Property Market Sentiments

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http://propertysoul.com/2015/07/18/prope...ecovering/

Why property prices won’t be recovering any time soon

JULY 18, 2015 LEAVE A COMMENT
death-of-moneyThere was a recent article in the paper with the headline “Time to review property cooling measures” (Straits Times, July 4).
The argument is that, if private home prices have been down; HDB flat prices have dropped; oversupply has worsened; rents have weakened; interest rates have risen; the real estate industry has shed jobs, it may be time for the government to review the cooling measures.
Many people fail to see that the government can only do so much to cool or stimulate the property market. Afterall, it is an open market and there are many other factors that can lead to the continual boom or downturn of the market, such as supply and demand, economic outlook, market confidence, etc.
I am re-reading James Rickards’s book The Death of Money: The Coming Collapse of the International Monetary System. Below are some new inspirations from this interesting read.


1. Regime Uncertainty
When the Singapore government finally decides to withdraw the cooling measures, it may do little help to restore the fallen prices.
Remember those government measures taken to stimulate the property market back in year 2005? Loan-to-value limit was raised to 90%. But not many buyers were interested.
The “regime uncertainty” theory from Charles Kindleberger explains the reason behind the lack of investment during the Great Depression.
“… even when market prices have declined sufficiently to attract investors back into the economy, investors may still refrain because unsteady public policy makes it impossible to calculate returns with any degree of accuracy … the added uncertainty caused by activist government policy ostensibly designed to improve conditions that typically makes matters worse.”
From mid-June, stocks in China tumbled 30 percent from their seven-year high. Then the Chinese government and Chinese brokerages suddenly announced drastic measures to revive the stock market. The intervention might have saved the market from the brink of collapse and demonstrated how powerful and cash-rich the government is (and compared with China’s $3 trillion reserves the money spent is just peanut). However, the whole incident exposes the vulnerability of the fundamentals and further undermines the market confidence of the investors.
Afterall, who needs government to step in if a market is healthy enough to recover on its own?


2. Market Oversupply
With 24,800 vacant private homes, an additional 22,000 to be completed this year and another 21,000 to be ready next year, what kind of population growth do we need in Singapore to absorb the surplus?
Like what Rickards says: “In the end, if you build it, they may not come, and a hard landing will follow.”


3. Wealth Effect
Rickards points out the fact that two asset classes – stocks and housing – represent the wealth of most people (which is certainly the case in Singapore). When prices of stocks and properties go up, people “feel richer and more prosperous and are willing to save less and spend more”.
It is a chicken-and-egg situation: Low borrowing rate and easy money make properties look affordable, attracting Singaporeans to put more money in properties, thus driving property prices to new highs.


4. Wealth Inequality
The wealth effect only benefits the “haves”, not the “don’t haves”.
Wealth becomes heavily concentrated on the privileged who own properties, or businesses who own a stake in the industry (property developers, real estate agencies, banks, brokers, etc.).
When prices are rising faster than wages, housing becomes unaffordable for the common people who are the end consumers of all the housing products. The average people do not get anything from inflated housing prices, except the adverse effect of inflation.


5. Asset Bubble
Cheap money widens the disparity between the rising costs of housing and the unchanged affordability of home buyers, all disguised under the continual growth of debt.
But many people fail to see that this wealth effect is superficial in the sense that it doesn’t come from real economic growth of the country. In other words, the booming property market is not created out of increase in productivity, trade surplus or foreign direct investment.
When the real estate market softens, the net worth of people who are asset rich in properties diminishes with the deflated asset bubble.


6. Asymmetric Information
Many buyers are looking for great bargains in this market. They assume that sellers would hang on to their properties if they are not so desperate to sell. This belief causes buyers to lower the prices they are willing to pay.
However, not all sellers letting go of their properties now are desperate sellers. They refuse to sell at unreasonably-low prices and withdraw their properties from the market. The see-saw situation results in less properties for sale and lower transaction volumes every quarter.


7. Self-fulfilling Expectation
Buyers are sitting on the fence and holding back home purchase. Investors are losing appetite for property investment and looking for a safe haven to park their wealth. The drop in transaction volumes and prices eventually becomes a self-fulfilling expectation.
A persistent depressed market, coupled with adverse factors like supply glut, interest rate hike, soft rental market, etc., requires strong holding power to tide through the storm. And holding power means healthy level of cash reserve and high liquidity of other assets. Unfortunately, the near-zero-interest rate discourages savings which has depleted bank savings and fixed deposits in the past few years.
The market can be more vulnerable than what it appears to be. The loss of market confidence can trigger a ripple effect which causes frenzy dumping to cover losses.
It doesn’t matter what the industry stakeholders are saying. It is still early to say that the Singapore property market is recovering.
To be prudent investors, take the hint from James Rickards.
“The key to wealth preservation is to understand the complex processes and to seek shelter from the cascade.”
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Interesting and make sense. Thanks for sharing.
失信于民,何以取信于天下...
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Not easy to find buyer unless sellers mark down their price expectation.
How many desperate buyers buying for own occupation ?
Buying for investment is getting scarce.
More frequent train breakdowns will make open door policy a big challenge.
“risk comes from not knowing what you’re doing.”
I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.
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There are no drivers for price appreciation.

Banks are unable to give out property loans easily like before. They want to but they cant. This effectively cuts the number of number of people who can afford a 2nd property to the very minimal. Interest rates are up slightly and will go up further, there are property owners who are unable to re-finance due to the TDSR. Credit lines are being cut off. And who would want to pay additional buyer's stamp duty? It is a significant chunk of money paid, for nothing. ABSD will probably be cut soon but I dont think there will be any let up on TDSR.

Gross yields are very low now, if we plot a chart on yields Vs mortgage repayment, the trend will be such that it will intersect and rental collection fall below the mortgage repayment for the newer properties. The smarter investors have already exited the game, they are not waiting for prices to rebound. Realistically speaking, chances of it happening within the next few years is extremely low.
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ABSD will curb people who are "Kia Su". They can't bear to lose out. And further tax on foreigners while filling gov coffer. Maybe attracting more citizenship. Smile

TDSR put a high barrier to have 2nd property. Damping speculation and empty apartments. And protect the Banks from systematic failures.

With slow appreciation of inflation (slow property appreciation) , this may continue to put savers of 2nd property out of reach.
Both are excellent measures of Good Governance and can be long term tools. There is also another tool in the gov disposal which is population pacing during growth and slow down to manage demand. Interests rate i feel will remain low for long time even when there is increase.

Just my Diary
corylogics.blogspot.com/


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Thee fact is gross yield is less than 4% , provided it can be tenanted. The net rental can hardly cover mortgage interest .
“risk comes from not knowing what you’re doing.”
I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.
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http://www.straitstimes.com/singapore/hi...ut-of-work

This story in ST today is the one to focus on.

Singapore IMHO is on the verge or repeating the 8 long lost yrs post AFC in 1997.

Just ask around - which sector in Singapore is bright and shining?

Whilst the structural unemployment is not new and the ruling party is slowing refocusing on this group of Singaporeans / PR, the debt levels of many gungho Singaporeans are now substantially higher.

Vacancies is now well publicised and expected to rise.

Singapore's high costs is also well publicised and in simple economics - costs is very rigid downwards and when external shocks hit - I think properties will once again become a real liability to many and white elephants.

No Vested Interests
Very Concern
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Side track a bit. The formula that got Singapore Inc to where we are today no longer works.
With or without foreign talent, a number of sectors are simply just moving out.
Local firms need to step up. And the ecosystem of start-ups is just not vibrant here. You cant get legal advice, you cant get funding, you cant get anything done even if you have a billion dollar idea. Singapore is a great place to be in the civil service or in one of the protected sectors. Starting something substantial and hoping to get a higher chance of success? If you are really serious about it, move elsewhere where the start up culture is more accommodating and opportunities are more plentiful.
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Singapore = high fixed costs hot $ centre that is hallowing out of real productive industries...

(20-07-2015, 11:22 PM)Big Toe Wrote: Side track a bit. The formula that got Singapore Inc to where we are today no longer works.
With or without foreign talent, a number of sectors are simply just moving out.
Local firms need to step up. And the ecosystem of start-ups is just not vibrant here. You cant get legal advice, you cant get funding, you cant get anything done even if you have a billion dollar idea. Singapore is a great place to be in the civil service or in one of the protected sectors. Starting something substantial and hoping to get a higher chance of success? Move elsewhere where the start up culture is more accommodating and opportunities are more plentiful.
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