Thursday, August 28, 2014

Singapore Property vs Gold in SGD: More useful than you think

So lately I've been reading a lot about property. I'm planning on moving out of my family home soon and live on my own. One of the things that I always think about is if an investment is under or over valued, and how can you tell.

Well, following my previous research that I did comparing the STI in terms of gold, I thought I'd do the same with property. I said I wanted to do this quite a long time ago. I even thought I did do it, until I couldn't find any previous post on it.

Instead of using the URA PPI, I have decided to instead us the SRX SPI. Why? For me, the biggest reason is that the SRX SPI is published monthly while the URA PPI is published quarterly. This of course means that the URA PPI is much smoother and a better indicator of the general trend, but it can of course lag by quite a wide timeframe. For further differences, scroll down to point 23 of this page.

Anyway, I used 3 sets of data:
1) SPX SPI (monthly)
2) Gold in USD (monthly average)
3) USD/SGD (monthly average)

Since both gold prices and FX rates go quite a long way back, the only limiting factor to the dataset here in the SPX SPI, which starts in 1995. Below is the chart of the ratio between the SRX SPI and Gold in SGD terms.



Perhaps the chart doesn't look so clear, so nevermind, let me annotate it myself.


Basically, this chart quite accurately predicted the gold highs in 2006, 2008 and 2011/2012. The same for the housing highs, 1997, 2000, 2007 and the current one right now.

Don't believe me? Check out the respective gold and housing charts below:



So has the Singaporean housing bubble popped? I would say yes objectively.

Should you sell your house and buy gold? Well, not that I'm an expert or anything, but if I only had 2 assets to cycle in between each other, then yes, I would sell any investment property I have now and stack precious metals.

Of course, based on the previous study I did with the STI and Gold, I did find that in terms of relative value, the STI seems like a much better buy than gold now.

Anyway, I'm of course holding off my house purchase (what's the rush? this correction look set to be prolonged and painful with the cooling measures, massive supply is going to hit the market over the next 3 years, oh it's going to be glorious). Of course I want to move out, but I will most likely save tens of thousands of dollars just waiting for a year or two for the housing market to reach back to sane valuations. Some of the psf prices on ridiculously small units for midgets which are leasehold are currently just out of this world. I seriously seriously wonder where do all these "Singaporean property investors" think rental demand is coming from.

Until then, I continue to stack precious metals on dips. I'll probably cash out almost all my precious metals holdings once the SRX SPI heads towards the other end!

Now, the more interesting thing to calculate now is what about Property vs STI? And then a 3-way comparisons of STI vs Property vs Gold! Hmmm... well, if people are interested, I might get off my lazy bum and do that research.

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