Friday, December 26, 2014

Nostramoney: Property Thoughts

As a Singaporean (like all other Singaporeans, especially taxi drivers), I am an expert on the property markets. I'd just like to share my thoughts / predictions of what could happen in the future.

I strongly suspect more government related property cooling measures. However, knowing the government, they will be targeting to inflict maximum pain on "property investors". Why do I say so? I think the government believes that given the land scarcity in Singapore and the need for affordable housing for the majority of the population, people owning multiple investment properties are going against the grain. While the government is trying to keep housing affordable, property investors only gain from the opposite effect. The government will look for a way to align the entire market to their interest, and the way I see it is to penalize or eliminate multiple home owners.

I can envision much tighter multiple home ownership regulations, such as a higher initial deposit percentage, even a large minimum deposit amount regardless of property value, higher ABSD, shorter loan tenures and a longer duration for the SSD to taper off. Of course, these will only stop future speculation, but it does kill off many of the current property investors owning multiple properties.

Short-term, I can see an engineered smack down of the housing market to reduce current home prices. Unfortunately, this might be quite ugly. Probably this will be done by subtly hitting where it hurts, the mortgage-rental dichotomy. When US rates start to take off (probably wouldn't last long though), our rates will move up as well. However, I suspect the mortgage aspect will not be pushing prices up too much. Rates are not going to shoot to the moon unless we get very strong and persistent inflation. Under a normal scenario, close to no damage would be done on this front.

The rent side shows more promise in controlling the market. Rental rates are already dropping due to oversupply of units being added to the market. Little to none of these units are going to be moved off the market anytime soon since the SSD ensures that they remain rental units for the next few years. The supply side is governed mostly by market forces since any intervention will take considerable time to affect the market due to lag.

However, the demand side could be where the government can make some big changes. Singaporeans don't rent, full stop, end of argument. If the government wants to indirectly kill off property investors, all they have to do is to figure out a way to kill off rental demand. Long term, there are plans to have better dormitories which could eat into the OCR single room rental demand. Short term, tightening work visa renewals and immigration policies is probably already being done, making total demand in all segments slide. Corporate investors of private property could also be unfavourably treated, forcing investments out into other more productive sectors.

In the long run, it would seem to make sense to me that the government greatly controls, monitors and regulates the property market since land is such a scarce resource here. In the future, people in Singapore might not even view property as an investment, but rather as a luxury good for personal usage. It's a long-time away with a different way of thinking from our current mentality, but I don't think it's too far-fetched.

Iskandar is looking to be a dangerous money-sucking venture. I doubt it will be viable and buzzing until at least the turn of the decade. There was a week that I was in charge of the office mail, and I swear, the number of flyers and leaflets that came in advertising for industrial properties in Singapore is crazy. And it's not 1 property. It's an array of like a few different places scattered around Singapore. Don't even need to get started about the ones in Iskandar. I hear in the industrial estates, these flyers get put onto cars parked in the lunch areas during lunch time. It does not seem like the good times are here anymore. Buying property and making investments before anything sound happens is the precise and exact way the kiasu Singaporean makes his investment. Buy growth that is fairly priced in - if it happens.

With an on-going mortgage and zero rental demand, Iskandar is set to be a dud and money bleeder. I think a lot of capital will be stuck locked up there, capital that could have otherwise been deployed locally. Anyone who invested in Iskandar that came on the second boat is going to have a sour taste in their mouth.

On the home front, today's front page news of the release of net prices of units sold by developers is going to be very interesting. I think we will be seeing across the board downward revisions to home prices as the net prices will reflect a much truer and accurate picture of what has been happening in the market, without the clever use of whatever tactics to give the illusion of a well-propped up property market.

Supply will continue to hit the market, while demand continues to stay weak. Once multiple owners start feeling the cash drain of another property, they will have to relent. So many are clenching up right now, just hoping to ride out this wave. It's going to be a big and long one to ride out, and I suspect many people will be losing their current tenants unless they drop rates. Many of my overseas friends who have been happy in their locations are now all exploring their rental options once their contract expires. Many are not looking to move into better places with the same amounts. Many are instead looking to stay within the same area, but for much lower prices. If it is a matter of just shifting unit within a condo, they would do it to save the money.

I have been holding the belief that the property market will have a serious correction going into the final quarter of 2015, but now even H1 2016 seems possible too. What has been going on for the past year ain't nothing yet, but looks to be the slow drawn out of process of topping out. Admittedly, the reversal of price is happening very slowly, but I view it as a likelihood of a persisting weak market, rather than resilience and holding power.

Anyway, my current strategy as a potential home owner is just to wait on my butt for all hell to break lose. Buying a property near all-time highs is ludicrous and I think even fair-value is not fair enough for me. There will ALWAYS be boom and bust cycles. As a person considering a house for personal usage, my only goal is to minimize my housing expense. Any appreciation or depreciation of the property will not affect me since I am "consuming" it and I would not sell it, unless to move to another location. And since properties all move in the same cycle together, inflation-adjusted, the gains would be minimal rather than the phenomenal nominal gains that people like to use to lie to themselves.

Of course, all of this is just a simple fictitious prediction of the future by a silly 25 year old young gun on the internet. It can't be true... right?


  1. Hi GMGH

    2 years ago I almost put my money in Iskandar.

    How things have changed since then. The govt rules have virtually killed the market in both SG and Malaysia and now we see an oversupply glut of houses. It will be interesting to see how it plays out since interest rates is not even up yet so I think the housing market will be a long drag until possibly 2018 before we see a reversal.

    1. Hey B,

      Yup, government policies came around so fast and unexpectedly and make such a huge impact! I agree, unless there is a catalyst to bring forward a correction in the housing market, I do think it would be a long drag. However, the catalyst that I see is another (global) recession, it has been a long time since we've had one! Oh well, just predictions :P haha!


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