to analyze this! and as usual, they tend to come up with solutions with potentially upsetting 'side effects' for others. and looking at the 'boom', who benefited most huh?

Anonymous said...

above correction: it probably have not dawn on the propaganda machine that MANY HOMES ARE (NOT) THAT SALABLE.

in case some failed to understand my last point, let me elaborate a bit.

if mass condo market boom, they will feed the hdb resale market when they downgrade. the former profit has become the latter gain also. that gives the impetus for the financially troubled to sell and some may become homeless and turn to the goverment for help or incur fresh mortgage debts when they buy again. and the rest, you go figure....

Anonymous said...

they keep saying people are upgrading. hello??? those who have upgraded in the past or bought into the sub condo market have been stucked and mostly unable to offload unless suffer great losses.

instead, i tend to believe more are opting to downgrade considering an aging population couple with an unstable social economic development over the next two decades.

and if you have not been thinking of downgrading, well, you better plan to do so especially if you belong in the sub market category

judging from the garmen policies and management of the property market, it is rather clear that they favor the rich and boosted the prime market to show their appreciation for their presence and contribution.

they then keep the sub market depressed so it remains affordable to please the average new home buyers.

the nett effect is that the higher end homes in the sub market, hdb as well as private, are what i call...'dead properties' as these will most likely suffer losses - except maybe for a lucky few - when they decide to downgrade for whatever reasons.

so if you are smart, avoid the higher end sub market. the resale market has generally been 'dead' for the past ten years and looks like, shall remain dead and lifeless in the coming years with more and more new properties coming into the market.

the message is clear. the poor will not benefit much from the boom and if at all. the middle class, especially the upper middle class will shoulder most of the burden of higher mid end homes, mostly at a loss.

but if you belong to the prime market class of richer folks, you can afford to laugh yourself to the bank get to reap, millions for some, and buy low in the mass market!!!

how the ministers love the rich