Sunday, October 18, 2015

Property Thoughts Oct 2015

The last time I wrote an in-depth post about property was back in June, and it was also large based on the BNP report that I had read. I just managed to get around to reading the recent BNP report dated 24th Sep, so I'll just share my thoughts outloud.

Largely, their report is singing the same tune with a lot more data to prop up their stand. However, I find this graph to be the most interesting of their whole report:

Their supply-demand model looks pretty good, taking into account population projects, housing supply, etc. So far I like their reasoning and logic and the way they've gone around to collect data and how they have built their models. It falls in line very similar to how I've been processing my information regarding property. Of course I am but a single non-expert doing this casually, while the analyst is a CFA charterholder and doing this full-time.

On top of their rather lengthy, but detailed information about their supply and demand model, there are also some other graphs which I found quite useful.

I am not aware of this "40% limit" that the banks have. The TDSR is 60% of monthly income, but maybe it works out to be roughly 40% or something. Or he made a mistake. Maybe he confused it with the LTV limit for loans over 30 years or something. Anyway, why would the line be flat throughout the years? This line confuses and annoys me because I don't understand how he got it and why it's there.

However, the other information on the graph is very useful. As you can see, since the TDSR was introduced in June 2013, it has sort of "capped" the mortgage/income ratio. I am very sure that if such a measure was not put into place, households would be much more leveraged and the bull peak would have been extended by several quarters.

If you look at the ratio of private home prices to income, you can see that we are on the upper end of this data series. Can home prices go up to the 12-13 range? That would bring us back to the same ratio that was right before the Asian Financial Crisis and the recent cyclical peak in housing price. In the face of all the cooling measures and oversupply, I would give very low odds that the price-to-income ratio increases.

Another excellent observation which has already been picked up by the mass media is the disappearance of foreign buyers in the local property market.

Relative FX weakness in foreign buyers' currency, the 15% foreigner ABSD and tighter immigration polices makes for a very strong argument on why foreigners will not be propping up our property market. (especially if "everyone" wants tighter immigration policies)

Basically, we are on own own until the government decide to lift cooling measures.... which I doubt they will until property prices are fixed. And that means prices being lower. I say fixed because the property market is obviously broken. Why do I say that? Well, because I think it's borderline retarded to buy an "investment property" for 2.5 - 3.5% net yields. The benefits are laughable when compared to the risks. That's not to say a property bought now WILL be a bad investment. But even a gambling man wouldn't take those odds.

Their supply-demand model, linked with the affordability index and also bringing in market cycles makes for a very harmonic and logical argument.

For property owners, it would be a pretty nice fantasy that we are bottoming out now and are on our way to a new bull market, but I don't think believe so. In fact nothing supports that argument other than that price has come down a bit. I think we're in for a more 2000-2004 style bottom.

After reading their report, I am grudgingly willing to admit that my "optimistic" forecast of a property bottom is 2016 seems quite unlikely now, unless we get a large external shock (fingers crossed). I continue to save up and hoard cash, while I read finish my property books and also start fantasizing about my internal decor.

More time, more money, more prepared, more odds of success!


  1. Hi GMGH,

    You are single with no intention to buy HDB BTO flats right?

    Most of my friends are going the HDB BTO flats so I don't have anyone to consult with.

    What are the property options for singles below 30? I do not want to wait till 35 to buy. So I'm wondering if you are in similar situation and if so what are the properties you are looking to buy? Private property? For ownself to stay or to generate rental income?


    1. Hi Anon,

      Yes, I am single, and because of that I am excluded from HDB BTO flats. If I was turning 30, I would just hold out and get a HDB at 35.

      I think I'm a pragmatist, so I plan accordingly to my current situation (which is to find housing requirements to fulfill my needs as a single), not what is being culturally forced onto me that may not materialize (to get married and spawn a brood which I may not be able to afford).

      Property options for singles below 30 and below 35 are the same. Above 35, we can get any resale HDB or a 2-room BTO. Below 35, we can only get private property or EC's that are over 5 years old. The EC is a bit interesting because it is free for all after 10 years, but from the 6th to 10th year, it can be sold to Singaporeans or PRs, and that includes singles.

      I am only looking for a private property for self-occupation. I understand that I could be living with my parents for free instead, but I suppose this is the price of youth freedom. I am willing to pay for it. I have thought about it for a long time and I personally do not fit the role of a landlord so I do not want to own any additional properties. On top of that, I think residential properties pale greatly in comparison to REITs from a purely investment standpoint.

      What about yourself? Owner-occupied or for rental income?

    2. Hi GMGH,

      Thanks for taking the time to reply me, I will reply you here to indicate that I have read your reply.

      I will prefer rental income as staying with my parents still has quite a bit of benefits for me.

      Also I'm thinking if I pay for the property using CPF monthly installments. Then the rental income will be additional cashflow which I can use to put into other investments.

      However no firm plans yet as although I am single now, it does not mean that this will remain status quo in the future.

  2. Hi to the previous anonymous,

    Learn from me and take this consideration very seriously. When you decide to go private, what it would means naturally also is that you are going to forfeit the potential of going through any bto route when you wish to.

    Like you said, you may be single now, but it may not remain status quo. Think how it would impact your other half of that were to hapoen.

    - Are you willing to go purchase a private for investment and get a resale hdb in future, thereby forfeiting any potential benefits or grants for a bto? Would you other half be comfortable with that as well?

    - When you are considering the purchase, would this private that you get be suitable for your spouse in the future? Not just location but the size of apartment as well. The reason I ask is because like the blogger rightfully stated, it's a huge investment and the future is unknown. In the event that the property prices are depressed in future, would you be able to manage / stay in the private you bought?

    There are numerous items worth considering that has been on my mind but I left 2 trigger questions above for your consideration and further afterthought.


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