Monday, April 28, 2008

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Singapore Property Market: A forecast for 2008

Smart Buyers Collection is a collection of words of wisdom by various Singapore property watchers.

By: uncertain
Posted: 28-04-2008

Well...I would wait at least another 6 months to a year.

We told clients and investors to sell all Singapore holdings (property, stocks and everything else) in June 2007. We determined that prices would never, ever be higher and were predicting a 15% drop in pricing by March 2008 and 25% drop by June 2008.

Rationale was simple and not rocket science.

#1. There was no demand for housing when the boom started.
The vacancy rates on existing housing were above New York, London, Hong Kong, Tokyo and other major urban market levels. A Singapore property boom made no sense at all.

#2. Singapore GDP...nice impressive numbers. But the growth was 99% construction related. There is no economic growth when the construction boom ends and those numbers are subtracted from the total.

#3. The existing luxury housing vacancy levels in Singapore were adequate to fill the needs of Singaporeans and any possible influx of new senior executives for the next 5 years. Thus, there was no demand for executive luxury housing in the market.

#4. Value for money on Singapore property for foreign investors is not good when compared to other projected growth economies. (several factors are weighed including psf, quality of workmanship, size of economy, projected growth of economy, lifestyle and culture of the market.)

#4. The targeted future population numbers of Singapore are pie in the sky and completely without substance. Singaporeans are not having kids and the demand for jobs in Singapore will be service led lower paying jobs to supply the planned tourism developments. Non of these new inhabitants will be buying or renting condo's, especially in the high-end. And tourists visit, they don't buy or rent.

#5. Singapore is not a supply/demand driven economy. It is a small, managed economy. Thus, the property development plans were lofty, risky, and not based on future real supply/demand realities.

#6. There is a lack of real, transparent, objective information available in the Singapore market about the Singapore market. This leads to investors belief in hype and speculation rather than economic principles.

#7. Global money supplies and markets are taking a beating and will continue to take a beating. The second call on the sub prime products happens this June so more big losses are expected. This will stall or even damage the Singapore economy.

We expect distress sales in the property market to start soon. The high-end rental market is non-existent and the higher % of all unit sales were high-end investment property, speculator driven.
These buyers need "wealthy" renters to subsidize the million dollar mortgages. Most locals cannot afford the rents the market is demanding.
Surveys of multinational companies and banks have indicated that there is no boat-load of expats with a big housing allowance arriving at the Singapore port anytime soon. The new owner is now stuck with 100% of a very expensive monthly mortgage.

Here is an example of one major high-end development I'm following to prove the point. These are some very telling numbers.
600+ units launched
20+ remaining at $2,000 per square foot via the developer.
100+ units previously sold are now for sale privately less than 7 months after launch for $1,300 to $1,600 per square foot.
The rental income.
That tells me that property owners are willing to admit that market prices are down 25%+ already. Unfortunately, even at a 25% discount, there are no buyers.

Existing Singapore residents are keeping the rental market buoyant due to the fact they sold their old places and are waiting for the prices to drop...OR...waiting for their new unit to be completed. These people are relatively small in overall numbers and definitely not going to rent high end luxury units. They are driving HDB, middle priced housing rents up right now. They are also demanding 12 month leases or even less if they can get it proving that they are waiting to move or sitting on the sidelines waiting for prices to drop.

The Singapore property market is massively oversupplied today and more units are on the way. This is not good. This is should be extremely troublesome to anyone who owns property anywhere in that market. The potential valuation losses in the property market could be enormous, especially at the high-end. Overall prices could sink well below SARS levels and this could happen within 6 months to a year.

The short lived property boom was very much like a pyramid scheme.
It was all hype and no substance.
The first guys in are now smoking big cigars.
The last guys in are now left holding the ashtray.

Saturday, April 12, 2008

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Global Recession+Global Inflation=Global Stagflation

Smart Buyers Collection is a collection of words of wisdom by various Singapore property watchers.

By: Anonymous
Posted: 12-04-2008

In the big recession of the 70s, stagflation was also the key reason why it lasted till the early 80s.

The IMF says it will be a GLOBAL recession. In case you don't understand what GLOBAL means, it refers to countries on an international basis and not just the US. Europe and Asia are going to be greatly affected; decoupled or not, we need to tighten our belts now to prepare for the next one to two years of recession and retrenchments.

Commit to a $1m property with a big loan and you will find yourself in negative equity in less than six months. GE in the US is a belwether; this means investors look at it as the biggest indicator of the performance of the consumer market. The recession that we have today is a consumer-led recession i.e. it is a lack of confidence in the whole financial and economic system that we have. The triggers to the breakdown in consumer confidence were the subprime issues but further cracks in the financial and economic system and subsystems have resulted in a freefall in consumer sentiment and and much reduced spending that worsens the vicious cycle of economic recession and devastated corporate bottomlines.

The inflation problems that we have with basic commodities such as rice and other foodstuffs, and other industrial needs such as coal and oil have literally been adding oil to the fire. Living and business expenses have increased many-fold and resulted in the man-in-the-street fighting for survival on a relatively stagnant pay-check. What we are experiencing is the evil monster of Stagflation which is like a multi-head hydra. Cut off one head and it regrows. The central banks of the world are in a dilemma - the usual methods of rate cuts and other monetary infusions into their own financial systems do not work well this round simply because they cause inflation to worsen. In the big recession of the 70s, stagflation was also the key reason why it lasted till the early 80s.

Looking at all these, it is hard to imagine how property prices can avoid the big fall in a matter of months. My advice to would-be buyers. Think deeply and plan your finances very very carefully.

Are you going to pay your monthly housing loan installments using your CPF?

How sure are you of a job several months down the road?

Do you have enough cash buffer in your bank?

Have you factored in the inflationary increases of 6% to 10% in basic needs of your family?

The baseline consideration would be:

Do you really need that property now?