Monday, September 8, 2008

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Analysts divided over "2010 Singapore Property Crash Scenario"

Last month Wing Tai Holdings’ chairman Mr Cheng Wai Keung, known for his candid assessments of the property market, warned that the peak prices in 2006-2007 could lead to a property crash in 2010 when these projects obtain their TOPs. Only a spectacular economic recovery would stop the property market from being flooded with these “expensive apartments”, according to Mr Cheng.

Analysts, however, are divided over the likelihood of such a property crash coming about in 2010.

Chesterton International associate director Colin Tan pointed out that apart from the global economic uncertainty and financial market turmoil that has hurt demand, the situation is made worse by the fact that developers, buoyed by the property fever during the property boom in the last couple of years, now have “too many projects on their hands”. Adding to this, the buzz surrounding the F1 Grand Prix and the integrated resorts was “overplayed”, leading to “unrealistic” prime district property prices. Mr Tan added: “We know the market is declining, but yet, developers are still launching their properties.”

Standing out against the doomsayers, Wakefield and Cushman managing director Mr Donald Han said that the market is “still flushed with cash”. He said: “If you look at Singapore’s wealth management industry, it’s still growing. Any investors looking to put his money into Asia will first take into consideration political stability and economic growth.”

Dr Chua Yang Liang, head of South-east Asia research at Jones Lang LaSalle, felt it was “difficult to call”, adding that the construction crunch has slowed the pipeline, mitigating fears of an oversupply of private homes. Dr Chua said: “Looking at it on face value, yes, there’s a potential (it could happen). For those who bought the properties under the deferred payment scheme (DPS), they may have overstretched themselves. But nobody knows the financial background of these buyers.”

In a bid to curb excessive speculation, the Government scrapped the DPS last October. But since then, banks including OCBC and UOB have rolled out similar schemes in the form of the interest absorption scheme (IAS) and the zero-instalment scheme. Under the new schemes, buyers have to sign up for a bank loan for the property. Once the credit worthiness — based on factors including income level, credit history and repayment ability — is established, the buyer pays nothing more until the TOP is issued. Under the IAS, the developer pays the interest to the banks during that period.

Dr Chua noted that compared to the DPS, the new schemes allow banks to carry out more extensive checks on the prospective buyers before extending the loans. But some fear a replay of the United States sub-prime woes, sparked by mounting defaulted payments. Mr Tan said: “The question is, how strict are the banks when they assess credit worthiness? The banks in the United States behaved irresponsibly; what is there to stop Singapore banks from behaving the same way?”

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...

MAS or government on Sat 20 Sep 08 send out a message to public not to make negative comments.

I am curious about why a developer is making a prediction on 2010 Spore Property Crash Scenario now.

Is he testing the new promises by PM lee to let us speak up.

Will he be likely call for a daytime interview?

Smart Buyer said...

Dear Anonymous,
Obviously, this has nothing to do with the recent shake-up of public confidence in our financial institution, most notably AIA. This "negative" comment, as you called it, was made well before 20 sept 2008.

I can see no other reason for a developer to make a prediction on a possible 2010 Singapore property crash scenario except being downright honest. What would a developer have to gain to talk down the property market?

I definitely don't see this as an attempt to sabotage the property market by shaking public confidence, which I think that's what you're alluding to.

In my opinion, for any free market to function properly, there must be bulls and bears around to check the balance, so that "what goes up must come down" and "what goes down must also come up eventually".

Just some of my thoughts.

Best wishes

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