Saturday, December 25, 2010

Singapore Property Price rise slows down

Since it is introduced in 2010, I am watching Singapore Property prices from NUS Singapore Residential Price Index (SRPI). This transactions-based index tracks the month-on-month price movements of private non-landed residential properties in Singapore so it does not lag too much.

Below is quoted from NUS Institute of Real Estate Studies describes to describe the index:
The National University of Singapore (NUS) Singapore Residential Price Index Series (SRPI) is a transactions-based index that tracks the month-on-month price movements of private non-landed residential properties in Singapore. Developed by a team of researchers at IRES, the SRPI provides a resource for the development of property derivatives that would help to expand the suite of financial products offered in Singapore, particularly in the context of obtaining exposure to and managing risks associated with the real estate market. It will also complement existing property information on the state of the residential market.

Currently, SRPI indexes are published in the form of value-weighted indexes. The SRPI is the index for the overall non-landed residential market in Singapore based on the whole SRPI property basket. Two sub-indexes are also produced for the Central and non-Central regions. The Central region sub-basket comprises properties within the overall SRPI basket located in Postal Districts 1 through 4 and 9 through 11 while properties in the other postal districts are in the non-Central region sub-basket.
Below is the latest Singapore property price index chart as of Jan 2011:

NUS Singapore Residential Price Index (SRPI)

You can see the trends clearly from the chart above. After spectacular rises faced between 2005 and 2007. A steady decline by early 2008 turned into a sharp drop by end 2009 due to the global financial crisis and the economic slowdown.

Near zero interest rates and crazy money printing by major economies to combat "The Great Resession" floated the global market as well as Singapore with cheap money and house prices recovered quickly in the 2nd half of 2009. House prices sharply rised then. As far as I can follow this rise is fuelled by:
  • Relatively narrow HDB condo price gap during this time plus near zero interest rates encouraged HDB owners to upgrade to condos.

  • HDB prices were supported during this time with influx of foreigners who got their PR and preferred to buy a house instead of paying high rents.

  • Influx of foreigner investors with money earned from stocks which jumped from bottoms to new hights.
  • Speculation (See below)

The surge in housing demand prompted renewed fears of a property bubble. Goldman Sachs warned China, Hong Kong and Singapore for an asset bubble early this year.

Real estate prices in China, Singapore and Hong Kong need monitoring for signs of bubbles forming as Asia continues to grow rapidly this year, said Fred Hu, Goldman Sachs Group Inc.’s chairman of Greater China.

Property prices in 70 cities in China rose at the fastest pace in 18 months in December and new bank loans reached a record $1.3 trillion in the first 11 months of 2009. Hong Kong home prices are at the highest in almost 12 years, while in Singapore, a record number of private homes were sold last year.
Source : Business Week

This led Singapore government to implement measures to cool down the property price growth:

Measures announced in Singapore at the end of August to cool the property market are starting to have an effect in terms of slowing property prices.
But prices are still rising as the latest figures from the Urban Redevelopment Authority (URA) showed private home prices rose by 3.1% in the third quarter of the year to push its index to a high of 190.

But the price increases are slowing, down from a 5.3% increase in the second quarter of the year. While in the public housing sector the Housing and Development Board (HDB) said prices of HDB resale flats increased 4%%, the sixth quarterly gain in a row.

Analysts said that the slowdown in the pace of price increase for private homes occurred despite the URA flash estimate being based on the first 10 weeks of the quarter and therefore did not capture the full impact of the cooling measures.

According to agents sales are down by between 10 and 20% as both buyers and sellers retreated to the sidelines to assess the implications of the Government’s announcements.

Experts believe that the fourth quarter of 2010 will be a better gauge of the impact of the cooling measures and they already expect the rise in private home prices to drop below 3%.

‘Without the policy, we estimated that possibly we would close the year at maybe 16 or possibly 18% higher. But now with the policy, we are likely to rein in growth to a more sustainable level of 2 to 3% on quarter growth, so we should see the full year coming in at about 15 to 16%,’ said Chua Yang Liang, head of research for South east Asia at Jones Lang LaSalle.
Source: Property Wire
You can clearly see this trend in the chart above. Price rise slows down immediately after these measures.

There are also free-market forces against further price rises. First of all, if you take a look at the index chart, you can see that the index is approaching the hights of "everything will rise up and sky is the limit" times of 2007. Back then it looked like there was no reason to believe that rents and prices rise will end. I remember real estate agents were warning the people to buy now or houses will be too pricy to buy in a year. Now we know that financial crises are not ancient miseries and prices can go down, economy can go down and I cannot see any reason to beat 2007 hights now given the fact that although Singapore economy is doing very well USA is still not out of the woods and Europe is still on the edge.

Second, between 2008 - 2010 all the West could do / or blindly did was to print money and pour it into the market and hope that this will recover the economy without a major negative effect. There was a very obvious negative effect which was expected later but looks like it is coming sooner: Printing money only transffered the huge debt from private sector to the public and governments in major economies are now struggling to borrow money to finance this debt. One of my favorite investors, David Einhorn summarizes this situation perfectly in his latest interview:
“I think what we did in the last crisis in resolving it was rather than go to the root of the crisis, tally up the damage, allot the losses, clean up, fix things, and move on, I feel like a lot of what we did was sort of sweep things under the rug and put short-term bandage fixes on things. And I think we managed to transfer a lot of the problems sort of from the private sector to the public sector. The problem is that it’s such a large problem that eventually, I’m concerned that will eventually threaten the public sector as well.

…what we decided to do was sort of paper over the problems. We bailed out a lot of institutions. We bailed out a lot of people that had positioned themselves incorrectly — ostensibly incorrectly in the crisis, whether it was individuals, whether it was institutions, whether it’s investors and so forth.

And because we weren’t willing to go through that, we haven’t been able to effectively clean up that mess, and it’s created a very, very large budget deficit. And it’s created a monetary policy that is extremely easy, and it seems to be perpetuating itself into a way that I think is going to eventually come to a tough spot.”

Well as insider monkey blog writer states, if Mr. Always Pessimistic Roubini was warning us about this crisis, I wouldn’t be worried. It’s a different story when a credible hedge fund manager like David Einhorn is pessimistic about the world economy.

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