Prices and sales still holding up

[Big Toe]

Not sure how the super rich are doing but for the masses who are working a regular day job, salaries have not increased at the same breakneck pace of property prices. For most of us, our salaries are on the average around 5% more than what we got last year. Logic tells us that at some point, mass market prices will cool and taper off(maybe decrease). This is especially so with government no letting up on land sales and new HDBs. In the meantime, we just have to watch and stay amazed at the gravity defying property prices.

Heard a few of my friends upgraded to a condo from HDB. But size of the condo's much smaller. Not too sure why they wanted to pay more and get a smaller house. Makes no sense. Well, different folks, different values. I would very much prefer a larger living space(big landed house if possible, if not, at least a decent sized HDB.)

[Musicwhiz]

Heard a few of my friends upgraded to a condo from HDB. But size of the condo's much smaller. Not too sure why they wanted to pay more and get a smaller house. Makes no sense. Well, different folks, different values. I would very much prefer a larger living space(big landed house if possible, if not, at least a decent sized HDB.)

I do know of one relative who recently bought a shoebox condo for "investment". But the funny thing is the property will only be ready in 3 years time, hence it is not "rental-ready". In the meantime, interest is only a super-low 0.98% per annum, and this person is also gainfully employed.

So I guess high employment and super low rates are contributing to this trend.

But personally I think some people throw caution to the wind by leveraging, thinking that real estate is the only prudent investment. In actual fact, the gearing you take up makes it far more risky than it appears to be.

[swakoo]

Just a quick question. The household debt level seems to show a rise of 2X, from 100mil 1997 to 200 mil current.

Is this possible? A HDB bought in 1997 should be even lesser than 50% of what is 2011Q3 price as seen from HDB property index level.
I am not even touching private properties yet.

Household debt is only twice as much as from 1997 but properties price has risen more than twice from 1997.
Am I missing out something?

Both private and hdb property prices have roughly risen twice over the period in question - see chart below. Hence this is roughly in line with increase in household debt level.

[Image: Singapore-Property-Price-Index-and-HDB-R...-Index.jpg]

BTW the household assets chart is from an MAS report (pg 49/91): http://www.mas.gov.sg/~/media/MAS/Regula...202011.pdf

[newyorkcityboy]

One Minute Before Midnight
(11 Nov 2012)

Unlike other residential markets which got into this easy money / low rates era in a more equilibrium state, this market's run up could have been more acute because there was reduced stock going into 2006 / 2007. Essentially, total stock, particularly public accommodation, appears to have been gradually depleted post the glut in 2000, as immigration policies took a liberal stance.

As such, the substantial back fill demand stroked the flames of this current run up. Today, I suspect prices are holding up because of low unemployment, low completions and the negative real interest rate. The latter makes holding real assets like physical property attractive. The easy money policies / QE and the consequently low SIBOR / SOR has channeled monies into the physical property market. First residential, then strata office/retail and even industrial.

In a capitalistic society, developers produce stock / supply to satisfy purchaser demand. So the eventual outcome could be too many units, too little actual users when stock is actually delivered.

In fact, I had enquired about mechanisms to short the residential market in another thread. Thus, it is my personal view that we could be sitting at the cusp of this cycle; that we are one minute before midnight, after which Cinderella's golden carriage reverts into a pumpkin and horses into mice.

Essentially, I am looking at a downward price trend from 2013 - 2015, certainly for the residential and industrial sectors. And thereafter, the sectors could flat-line as they need time to work through the excesses.

Of course, if you are long these sectors, you may want to hurl stones at me. Before you do that, note that even in my bleak base case scenario - depending on the price you bought your property, you could still do ok or even well. Also a robust macro environment, continued low rates as well as steady immigration growth would be supportive of price growth.

But my analysis suggests that I should adopt a bearish stance. The above is of course my own view and is not an inducement to sell / short developers.

[CityFarmer]

Base on URA data on the supply of completed properties, the supply will continue to raise from now to 2015 with the peak in 2015.

With the current property cooling measures and curb of immigrant and foreign professional, vacancies rate will raise and rental will fall. The demand of property will unlike to catch-up the supply IMO

So by a simple supply and demand, it is not inconceivable to expect a plunge in property price. The only question is how much is the plunge?

[Muck]

The answer is probably in between. The property prices are crazy but it is difficult to believe that the property sector is in a state of bubble based on the statistics.

If the employment rate remains high, it is kind of hard for the property market to crash.
Even the property developers are also flushed with cash.

Many are looking for cheap sale but I am not sure whether it will come in the next few years.

When prices are crazy, I suppose that means they are inflated way beyond what can be considered the asset's intrinsic value. That is my understanding of what an asset bubble is.

I'd be most grateful to learn if anyone else interprets the meaning of an asset bubble differently.

I don't understand how a household's balance sheet has any correlation with ppty bubbles. Oh wait, perhaps... If the ppty is inflated in price it would sure make the asset side of the balance sheet inflated no?

[Musicwhiz]

The main problem with the term "asset bubble" is that no one realises it is a bubble until it bursts. In fact, most if not all bubbles have been identified only on hindsight.

Frankly, even the experts get it wrong most of the time, and there are those with vested interest who will insist we are never in a bubble even if it was so obvious.

So technically, it would be close to impossible to tell if we are really in a property bubble. Some of the signs I look out for:-

1) Easy lending, low interest rates
2) Low unemployment
3) People believing property and real estate will always remain a viable and good investment, no matter what
4) People believing real estate can only go up in the long-term
5) Aversion to loans and borrowings in the general populace is reduced, signalling growing confidence in either economy or real estate as an asset class

[Muck]

Thanks for the list MW. I'm already seeing signs 1-5 for some time. As with any other "mania", no one knows when the punch bowl's gonna be taken away and the party ended...

I'd like to add my own rather crude number 6 to your list... (applicable to any asset mania)...
6) the office aunties are talking about it every other day.

[yeokiwi]

The answer is probably in between. The property prices are crazy but it is difficult to believe that the property sector is in a state of bubble based on the statistics.

If the employment rate remains high, it is kind of hard for the property market to crash.
Even the property developers are also flushed with cash.

Many are looking for cheap sale but I am not sure whether it will come in the next few years.

When prices are crazy, I suppose that means they are inflated way beyond what can be considered the asset's intrinsic value. That is my understanding of what an asset bubble is.

I'd be most grateful to learn if anyone else interprets the meaning of an asset bubble differently.

I don't understand how a household's balance sheet has any correlation with ppty bubbles. Oh wait, perhaps... If the ppty is inflated in price it would sure make the asset side of the balance sheet inflated no?

In the above analyses, the property assets are not taken into account. Basically, we are comparing the amount of cash or liquid assets and the amount of debt in the households.
Till date, the amount of liquid assets is still higher than the debts.

That may imply that most households should be able to maintain regular mortgage payment for a reasonable period of time and banks will also have less pressure to write down its debts.
Similarly, if we look at most of the property developers' balance sheet, they are most unlikely to let go their units at cheap price since they have the ability to hold on to the unsold units.
How about public housing? The situation is even better since the developer is none other than our government.

Of course, if Armageddon comes, every asset class is a bubble.

[CityFarmer]

The answer is probably in between. The property prices are crazy but it is difficult to believe that the property sector is in a state of bubble based on the statistics.

If the employment rate remains high, it is kind of hard for the property market to crash.
Even the property developers are also flushed with cash.

Many are looking for cheap sale but I am not sure whether it will come in the next few years.

When prices are crazy, I suppose that means they are inflated way beyond what can be considered the asset's intrinsic value. That is my understanding of what an asset bubble is.

I'd be most grateful to learn if anyone else interprets the meaning of an asset bubble differently.

I don't understand how a household's balance sheet has any correlation with ppty bubbles. Oh wait, perhaps... If the ppty is inflated in price it would sure make the asset side of the balance sheet inflated no?

In the above analyses, the property assets are not taken into account. Basically, we are comparing the amount of cash or liquid assets and the amount of debt in the households.
Till date, the amount of liquid assets is still higher than the debts.

That may imply that most households should be able to maintain regular mortgage payment for a reasonable period of time and banks will also have less pressure to write down its debts.
Similarly, if we look at most of the property developers' balance sheet, they are most unlikely to let go their units at cheap price since they have the ability to hold on to the unsold units.
How about public housing? The situation is even better since the developer is none other than our government.

Of course, if Armageddon comes, every asset class is a bubble.

IIRC, there are regulations on the holding period of developers with their unsold units after TOP. A hefty penalty will impose if fail to comply.

Moreover, able to hold != feasible to hold , after factoring interest rate, opportunity cost etc.