Wednesday, August 6, 2008

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HDB Resales, Mass Market Condos, High End Properties - which price will hold firm?

The following is a forum exchange extracted from the Singapore Property Forum:

Guest wrote:
From what I read, I think that property prices may have peaked. There are still some resistance, but do not think that property prices will collapse suddenly. As it is cyclical, I think it will take about 1 to 2 years for further decline to fair value. Unless you are dying for a place to stay, do wait a while.

Sean wrote:
The problem that we are facing now is a systemic adjustment in global economy which results in stagflation and prices skyrocketing to new heights within a short period of 3-5 years. This happens before to Singapore during the 1970s when bungalows and private houses were selling at just $30,000 and above, and then suddenly within 3-5 years it jumps by 500% to $150,000. This systemic adjustment might happen to Singapore again. This is actually a global adjustment and not only apply to Singapore. Just look back at our past.

Singapore seems to be remaking its past again. As more and more richer foreigners come to make Singapore their home/2nd home, Singaporeans will be forced out of private dwellings. Although I seriously still feel property prices in Singapore will drop by up to 30% within the next 1-2 years, this will mainly apply to super prime properties and not medium and mass market condos. The latter will remain stable or even increase single digit growth. This is because of the massive influx of foreigners as well as growing number of Singaporeans who wanted to buy a house but still waiting on the sideline.

This time round, it seems that the big developers as well as the government are set to control property prices from crashing. Cause if the crash happens, that will mean doom to our Singapore economy. The banks, the property owners (majority of Singaporeans own houses), as well as foreign investors' sentiments will suffer. As such, it is very very unlikely that we will be seeing property prices crashing in Singapore. Perhaps a slight decline from time to time will happen at the worst scenario.

The Singapore government has learnt its past lessons well. It will not allow Singapore to experience the same fate as the US. Another issue is what type of units will we get at a discount/bargain ? If we monitor the property market closely, we will come to realise that units selling at below market prices are usually 'lousy' units facing another unit, blocked views. low floors, afternoon sun etc.

Property owners who owned prime good facing units arent willing to let go of their units at a bargain. Even developers are witholding their sales waiting for better prices when the economy recovers or at least the sub-prime mess subsides by next year. Rentals are weakening but good units still get good rental returns. In addition, HDB rentals are still picking up well signifying strong demand for rentals.

In addition, interest rates are not expected to pick up in the next 1-2 years as the Singapore government emphasises on a stronger S$ currency to beat inflation instead of increasing interest rates which will hurt homeowners as well as reduce investments.

What Singapore is experiencing now is so much different from what its facing in 1998 and 2004. That time was a real slowdown (recession) which leads to rising interest rate environment, low demand, little investments from overseas. Now Singapore is stronger with huge investment inflows, more sophisticated workforce, larger population growing day by day, and better governance. We have new value-added industries like water treatment solutions, high end pharmaceuticals, high technology, financial advisory services which in the past were almost non-existent.

As such, I come to conclude that property prices in Singapore might still drop in the next 1-2 years but the decline will only occur mainly in super prime properties (S$2,000psf and above), and not on medium and mass market condos which are still within the affordability threshold of many Singaporeans and foreigners.

However, by 2010, property prices are expected to accelerate up back due to the completion of the IR as well as the complete transformation of Singapore into a financial centre with the completion of MBFC. The completion of the Sports Hub in 2011 will add further spice to the property market especially to developments surrounding this area.

As such, we Singaporeans should have confidence in our own country and our government that we will be able to tackle this major crisis with confidence. I am certain that we will. If you are an investor hoping to get a good buy, you should start looking for one unit from now till early next year. My bet is prices might drop another 10-20% from now till middle of next year for prime properties. Presently prime properties have already dropped by 10-15% if you bother to look around. But if you looking for mid to lower end condos, my suggestion would be to make an investment now cause this is the worst the market can go before it gets better. Sincerely, Sean

Guest wrote:
Believe it or not, all kind of properties will be affected when it is a down trend. There is no such thing as mass market or HDB will be spared. We will be in for big trouble if the economy goes bad in a few months time.

Sean's supporter wrote:
Sean thats a brilliant argument. Can't help but to agree 100% with you. Many buyers waiting on the sidelines are hoping to pick up bargains, but the developers are not going to do that so as the sellers. Just in a matter of 18 months, the IR will be completed. Its better to wait and reap bigger profits. The government, the banks and the developers are now working closely hand in hand to control and monitor property prices. Have you guys forgotten who own Capitaland the biggest developer, and DBS Bank the largest local bank ?? Its our government who has a major stake. They dont want prices to crash neither do they want prices to skyrocket. Property prices are not going to drop this time round. Raw material costs are going up and from the way it goes, commodity prices are not going to drop drastically from here. The 3rd world countries are now benefiting from higher raw material prices and this decade is meant for them moving their countries up from the poverty levels. At the same time we will have more and more richer Asians as well as a growing middle class. High raw materials translate to higher costs of construction which make houses more expensive to build. Logic follows its not possible to sell below costs. This is a permanent feature of our global economy when it moves to the next development stage level. Just be prepared to pay high prices for condos in future. Its a fact of life now. As the proverb saying, 'Once u get wet in the rain, may as well you get wet all the way' Hehehehe property owners are not going to sell their golden gooses at bargain prices..

Another guest wrote:
mass market price is slightly higher than HDB. HDB already selling at $500-600 psf, beside grapping now, don't expect any lower price from here. You can continue to wait & buy higher in future. You know what you hope will normally will not realise.

Yet, another guest replied;
You've to compare same location. HDB DBSS with condo-like apt is going at $500-$600 psf in AMK and Boon Keng. What are the 99LH condos going there? If you compare lsuburb new HDB of $1xxpsf- $2xxpsf and suburb 99LH condos of $7xx - $8xx psf, the disparity is very wide. Besides some people think HDB flats have better long term value than 99LH condos and may actually be willing to pay the same price for good HDB flat rather than an inferior 99LH condo. This is evident from the response to HDB DBSS compared to 99LH condos.

Another guest wrote:
For those who can hold on to their properties, they'll probably hold. I've seen friends who hold on to their properties since 1994 and the fact is they're still losing money today. I've got off the boat at the first sign of trouble and made some money then. Which is a better decision?

May also want to read:
History of Singapore Property 1960 to 2008
Buy or Not Buy: How to decide amid mixed market signals
When to Buy, When Not to by
Property Price Index Graph Plotter & Online Property Valuation
Your Property Investment Determines Your Financial Success in Your Life
HDB Resales: West Sees Highest Price Increase


Anonymous said...

Hi, may I seek your opinion...I would like to buy a property for investment, should I buy a resale HDB now or buy a condo when the price drop next year?

Smart Buyer said...

Dear Anonymous,
HDB resale as an investment gives attractive yield. A 4-rm flat at ~$300K can rent for $1.5K/mth (a conservative estmate) will give you a rental yield of 5%-6%. Do a reverse calculation for a private property you're planning to buy to find out what price will give you the same yield taking into account your costs including maintenance, mortgage etc. Then consider whether such a price is realistic. Also make an estimate of the likely capital appreciation (depreciation) of the 2 types of properties for the period you plan to stay vested. Whichever gives higher return at lower risk would seem to be the logical choice.

Anonymous said...

hi Smart buyer

Can you give me your opinion on the following issue.

I just sold my 5 room flat and I rent a small room and looking for a 4 room flat. However the supply of 4 room flats are in tight and it seems that the valuation of HDB flats keep on going up because of COV. The demand at the same time are high. Is it prudent to rush in and buy a 4 room now (which ask for high COV)? Will the price of HDB escalate until it is no longer affordable(like Hong Kong)?


Smart Buyer said...

Dear Anonymous,
I don't think prices of HDB flats will escalate until it become unaffordable. The government has repeatedly assured the people that HDB flats will always be kept affordable.

The housing demand created by new citizens and foreigners is real and the way I see it, prices for resale HDB flats are unlikely to come down anytime this year. It may possibly soften by next year if economy goes into a severe recession.

If you've not exhausted your option to apply for new HDB flat, do consider that.

Best wishes.

Anonymous said...

Dear Smart Buyer,

Can I seek your advice with a dilemma i am facing?

I am deciding whether or not to buy a resale HDB in prime area. Tiong Barhu. I am buying to stay, not invest.

Owner is asking abt 10k below evaluation (July 08). Flat is fully renovated move in condition.
Facilities & environment are all great.

I should have no problems servicing the loan.
However with the impending problems with the economy, i am undecided to buy or not to buy.
basically because i am afraid the price will fall drastically (20%+) in the next 2yrs.

Agent says that I am getting the best buy in the area now. if i give up, there are many buyers lining up behind me.

Can you advise how the price of such prime area HDB will behave in the coming storm?

And just for reference, what you would do if you were in my shoes.

Me and my partner are newly weds looking for a home but have no problems staying with my parents for the next 1-2 yrs.

Hope you can share your advice with us.
Thank you.

Smart Buyer said...

Dear Anonymous,
I'm not well-versed with the Tiong Bahru HDB resale market, so I can only talk about the general HDB resale market. In estates where prices have surged more than the median (~8% for the first half of 2008), like some units sold in Queenstown, I'd expect price correction to be steeper. I don't know if Tiong Bahru belongs to this category. In general, I don't think a 20% drop in HDB resale price in the next 2 years for other "not so hot estates" is likely. So far that has happened only in 1997-98 during the Asian financial crisis (Refer to:

You should now assess objectively if the "price increase" you're going to pay for the particular unit is way out of the median. If not, I think price should still be quite stable with a fluctuation of within 10% in the next 2 yrs. Just my best guess based on my gut feel of the projected demand.

Other than price, you should also do your due diligence in assessing the condition of the property. A irrepairable leaky roof, for instance, can render the place totally unliveable.

Best wishes.

Anonymous said...

Dear Smart Buyer,

Thank you for your advice.

Do you know whether the prices in super prime locations like Kim Tian surged past the median?
I tried but could not find conclusive information.

In your experience, will the constant high demand for these prime locations, prevent their price from dropping even during the econmic crunch ahead?

Some say price for such places are stable, maybe only drop slightly <5% due to constant demand.
Once economy recover, it will only keep rising ...

Others are telling me the price of HDB has peaked.

I am totally confused by all the mixed messages.

Hope you can help me. Thank You.

Smart Buyer said...

Hi again,
No, I'm well-versed with Kim Tian or prime district HDB resale market.

Property price is cyclical. That's an establised market characteristics. There's no such thing as property price rising forever.

Up until last quarter, the HDB resale market is still very strong. There's yet no sign of cooling which normally manifests itself first as a drop in sales volume and then, a decline in rental demand and rental rate.

It appears to me that there's a real housing supply shortage now which will probably ease in 2-3 years time, but the pace at which it's going to ease is largely dependant on the government or more painfully, the severity of the economic downturn.

I'm of the view that HDB resale price will continue to climb for the rest of this year. That's just my guess, of course.

Again, best wishes to you.

Smart Buyer said...

To the Anonymous who said "Me and my partner are newly weds looking for a home but have no problems staying with my parents for the next 1-2 yrs." in the above comment,
If you can stay with your parent for the next 2 yrs or so, I think there's a good chance that HDB resale price would have moderated somewhat by then, provided our government don't come up with another aggressive foreigners-influx oriented policy.

Just an additional thought I've about your situation.

Anonymous said...

hi Smart Buyer

From the post you have say in the above article, You seems to think that the next 2 years the resales flat price will be keep on rising. Is it possible that Singapore will become unaffordable to normal Singaporean? I am asking this because I am thinking of migrating to place like China and Vietnam.

Thanks for the advise.

Smart Buyer said...

Dear Anonymous,
This post is extracted from forum exchanges, which I do from time to time to give visitors to this blog a quick glance of what the ordinary people are thinking. I don't necessarily agree or disagree with the views expressed.

As for my personal "guess" about the HDB resale market, (Not view, just "guess" judging from the market momentum accumulated thus far, and I think some sort of guess would be more helpful than saying nothing but then visitors should exercise their own judgement.), I think price would probably climb a little more for the rest of this year and then stabilise, and if economy goes into a recession, we may see some price moderation next year. Like I said in the above comment, the chances of HDB resale price moderating within a 2-3 year period are good when more completed units come on stream. This is the nature of the property cycle.

It sounds like you're planning to migrate because of the high housing cost here in Singapore. If so, that'd really be sad for Singapore.

Despite the high HDB resale price, many HDB-BTO flats are still priced at about $1xx -$2xx psf. That's not exactly unffordable to normal Singaporeans in my opinion.

The housing shortage will be sorted in 2-3 years time. I hope you will not leave your homeland for a short-term problem. MM Lee said this about how Singaporeans have to fight for their survival, "We either pull together, or hang separately."

Best wishes.

Anonymous said...

hi Smart Buyer

Thanks for your view. One thing I do disgreed is the housing price will come down. In fact those who own property in Singapore and can hold on without incurring a large amount of debt will be rich in the Not so soon future. From How Singapore try to aggressively promoted Wealth Management here, It look like Asset price will remain high for quite q while(Look at Hong Kong, Their house price artificially kept high for a long period of time, even still relative high during the SARS period). Even you also mention about government aggressively bring in well off foreign talent. With Manufacturing sectors moving out of Singapore soon(My company say that they are relocating their base to China, including R&D and those so call skilled work area too), The most likely economy to sustain Singapore will be Financial and Service(including Hospitality industry) Industry . So My view is that government will fight tooth and nail to prevent 97 style asset deflation.

I want to stay here. I just wonder is it worthwhile working all life just to pay off mortgage for a flat in the future(at the moment I am single and below 35 and of course cannot buy new flat).

However really appreciate your view and your blog really help a lot of people.


Smart Buyer said...

Hi again,
At this point, I think private property price is likely to moderate, not so much because of home-owners' holding power, but more because developers have priced their properties beyond the affordability level. Since developers remain the main suppliers of private housing, if their prices are to moderate, then it will bring down the price of the rest of the market.

If the economy does get into a deep, prolonged recession with massive job losses(which is hard to tell now); then the 98-scenario may happen again and I don't think there's much the Singapore government can do in such an event.

Singapore has a very different public housing policy from Hong Kong. Despite all the hoo-hah about rising housing cost, most new HDB flats supplied by the government are still affordable if buyers are not too choosy. So with this safety net, Singaporean home buyers are not totally at the mercy of free market forces.

It scares me to hear that you're already seeing manufacturing plants moving out of Singapore. If so, Singapore is really losing its competitiveness. The Wealth management sector may cushion some losses but cannot replace the manufacturing sector:(

Thank you so much for your information.

Anonymous said...

hi Smart buyer

Apologize if I create uneasiness on the issue, As the large local manufacturing giant like Chartered, STATS and A large number of Japanese Conglomerates will be most likely staying as they have large investment in Singapore. In the short run(maybe medium term) there will be no mass exodus of manufacturing companies. In the long run, that will be the multi-million dollar question. That will depend on the resourcefulness and creativity of our government. Maybe that is the reason the government want to transform Singapore into a financial HUB. A buoyant property market will definitely help them achieve this target.

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