Recently, readers had some questions on my thoughts on Singapore property outlook for late 2011 and the year 2012. I did not have time to write something up to now but I would like to give my thoughts briefly about property in Singapore.
Below is a question by a reader in the article named Will Singapore property prices fall in 2011?:
"SO what is the conclusion since now is October 2011? and your article was posted in Feb 2011."
First of all I should make it clear that I am not a property investor or a person to be in a position to give investment advise. I am interested in Singapore property only because I would like to buy a home here as a "shelter" and a rent-free (of course also mortgage free future). I am absolutely not interested in Singapore property as an investment. So I do not care about value appreciation / depreciation, upgrading / downgrading. In fact although I have called Singapore home for years, these concepts are still completely alien to me. To see this much paycheck dependent people treating their only shelter as an investment and turning it into a single point of failure in their portfolio freaks me out. I will not argue that it is wrong or right, it is just not for me. I have grown up in a place where like for the majority of the world population, the flat you stay means home and all your focus and money would go to paying it up fully as soon as possible. I do not mean property is not an investment there, it is actually the only investment many would think to put their money. But that is only when they can have more than one house, one of them is home and the rest are investment. In the place where I have originally came from, many of my friends in their early 30s are about to fully pay their flats not only because these flats are cheaper (adjusted to net income they are not significantly cheaper compared to here) also because they put every cent they can to pay it fully. And after they pay, they stay in it for years without thinking about upgrade or downgrade unless they significantly get richer or poorer.
So I am more focused on buying as affordable as possible while keeping the payment period as short as possible. For me, a property is mine when I fully pay for it and I am "free" when I have a fully paid property. As long as I exchange my high rent with lower mortgage (but paying a huge some in exchange as interest), I would not be "free". So I do not care Singapore property as an investment. For me, first investment I would have is a business and I would only invest in property if I have a huge surplus from my salary or business income.
With this in mind, I should also tell that when I talk about property I am not talking empty since I am guiding my money based on my thoughts and if I am wrong I would lose money. So read below as my thoughts on the property to guide my money not advises to other people.
Current property prices are equilibrium prices with an unhealthy supply and an unhealthy demand. Supply is unhealthy because there were not enough houses built in the last decade so there is a great supply crunch now. just think about public housing. In 2006, less than 5,000 units of HDBs were completed. This was the least number of units completed by HDB in the last decade. So it is not a suprise that although the number of HDB resale transactions fell 10% year-on-year in 2011, the prices are still going up. Because fresh resale HDB supply is the least in the history. A new HDB unit has a minimum 5 years occupation period by its owner and only after that it can be sold in resale market. So 2011 (2006 + 5 years) has the least fresh HDB supply.
Demand is unhealthy; demand in a ultra loose money environment cannot be healthy anyway. Singapore is not executing a ultra loose money policy but since the interest rates closely follows USA here, ultra loose money policy is spilling over here from USA. By keeping interest rates ultra low, FED's highly overrated bureaucrats are creating world wide bubbles. Sorry, I am not a Keynesian so I find this situation very unhealthy. These kind of loose money policies almost always divert real funding/savings from wealth generating activities toward various non productive activities. Sharp price increases in housing prices is the result of this diversification. It makes many houses "artificial affordable". The problem is, as this artificial situation continues for a long time, it makes many people to think that it will last forever. So we see people going into property transactions 5-6 sometimes 10 times their annual household income just because they can pay their mortgages now.
Forget about the "healthy" demand stories for the property market. Since the prices are increased by loose money, it requires continuous loose money flow to support them. That so-called healthy demand would probably disappear overnight if that flow stops. Look at China and Hong Kong. "Healthy" demand from owner occupiers and new Chinese riches disappeared and sales and prices fell just a few months after Credit was tightened there. And do not forget USA housing bubble. It just took interest rate increase to a little higher levels to crash the house prices. I remember Mr. Ben Bernanke, in 2006 I guess, "ensuring" people that "housing prices never went down all together significantly in USA history and they won't significantly fall"!
Current situation is different than early 2011. First, the supply side situation is turning. Supply is easing. 50,000+ brand new HDBs will be sold in 2011 and 2012 while equal number of private houses will be completed. In 2011, 11,500 private property units in 2011 and 14,000 units in 2012 will receive their Temporary Occupation Permits (TOP) and enter the market. Note that these estimates were 8,430 for 2011 and 8,116 for 2012 just a year ago and revised up in every quarter. 2013 numbers are now estimated to be 17,000 and 21,000 and 27,000 will be completed by 2014 and 2015. So in the first half of this decade 90,500 units will be completed and the number is increasing!
Some "experts" may point to the fact that the upcoming public housing units will not enter resale market in the next 7 - 10 years (2-3 years to complete + 5 years of minimum occupancy period) and their supply crunch will continue to support private property prices. I see it another way. Upcoming number of completed private property prices would be depressed by lower rentals due to high competition and this would spill over to both prices and rents of public flats. You can rent out an HDB flat for 2,500 SGD per month only if private property rents are significantly higher than that. And you cannot sell resale HDBs for 600,000+ SGD (value + COV) if some private properties goes down to that price. This is because the higher end tenants and buyers are people who fall down to public housing from private properties.
Anyway, on the other hand demand also has its own pressures. The main supporter of higher rents, high paid professionals is easing due to the slower growth of the economy. Especially the banking and financial services jobs supporting the upper levels of the market are trimmed everywhere in the world and I am even not talking about an economy getting worse. Banks are simply not willing to hire more and will probably cut more jobs in the coming years.
We also know that both Singapore PR and foreign executive intake is reduced and going to be reduced more in the following years. The large PR intake of 2006 - 2008 period was already over since 2009, well before General Election of 2011. And after GE 2011, it would probably be reduced more. Nearly 80,000 people got PR in the peak year of 2008 and this was down to 30,000 just 2 years later in 2010. PRs created a significant demand for resale HDB flats and now their demand would be more muted.
So every item except one are reversed in the list I have given in February 2011. The only thing supporting the market with this price level now is the zero interest rate. And do not underestimate it. As we have observed in China and Hong Kong this is a very strong force and can support prices against all other winds for a while. China and Hong Kong did every other thing to ease the prices and they did not move down even a little bit. But when they have tightened the credit all those demand including the so-called healthy demand from owner occupiers start to come down. I do not think Singapore will play with the credit side, Singapore does not control credit and interest rates, but the European debt woes has a big potential to reduce the credit. Think about it. European banks writing sovereign debts next few years (starting with 50% of Greek debt) will need to reduce their credit volume to balance their capital ratio. But, a big but, Helicopter Ben, a determined buddy of Wall Street's fat boys, will try to go for another round of printing money, ridiculously called Quantitative Easing, and support zero rate interests and cheap credit for one more year. Of course this will do nothing really good for employment and growth in USA but helped Wall Street to gamble 1 more year to inflate equities and commodities.
Zero interest rates may stay for a while and I am sure during these period many people, whose only plan to cope with a interest rate hike is selling their property to a greater fool, will continue to support the prices but I will wait because this long ultra low interest rate period will probably result in a long "very higher than normal" interest rates. This may be 2-3 years away but 2-3 years is a short period compared to modern mortgage payment periods.
Please note that in all paragraphs above, I have not even included the now very likely and near recession due to European debt woes. So I have renewed my rent for my HDB for 1 year. Many tell me that I am wasting a lot of money by renting. I am telling them why would I waste 3 times of a year long rent to pay a huge some of COV (no single cent of it goes to the value of the house) on already very high valued resale HDB flat. And why would I even waste more money to pay interest to the bank during mortgage period, no single cent of it goes to the value of the house any way. I prefer to waste money on rent now. I may regret a little bit if I am wrong about the future prices but at least it will not ruin my finances for years as a property bought at the peak of the property cycle. As I have told before, I am not an investor, I am just a resident who wants a home that will be mine ASAP.
Below is a question by a reader in the article named Will Singapore property prices fall in 2011?:
"SO what is the conclusion since now is October 2011? and your article was posted in Feb 2011."
First of all I should make it clear that I am not a property investor or a person to be in a position to give investment advise. I am interested in Singapore property only because I would like to buy a home here as a "shelter" and a rent-free (of course also mortgage free future). I am absolutely not interested in Singapore property as an investment. So I do not care about value appreciation / depreciation, upgrading / downgrading. In fact although I have called Singapore home for years, these concepts are still completely alien to me. To see this much paycheck dependent people treating their only shelter as an investment and turning it into a single point of failure in their portfolio freaks me out. I will not argue that it is wrong or right, it is just not for me. I have grown up in a place where like for the majority of the world population, the flat you stay means home and all your focus and money would go to paying it up fully as soon as possible. I do not mean property is not an investment there, it is actually the only investment many would think to put their money. But that is only when they can have more than one house, one of them is home and the rest are investment. In the place where I have originally came from, many of my friends in their early 30s are about to fully pay their flats not only because these flats are cheaper (adjusted to net income they are not significantly cheaper compared to here) also because they put every cent they can to pay it fully. And after they pay, they stay in it for years without thinking about upgrade or downgrade unless they significantly get richer or poorer.
So I am more focused on buying as affordable as possible while keeping the payment period as short as possible. For me, a property is mine when I fully pay for it and I am "free" when I have a fully paid property. As long as I exchange my high rent with lower mortgage (but paying a huge some in exchange as interest), I would not be "free". So I do not care Singapore property as an investment. For me, first investment I would have is a business and I would only invest in property if I have a huge surplus from my salary or business income.
With this in mind, I should also tell that when I talk about property I am not talking empty since I am guiding my money based on my thoughts and if I am wrong I would lose money. So read below as my thoughts on the property to guide my money not advises to other people.
Current property prices are equilibrium prices with an unhealthy supply and an unhealthy demand. Supply is unhealthy because there were not enough houses built in the last decade so there is a great supply crunch now. just think about public housing. In 2006, less than 5,000 units of HDBs were completed. This was the least number of units completed by HDB in the last decade. So it is not a suprise that although the number of HDB resale transactions fell 10% year-on-year in 2011, the prices are still going up. Because fresh resale HDB supply is the least in the history. A new HDB unit has a minimum 5 years occupation period by its owner and only after that it can be sold in resale market. So 2011 (2006 + 5 years) has the least fresh HDB supply.
Demand is unhealthy; demand in a ultra loose money environment cannot be healthy anyway. Singapore is not executing a ultra loose money policy but since the interest rates closely follows USA here, ultra loose money policy is spilling over here from USA. By keeping interest rates ultra low, FED's highly overrated bureaucrats are creating world wide bubbles. Sorry, I am not a Keynesian so I find this situation very unhealthy. These kind of loose money policies almost always divert real funding/savings from wealth generating activities toward various non productive activities. Sharp price increases in housing prices is the result of this diversification. It makes many houses "artificial affordable". The problem is, as this artificial situation continues for a long time, it makes many people to think that it will last forever. So we see people going into property transactions 5-6 sometimes 10 times their annual household income just because they can pay their mortgages now.
Forget about the "healthy" demand stories for the property market. Since the prices are increased by loose money, it requires continuous loose money flow to support them. That so-called healthy demand would probably disappear overnight if that flow stops. Look at China and Hong Kong. "Healthy" demand from owner occupiers and new Chinese riches disappeared and sales and prices fell just a few months after Credit was tightened there. And do not forget USA housing bubble. It just took interest rate increase to a little higher levels to crash the house prices. I remember Mr. Ben Bernanke, in 2006 I guess, "ensuring" people that "housing prices never went down all together significantly in USA history and they won't significantly fall"!
Current situation is different than early 2011. First, the supply side situation is turning. Supply is easing. 50,000+ brand new HDBs will be sold in 2011 and 2012 while equal number of private houses will be completed. In 2011, 11,500 private property units in 2011 and 14,000 units in 2012 will receive their Temporary Occupation Permits (TOP) and enter the market. Note that these estimates were 8,430 for 2011 and 8,116 for 2012 just a year ago and revised up in every quarter. 2013 numbers are now estimated to be 17,000 and 21,000 and 27,000 will be completed by 2014 and 2015. So in the first half of this decade 90,500 units will be completed and the number is increasing!
Some "experts" may point to the fact that the upcoming public housing units will not enter resale market in the next 7 - 10 years (2-3 years to complete + 5 years of minimum occupancy period) and their supply crunch will continue to support private property prices. I see it another way. Upcoming number of completed private property prices would be depressed by lower rentals due to high competition and this would spill over to both prices and rents of public flats. You can rent out an HDB flat for 2,500 SGD per month only if private property rents are significantly higher than that. And you cannot sell resale HDBs for 600,000+ SGD (value + COV) if some private properties goes down to that price. This is because the higher end tenants and buyers are people who fall down to public housing from private properties.
Anyway, on the other hand demand also has its own pressures. The main supporter of higher rents, high paid professionals is easing due to the slower growth of the economy. Especially the banking and financial services jobs supporting the upper levels of the market are trimmed everywhere in the world and I am even not talking about an economy getting worse. Banks are simply not willing to hire more and will probably cut more jobs in the coming years.
We also know that both Singapore PR and foreign executive intake is reduced and going to be reduced more in the following years. The large PR intake of 2006 - 2008 period was already over since 2009, well before General Election of 2011. And after GE 2011, it would probably be reduced more. Nearly 80,000 people got PR in the peak year of 2008 and this was down to 30,000 just 2 years later in 2010. PRs created a significant demand for resale HDB flats and now their demand would be more muted.
So every item except one are reversed in the list I have given in February 2011. The only thing supporting the market with this price level now is the zero interest rate. And do not underestimate it. As we have observed in China and Hong Kong this is a very strong force and can support prices against all other winds for a while. China and Hong Kong did every other thing to ease the prices and they did not move down even a little bit. But when they have tightened the credit all those demand including the so-called healthy demand from owner occupiers start to come down. I do not think Singapore will play with the credit side, Singapore does not control credit and interest rates, but the European debt woes has a big potential to reduce the credit. Think about it. European banks writing sovereign debts next few years (starting with 50% of Greek debt) will need to reduce their credit volume to balance their capital ratio. But, a big but, Helicopter Ben, a determined buddy of Wall Street's fat boys, will try to go for another round of printing money, ridiculously called Quantitative Easing, and support zero rate interests and cheap credit for one more year. Of course this will do nothing really good for employment and growth in USA but helped Wall Street to gamble 1 more year to inflate equities and commodities.
Zero interest rates may stay for a while and I am sure during these period many people, whose only plan to cope with a interest rate hike is selling their property to a greater fool, will continue to support the prices but I will wait because this long ultra low interest rate period will probably result in a long "very higher than normal" interest rates. This may be 2-3 years away but 2-3 years is a short period compared to modern mortgage payment periods.
Please note that in all paragraphs above, I have not even included the now very likely and near recession due to European debt woes. So I have renewed my rent for my HDB for 1 year. Many tell me that I am wasting a lot of money by renting. I am telling them why would I waste 3 times of a year long rent to pay a huge some of COV (no single cent of it goes to the value of the house) on already very high valued resale HDB flat. And why would I even waste more money to pay interest to the bank during mortgage period, no single cent of it goes to the value of the house any way. I prefer to waste money on rent now. I may regret a little bit if I am wrong about the future prices but at least it will not ruin my finances for years as a property bought at the peak of the property cycle. As I have told before, I am not an investor, I am just a resident who wants a home that will be mine ASAP.
Disclaimer
This blog article is to provide general information only and should not be treated as an invitation to buy or sell any property or as sales material. Users of this report should consider this report as a one of the many factors in making their investment decision. Users should make reference to other sources of information and specific investment advice to obtain a more objective view of the property market. Asia Singapore shall not be responsible for losses suffered.
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