Property Market Sentiments

[brattzz]

yea, sure,

we need more population sir! open the flood-gates!!

[weijian]

What do you think? IMO, very likely...

Credit Suisse sees SIBOR reaching 2% by end 2016

SINGAPORE (Dec 18): Credit Suisse expects the SIBOR to rise to 2% by end of 2016, from 1.1325% now, following the much-anticipated rate hike by the US Fed.
...
http://www.theedgemarkets.com/sg/article...2-end-2016

3-mth SIBOR forecast for end FY15 in Jan 2015:about 0.95%
http://m.todayonline.com/business/analys...-sibor-sor

3-mth SIBOR forecast for end FY15 in April 2015:about 1%
http://www.straitstimes.com/singapore/th...n-of-sibor 
3-mth SIBOR forecast for end FY15 in Sept 2015:about 1.15%
http://www.businesstimes.com.sg/banking-...evaluation

Current SIBOR: ~1.13%

It seems like the latest forecast mean value (with more information/knowledge and less uncertainty) is the most accurate, but then again, isn't there any surprise to this?
My guess for SIBOR for end FY16 is that it is either going to overshoot or undershoot 2% - 'A heads I win, tails I can't lose' answer!! Haha..which kinda demonstrates the futility of noting economist's longer range forecasts and the harm of using them (unknowingly) as an anchor.
More interesting, will it be better to practise some 2nd level thinking (as what Howard Marks like to say) and make plans for outliers?
- What can derail this 'gradual' increase in rates?
- What IF it is not 2%? What if it becomes 3%? What if it stays closer to 1%?

P.S. This quick analysis which doesn't look at the uncertainty range (ie. 95% confidence interval) of each forecast is abit biased towards what I want to demonstrate though

[corydorus]

For the Human floodgate to open, there needs infrastructure in-place but this will drive down price. Property Price will need to maintain within certain band each year but problem is Salary not moving up as fast. And one of the reason is we are already too expensive. Is one thing to pay high dollar for the few key personnels but completely another for Average Workers. My bet is they need to hold the remuneration of average civil servants for some years to come since they are the one leading the compensation package of the industries.

[Contrarian]

> And one of the reason is we are already too expensive.

This is true especially due to current currency devaluation. But more true is the big bosses salary are significantly higher, and they tend to cut the mid worker levels.
Only the exceptional companies I see the senior management cut high 10-20% while the worker cut 5%.

> Is one thing to pay high dollar for the few key personnels but completely another for Average Workers.

[BlueKelah]

There will be more defaulted property loans once sibor doubles. Means the monthly repayment almost doubles going from 1.13 to 2 percent. Most people salary wont be double in a year...

Gonna see some panic selling in the new year. The tide is going out...

sent from my Galaxy Tab S

[corydorus]

There will be more defaulted property loans once sibor doubles. Means the monthly repayment almost doubles going from 1.13 to 2 percent. Most people salary wont be double in a year...

Gonna see some panic selling in the new year. The tide is going out...

sent from my Galaxy Tab S

Yes likely will be more. But interests doubled won't be double payment due to inclusion of payment of principal component.

[CY09]

Property loans tend to be 0.75 or 1% + SIBOR. So technically a doubling of the current SIBOR will not result in the doubling of repayment.

That being said, MAS in 2013, saw this danger and had set the servicing ratio under the assumed scenario of 3.5% interest (e.g. 1% + assumed 12 month SIBOR rate of 2.5%). So probably about half of the current property loans are under this TDSR framework.

IMO, the immediate dangers are:

1) Loss of jobs due to the oil/gas, commodity and impending office supply downturn. This is because loss of jobs means no income
 to service the loans

2) Banks decision to ask for a top up of funds due to the downwards revaluation of property value.

The distant threat that may happen is when SIBOR hits 3% (the last time it happened was in 2007)

[smallcaps]

If sibor triples repayment goes up by around 30%. Instead of defaults maybe COE price go down?

[weijian]

There will be more defaulted property loans once sibor doubles. Means the monthly repayment almost doubles going from 1.13 to 2 percent. Most people salary wont be double in a year...

Gonna see some panic selling in the new year. The tide is going out...

sent from my Galaxy Tab S

A doubling of SIBOR to 2%, assuming you are on a SIBOR+X% loan will see someone who loaned 80% of a 1 million property, pay 0.01*800k = 8000dollars extra interest every year. This translates to ~667sgd/month, not exactly requiring an average salaried household (median income ~8000sgd/month) to double their income to cope with it. They may however need to do some of the following: (1) stick with a holiday in an ASEAN country, (2) downgrade or sell their car/s, (3) give up extra-curriculum activities like piano for their kids, (4) Lower down their rental expectations to secure a tenant even though it may become cash flow negative after accounting for interest payment.

On the contrary, if one were to sell - for every 2% drop in price (every 6 months), a lelong sale on a 1mil property incurs a 20k capital loss. These households wouldn't be able to get any tax credits for losses like the way companies do. A rational being might think that it is better to cut loss by incurring the capital loss, but the human heuristic of loss aversion most probably will make the general crowd not sell unless he is forced to, by actions that is beyond his expectation. An example would be if the breadwinner in the household is retrenched due to economic restructuring, then that is a different issue altogether..

One might also think that banks will ask loan owners to top up when LTV is breached. But doing that means banks have to start reporting a NPL increase on their books and markets don't like that - Share prices drop, Board members start to question and heads will roll. Banks generally have larger holding power than individuals and do not need to do lelong sale even in an auction.

[jjlim84]

em...so what happened last time when the interest rates were 5%? Or in 2-5% range?

I didn't remember it was so tragic. Or because incomes were higher? Oil boom at that time? Property prices were much lower?

I remembered the last time I saw the property price to income ratio stats, Singapore was somewhere in the middle, lower than cities like London, Beijing, Shanghai, hongkong