A few months ago, I gave the view that the property market is likely to come crashing down soon as the property market correlates strongly with the stock market and the economy and the property market oftens lags behind the stock market.The current property market has taken me by surprise indeed since it has only tumbled slightly not long ago and now it is near its previous peaks again despite of the economic doldrums. As such, I am of the view that the current property market is a property bubble in the making. Why is this so ? Here are some of the reasons below.
1. Divergence of the property market with the economy.
This is rather self-explanatory. The economy is still not booming yet but the property market is near its previous peaks.
2. Packed crowds at condominium launches
This is best illustrated with the example of Optima@Tanah Merah, which is a new condominium. Apparently, there was a queue waiting three days earlier of the actual launch date and they were prepared to wait there for three days.
3. Sky-high prices
With reference to the Optima@Tanah Merah, this project was sold on an average of $810 psf. Casa Merah, which is right behind it was only released at an average price of $588 two years ago. To add on, Centro Residences which is situated in Ang Mo Kio was sold at an average psf of around $1150 and this price are more typical of projects near the edge of the city.
4. Advertisements
I'm not sure if you notice it but on the last page of the Straits Times nowadays, it is always a full page graphic advertisement of a new condominium up for sales.
5. Rock-bottom interest rate
The current SIBOR rate is around 0.7% and this is very near to the all-time low rate of 0.56% back in June 2003. This makes home loan packages to be very attractive to prospective buyers.
As with all bubbles, it will burst eventually. But the question is that when will the bubble burst ? I shall make no attempt to forecast it since it is not crucial to know when it will burst and no one can forecast this accurately. A bubble can last for a very long time just like a bullish stock market can remain irrationally bullish. The most important thing is that one should not pay inflated prices which is way above the true value or worth of any assets or investments.
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A couple of mths back i was thinking with all the bad news and pessimistic view tt the economy wldnt see light till 2-3 yrs down the road, property prices wld fall. I held back from entering the mkt for a matrimonial hse. 2-3 mths after the negative outlook (in part by what the governments all over the world were predicting) dark became suddenly birght. Property prices shot skyward so much so that I missed the boat and now sellers are asking for the sky. What is the true value of an asset that one shld not over pay?
ReplyDeleteHi,
ReplyDeleteI empathize with your situation. I'm not sure what will the future holds but as of now, I consider it to be too expensive. Unfortunately, I'm not the best person to ask regarding the true value of a piece of property thus you may have to ask around. As a rule of thumb, I will look at the historical psf of the property and the surrounding properties.
Kay
Hi Kay,
ReplyDeletegood suggestion to look at the historical price. nevertheless I am no expert myself too.
personally my parents wanted to buy another property for investment this year, however due to weak economy i advise my parents not to buy as prices may fall but it went the other way instead.
Our personal experience during the 1997 crisis is that we bought a property at 1999 which is at the bottom of the crisis. Although past indication may not indicate future trend and no 2 crisis are the same. i share the same thinking as you for the property bubble ( i may be wrong for no 1 can predict the future).
if we base on the 97 crisis the property bottom is form about 2 years from that. therefore if I am assuming them to be the same, i am waiting for another good time to advise my parents to buy that next year or after. i may not be right as there could always be random upside or downside to make my point wrong. however i believe in fundamentals like the unemployment rate that is going up. If unemployment rate goes up, it would mean that more and more people may not be able to re-finance their mortgage and eventually what would happen? ( please take what i said as a pinch of salt as i am just stating what my view is if it differs from yours ^_^)
anyway please keep updating your blog and the good work that you have done.
now with the correction hehe i was thinking if you have more views on investment so that i can use them as a reference ;)
Thank you
Hi everyone. I am Thomas. Have been observing the local prop market for sometime. Prices are deemed too high. Even at the fringe of the city - Balastier area, it going for $1350 per sq ft. Not too promising to step-in to purchase. As an alternative, I divert my fund to purchase australia prop (land & house) which are more at effortable prices. However, there are hindsights as well. Currency exchanges, etc... So to buy low, best is to buy at low price to anticipate better yield return.
ReplyDeleteHi suen,
ReplyDeleteI think I will probably be doing something like what you are doing now about the property market. However, I don't believe strongly in fundamentals since the movement of the market can be affected by a combination of various factors which may be too complex for us to examine. I tend to place more emphasis on the price and value of any assets.
Thanks for your compliment and I'm glad that you found my blog to be useful. As for investment wise, I do have some views on the current market and I hope to put up an article soon.
Regards,
Kay
Hi Thomas,
ReplyDelete$1350 psf for properties at the fringe of the city seems rather dear to me. I agree with you that it is not too promising to enter. The most important thing is to buy low and sell high.
Kay
I posted the 1st comment. Im Ed. No one can predict with certainty how the mkt will move. Indeed many of my firends who are professionals (Investment Advisors, Lawyers etc) cldnt fathom the ongoing wrt the property scene. May be ppl are flush with cash from savings, the low interest rates play a part, many kiasu ppl ard with herd instinct, high HDB prices hence lowering the gap(at least a couple of mths back) and making pte properties attractive.
ReplyDeleteMy mum always say in Spore, in the long run property prices will go up since we hv limited land space and gahment looking at an ideal pop of 6 mil. (tt wld also mean smaller homes in future). Of cos along the long run, there will be ups and downs.
Now green shoots are giving the impression the worst is over. If the worst is over, property prices cant get worse? or wld it? Do we really need a hell bad news to bring prices down or hv the ship long left the harbour?
Even survey suggests next yr's salaries wld hv higher increment (tho lower bonuses).
Hi Ed,
ReplyDeleteYou may be right. The economy is only in the recovery phase but the property market seems to be booming. On the other hand, it also seems to be showing signs of a bubble forming. Perhaps, there will be a correction but the property market will still trend upwards. No one can tell with certainty.
I think one other important thing we can ask is that whether the properties are affordable. Will we still be able to service the loan if the interest rate increases ? Can we be sure that we can afford the payments for the entire loan period bearing in mind that our financial circumstances may change ?
Kay
I think property bubble is spore is less likely than in the west. The banks here are really very kiasi. Anyone with any credit card problem will not be able to borrow from any bank. Anyone earning less than $4000 will only allowed 70% loan (HDB purchase), above $4000, one can get 80% to 85% loan. The bank may promise that they will lend you, but at the end of 2 months (it takes about 3.5 months for completion) they may drop a bombshell on the borrower when they found out that the borrower has a credit problem, they will NOT lend you any. The HDB are building less than 50% of the required flats. This will cause demand over supply, hence HDB resale price will rise which in turn will cause private properties to increase in price. HDB should give monthly update of its price data and indices instead of quarterly which is not sensitive to changes during hot periods. They can return to quarterly during the cool periods.
ReplyDeleteI pity the young couples who want to stay near their parents and have to pay high cov as they have to compete with the PRs for the HDB resale flats. Note that the grant cannot use to pay the cov.
As 80% of the citizens stay in HDB flats, the HDB should build at least 66.7% of the required flats. Thsi will ensure the cov willnot be so high and the property bubble will be less likely.
Hi,
ReplyDeleteI concur with you. The people who are most affected by this buoyant property market are young couples who are not likely to have that much amount of cash to pay for COV and they have to face two to three decades of working life just to pay off their housing loan. Unfortunately, we can't make HDB increase the supply of flats or slow down the influx of immigrants overnight. We just have to wait until the property market regain some normalcy.
Kay