Saturday, August 20, 2011

Will Singapore property prices rise or fall?

Where are property prices in Singapore heading? Will they go up or fall down later this year? When will they start to fall? In 2012, 2013? Amid string of news and events, many having potential to pull the prices down and some up, many people have different views on where the prices are heading.

There seems to be a single yet very powerful force left to support prices: Zero interest policy of "Helicopter Ben" who pours money onto every single problem. Some experts think this will be a support for prices since households and developers will have holding powers. US FED can even go for another round of QE3 which will pour more money into Asia. Although both policies of FED will most probably create the mother of all financial crisis in the mid term, they may support the prices of property in Singapore. There is a big "if" here, if Helicopter Ben can keep his promise of zero interest rate which will be not so possible if inflation picks up in USA.

On the other hand, other events have potential to put pressure on the prices. Lets look at these events:

The end of debt super cycle is approaching. Most important event looks like the potential next financial crisis: In 2008, West has decided to transfer loses to their public and let the Wall Street run the casino more with printed money. Now we see the consequences: All developed countries with too much debt are approaching the end of debt super cycle and sooner or later they will have to pay back. Singapore is not exposed to debt but is exposed to outside world so we will be greatly effected.

HDB income ceiling is increased. This actually changes many thing. But also depends on how many additional households will be eligible for public housing. Vikrant Pandey, a property analyst from UOB Kay Hian, estimates that an additional 99,161 households will be eligible for BTO and an estimated 68,700 additional households will be eligible for Executive Condominium (EC).[1] I have read a lot of experts arguing that there won't be very large number of households effected with the income ceiling but these are quite large numbers. Although many will directly get out of resale HDB flat market, any resale HDB flat price correction will remove many from mass market condo demand and prices.

New pace of BTO building is increased. HDB was building with the pace of 8,000 units per year in first 10 years of 2000s now in September 2011 alone, they will release 8,000 units! 2011 and 2012 combined is planned to be 50,000 units. The supply crunch in public housing is one of the main drivers of ultra high resale HDB and mass market condo prices. Although the effect of this supply will not be felt immediately in the supply side, it will have immediate effect on demand side. Many young couples will have a chance to grap a unit directly from HDB instead of waiting for a long time and heading to resale HDB market.

Helicopter Ben must be crazy!

Number of new Singapore PRs. Jump in the number of Singapore PRs was one of the main drivers of resale HDB market and current trend, cutting the approval numbers significantly, will also have significant effect. In 2010, PR approval numbers were halved to 29,000 from 59,000 of 2009 which was down from the pick of 2008, 79,000. Event during the Singapore General Election 2011 and afterwards suggests that this downward trend will continue in 2011. Only Singaporeans and Singapore PRs can buy resale HDB flats and reduced number of them means reduced demand for resale HDB flats.

New bumper supply of private property for next 3 years. 50,000 new private property units will flood the market in the next 3 years. In my opinion its effect is exaggerated, given the fact that it will barely be enough to cover the shortage. Nevertheless, this fresh supply at least will ease the supply crunch.

Will the property prices crash? Well, one thing is certain, the URA property price index is at a historical high:

"While the stock markets around the world are turning bearish, it is still anyone’s guess as to whether the Singapore property market is heading for a crash.

To argue against a crash, property bulls will cite the extremely low mortgage interest rates offered by the banks here, a possible QE3 by the US Federal Reserve, and the hot money that is still flooding into the region."
Source : Property Crash Coming? (See Graph) made a prediction 3 years ago in October 2008 (see Property must crash) by superimposing the Straits Times Index (Singapore stock market) chart over the URA property index graph, and it turned out that they were correct. They do this again with fresh data and look at it in this link: Property Crash Coming? (See Graph). It tells its story.

So where are the prices heading? I think it is not time to answer this question. It is time to wait for to see where the global economic problems are heading and how the chart in will progress. We may well end up with a sudden "bang" event like we had in 2008 with Lehman Brothers. Or West can kick the can more up to 2015 or even a little bit later. How the drama of volatile global markets end will have great effect on where the prices will end. If I were thinking to buy a private property now, I would wait and see where all this mess end at least until 2012.

[1] To buy or not to buy? That is the question. The Straits Times

See also Singapore property update for 2012

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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