Thursday, June 19, 2008

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Buy Property to hedge against inflation ?

The following are exchanges in the Singapore Property Forum on whether buying property to hedge against inflation today still makes sense.

Bull wrote:

In long term, property is the best investment in Spore. It scored higher than stock, GDP & of couse FD. For last 12 yrs, 1996 to 2008, GDP has growth average 5%/yr, compounded to almost 100% growth for last 12 yrs, but property price index is still below 1996 now, so our property price is not high at current level, more to go. Stock & Property are Inflation Hedge

Bear wrote:

Properties bought in mid 90s are still negative assets it goes to show that you must have the right entry price, .. otherwise don't talk about property is the best investment, you'll just lose more money than stock. At current property, ROI is negative when you take your costs into account, so why buy? You'll just end up sponsoring your tenants to a luxurious living while you slave to pay for it.

Bull wrote:

That is why has to invest property in long term, not speculate or flip. Compared now to 1996, now is the good time to move in as we know property will surpass 1996 & up >100% compared to 1996 price, just a matter of time, likely this will be reached by 2011-12, so from now till 2011-12, there is another >100% of upside.

Bear wrote:

How long term is long term? From 1996 to now is 11 years and still losing money. Add the property price to the mortgage, these people may have paid as much as 200% for their properties, so can property appreciate by that much even 10 years later? Not to mention that properties, especially 99-leasehold, suffer from age-depreciation. On the other hand, those who bought during the property crash between 1998 -2006 are the ones making money from property now. Clearly, smart buyers should wait until the market crash. The risk of a market crash is so much bigger today than 1996.

1. Compared now to 1996, the current global uncertainty is even more threatening. The current soaring oil price will eventually bring the whole world's economy to its kneel. Add that to the US subprime and credit crunch crisis, you can see it's big trouble ahead. In 1997, it's just the Asian financial crisis. Today, the threat of another Asian financial crisis is growing.

2. Developers are now squeezed by higher borrowing costs and higher building costs. They'll have to lower price to move sales if buyers keep waiting.

3. Supply is increasing, demand is decreasing. No matter how developers hold back launches and how buiding costs delay completion, all these properties will come on stream within the next 2-3 years.

4. Asking prices of many new launches are actually higher than those in 1996. So if those people are still losing money, what make you think you can make money when you're paying even more ?

5. You can go ahead and pay the high price now. But ask yourselves what are chances of finding buyers who will pay you even higher prices?

Bull wrote:

are you sure those bought in 1996 still losing money? Those prime area already 50-100% above 1996 price. Only a small percentage still not recovered, especially HDB.

Bear wrote:

Agree with you that some prime areas have gone above 1996 prices but with mortgage added, I'm doubtful that even these properties have brought good returns. Anyway, this market segment is widely expected to crash .. in fact, prices already sliding. Not small percentage at all. Mass market and HDB properties bought in 1996 are all still losing money. They form the highest percentage of the property market.

Join the Singapore Property Forum to discuss Smart Buying Tips here.

May also want to read:
History of Singapore Property 1960 to 2008
Buy or Not Buy: How to decide amid mixed market signals
Smart Buyers, 10 reasons to wait
Property Price Index Graph Plotter & Online Property Valuation


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The blogger here has been affectionately named by close allies as "Smart Buyer" but really, he's not smart. Smart Buyer just believes that being prudent is smart. That's the essence of the message of this blog and Smart Buyer hopes it'll benefit other property buyers.

Smart Buyer :)