Property market still hot but not feverish

[Musicwhiz]

Dec 9, 2010
Commentary
Property market still hot but not feverish
Cooling measures are curbing speculation without stifling demand
By Esther Teo

THREE months after the Government's latest measures to cool it, the property market remains buoyant.

This has led some to question if the Aug 30 measures to tighten financing for those with existing loans and dampen demand for resale Housing Board flats were sufficient. These measures came on the back of earlier ones in September last year and February this year to cool the red-hot property market.

Others think the measures are effective. National Development Minister Mah Bow Tan declared recently that the calibrated cooling measures 'are starting to take effect'.

Those who think the market did not cool sufficiently may point to rising sales volumes for new private homes. After dipping in September, sales rebounded in October. Last month's figures look rosy so far, with more than 950 homes sold in three projects alone: Waterview, Spottiswoode Residences and Lakefront Residences.

Private home sales totalled 13,109 units in the first 10 months of this year, and may beat the 2007 record of 14,811.

The sales volumes suggest strong underlying demand for new private properties. Overall, the property market remains strong. But then it was never the intention of the Government to precipitate a fall in demand or prices.

No fewer than three ministers have said in the past month that the Government is monitoring the market closely - watching it 'like a hawk' as Mr Mah put it - and that it will not hesitate to introduce further cooling measures if necessary. Prime Minister Lee Hsien Loong and Finance Minister Tharman Shanmugaratnam have both said as much.

The Government's preference for a series of calibrated measures is borne of painful experience, after the Big Bang approach in the last property boom in 1996 led to a prolonged bust, no thanks in part to a global downturn.

Ideally, cooling measures should aim to remove speculative froth from the market, yet allow the property sector to grow in a stable and sustainable manner, with prices moving in line with economic fundamentals. This way, genuine home buyers are not priced out by cash-rich speculators flipping properties for quick gains.

If this is the yardstick, then the slew of measures so far this year have worked well: removing speculative froth from both private and public housing markets, yet keeping the overall market strong.

The evidence?

First, growth in private home prices has moderated. Prices rose by a smaller 2.9 per cent in the third quarter, down from 5.3 per cent the quarter before, according to the Urban Redevelopment Authority (URA). The URA index tracks prices of new projects - which tend to be priced higher - as well as those under completion and already completed.

Another price index, the Singapore Residential Price Index (SRPI) by the National University of Singapore (NUS), tracks only prices of completed projects. This index was 0.7 per cent lower in October than in September. The last time the overall index fell was in July, when it dipped by 0.1 per cent. NUS has been compiling the index since March this year.

Second, recent winning bids for private residential sites in the government land sales (GLS) programme have mostly plateaued in the $300 to $350 per sq ft per plot ratio range. The gaps between bids have narrowed considerably, indicating developers' more conservative outlook.

Third and more importantly, property prices and rents are now moving upwards in tandem and in line with economic fundamentals, said property firm Cushman & Wakefield's senior manager of Asia-Pacific research Ong Kah Seng.

In the bubbly second half of last year, prices of completed non-landed private homes gained 26 per cent. But rents actually fell by 1.7 per cent compared with the first half of the year. The economy grew by 10 per cent in that period.

This showed prices soaring without regard for rental yield and fast outstripping economic growth. Mr Ong notes: 'A prolonged period of price increase amid rental decline may suggest that some home buyers have intentions to speculate.'

In contrast, in the first nine months of this year, the prices of completed non-landed private homes have risen 13 per cent, keeping pace with a 15 per cent rise in rents and expected 15 per cent growth in the economy for the full year.

Fourth, speculative fervour has cooled with fewer sub-sales of private homes - when someone buys and then sells a property still under construction. This fell 52 per cent month-on-month in September.

In the private property market, prices are rising, but the froth is subsiding. But what of the public housing market? This has been a red-hot issue, with first-time buyers complaining of having to fork out large sums in excess of valuation, or cash over valuation (COV).

Mr Mah said recently that overall HDB resale transactions have fallen 30 per cent in the fourth quarter so far, against the previous quarter. Median COVs fell to $22,000 last month from $30,000 in the third quarter.

An objective observer would say the property market today is strong and healthy, and no longer feverish - for now.

But Singapore's open economy makes its property sector vulnerable to global developments. There is excess liquidity worldwide. Funds are fleeing faltering Western economies to Asia, including Singapore, in search of better yield. Already, Singapore has been flagged as the top real estate investment destination by the non-profit Urban Land Institute and PricewaterhouseCoopers.

Domestically, low interest rates and the spectre of up to 3 per cent inflation this year make property an attractive inflation-hedging investment. As Singapore's population crossed the five million mark in June, underlying demand is driving up prices.

With domestic and global factors aligned for a property boom that could become a bubble, a prudent government would rightly watch the market like a hawk for signs of excessive exuberance. So far, using calibrated measures has worked well. So too have the Government's moves on both sides of the property equation to trim demand while releasing more supply.

In this context, if prices outstrip economic fundamentals again, the more pertinent question is not whether, but when, there will be another round of measures.

esthert@sph.com.sg

[flinger]

Maybe I am confused. If a 35 yr old flat 4 room flat goes for 280,000 - 320,000 in woodlands , when just 3 yrs ago it went for 200 - 230. What is the reason for the spike?

When 10 yr old 4 - 5 room flats cost like 400 - 500 thousands in woodlands.... when they were 200 - 300 range previously.... What is the reason for the spike ??

Would these flats then cost 600 - 700 in another 5 - 10 yrs??

I am pretty confused. They say prices have gone down...but I don't seem to see it, but I read a lot about it .

I am really confused.

[Musicwhiz]

Maybe I am confused. If a 35 yr old flat 4 room flat goes for 280,000 - 320,000 in woodlands , when just 3 yrs ago it went for 200 - 230. What is the reason for the spike?

When 10 yr old 4 - 5 room flats cost like 400 - 500 thousands in woodlands.... when they were 200 - 300 range previously.... What is the reason for the spike ??

Would these flats then cost 600 - 700 in another 5 - 10 yrs??

I see the reason for the spike being the huge influx of foreigners in the last 4-5 years, which has pushed up housing prices across the board. People all need somewhere to live! Haha. And some of these people are rich enough to plonk money down on properties they love, irregardless of the asking price.

So looking at the demand perspective, with supply being constrained, it is no wonder prices are moving up.

Whether this continues to be so for the next 5 years remains to be seen, and will depend on immigration policy, economic growth (i.e. GDP growth, real wage growth and interest rates) and to a large extent sentiment too.

[Musicwhiz]

http://money.cnn.com/2010/12/10/news/int.../index.htm

Thanks for the link. So perhaps it is not so difficult to spot a "bubble", or is it? Mainstream media will never report it that way until after the fact (i.e. on hindsight). Even then, no one mentioned the word "bubble" much in 1996 just before the property market crashed in 1997.....

[Jacmar]

even if it is a bubble, it may keep going for a while. I remember greenspan using the word irrational exuberance in dec 1996 but the stock market keeps going till 2000.

I used to be a bottom up investor but now I am quite a convinced top down investor. The rational? If the stock market is going to fall 50%, then no point staying invested in the market and get hit no matter how good your stock is. You can start investing when the selling is done and volume gets very low.

Looking at current trend, Bernanke is trying to create wealth effects by inflating the stock market to kickstart the economy and also for Obama's reelection in 2012. Quite silly fighting the FED. The 'bubble' will go on for some more time

As for Singapore's housing, my mum was telling me that a 3 room flat in Toa Payoh could be rented out for $2200. Well if you have a choice, would you buy using CPF or rent using cash. I trust my mum's market infor more than those analysts....The property market will continue to do well but when the market turns, then it would be very bad for property owners who are heavily invested. A confluence of negative factors, economy slowdown, PR leaving, floods of new flats coming out thx to MBT again, interest rate up, stock market fall/crash.

I agree totally with what you say and next couple of years would still be ok for investment in stocks and properties. I think the crunch will come in 2013. If Obama is reelected in 2012(he couldn't care about reelection anynmore) he will put in the squeeze as I expect by 2012/2013 inflation will start to kick in and no more QE.

[sgd]

HDB prices in singapore are government controlled. if homes are priced out of reach of ordinary citizens then government will be blamed for not doing enough to provide affordable housing so not many people will get married to start family unit which will lead to low birthrates it will become a hot potato issue come election. So my take is prices will come down. They won't come down to 100k like 20-30 years ago maybe 200k to 300k range eventually.

[Musicwhiz]

even if it is a bubble, it may keep going for a while. I remember greenspan using the word irrational exuberance in dec 1996 but the stock market keeps going till 2000.

Interestingly, I am reading a book called "Greenspan's Bubbles" and it describes how Greenspan made the same mistake over and over again by making interest rates go too low, and thus creating the Y2K dot.com bubble, which then led to the real estate bubble in the sub-prime market. And it appears his successor Ben Bernanke is doing the same thing, possibly over-stimulating the economy by keeping interest rates close to zero for an extended period of time.

I used to be a bottom up investor but now I am quite a convinced top down investor. The rational? If the stock market is going to fall 50%, then no point staying invested in the market and get hit no matter how good your stock is. You can start investing when the selling is done and volume gets very low.

It's actually pretty easy to advocate "Market Cycle Investing", which a previous forumer was in strong support of. However, the reality is that it may be very difficult to spot such trends accurately and "get out" in time. In essence you will be trying to time the market.

Looking at current trend, Bernanke is trying to create wealth effects by inflating the stock market to kickstart the economy and also for Obama's reelection in 2012. Quite silly fighting the FED. The 'bubble' will go on for some more time.

I agree with this observation. Cheap, abundant money is flowing out of USA and finding its way to Asia, where it is helping to prop up property prices. There is a transfer of wealth from USA to Asia and other parts of the world. But drastically increasing money supply is not a good long-term solution.

As for Singapore's housing, my mum was telling me that a 3 room flat in Toa Payoh could be rented out for $2200. Well if you have a choice, would you buy using CPF or rent using cash. I trust my mum's market infor more than those analysts....The property market will continue to do well but when the market turns, then it would be very bad for property owners who are heavily invested. A confluence of negative factors, economy slowdown, PR leaving, floods of new flats coming out thx to MBT again, interest rate up, stock market fall/crash. May not be a bad thing for property developers if they are smart enough not to overload themselves....just buy land, launch it and buy new land again......you never die this way...just that those analysts sitting on desktop still thinking that the developers are silly and buy a lot and get stuck

I guess no one can tell for sure if the bubble will be pricked anytime soon, or if property will ever cool. As you say, it's based on a confluence of factors and it is complicated to try and analyze and predict. As long as you are conservative and prudent I think you will do just fine.

[koh_52]

I used to be a bottom up investor but now I am quite a convinced top down investor. The rational? If the stock market is going to fall 50%, then no point staying invested in the market and get hit no matter how good your stock is. You can start investing when the selling is done and volume gets very low.

It's actually pretty easy to advocate "Market Cycle Investing", which a previous forumer was in strong support of. However, the reality is that it may be very difficult to spot such trends accurately and "get out" in time. In essence you will be trying to time the market.

My remiser sifu & me both are strong supporters of market cycle investing. Having learnt our lesson in Asian Finance crisis in 97 we adopt a strategy not to be greedy and go against the trend. Its proven, those properties we bot in 03,04,05..now appreciated more than 100%..both sold some properties in 07 thereafter re-enter in 2009 as for me I added one (uncompleted) FH apt this year as part of my re-balance exercise for long term investment, using my son CPF (as borrower) to pay for the 40 yrs mortgage loan . .....Hence, as the price go higher buy lesser or slowly take profit ( in the midst of letting go 1 asset that give me more than 25% gain in less than a year)....is it a top down strategy? as wat behappy san advocated.

Anyway, if you are lucky both 'timing & location' you got it right in respect to property investment...money is yours...talk easy then done, hehe.

Another important strategy to bear in mind:
knowing when to quit is also an important factor in today fast changing investment environment...Having an Opportunity fund will give 1 a good chance to be the next millionaire when the market crash, but 1 must act fast, having done all his homework in-hand...many theories dun practice is as good as useless.

I tracked closely to Ah Ben QE's policy, he playing snooker in the monetary policy dat affecting the whole world. My guess this 1 to 1.5 years no market crash, instead an Hyperinflation and Asset Bubble in 2011...good luck.

HDB Supply Vs Population