Monday, September 29, 2008

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Higher Construction Costs means Property Price must rise ?

There's this Ad in Straits Times (13 Sept 2008) on Livia Condominium for Sale:
"With land costing easily between $250 & $350 psf coupled with high, construction costs, developers' break-even cost is at least $700psf. Livia's average price of $650psf is definitely a steal" Jack Chua, President, ERA; Peter Ow, Executive Director, Knight Frank

Implicit in this sort of sale pitch is that with the soaring construction costs, property price must inevitably rise. To this, we've the responses of property sellers and buyers in the Singapore Property Forum:
"yes it is absolutely true that land price, construction costs, labour costs, etc have all gone up which means developers will not be able to sell at less than their cost, that will be plain stupid and not in the interest of shareholders. knowing that demand now is weak, deveopers will not launch aggressively as they are not stupid."

"it is plain stupid to be stuck with a big stack of hot potatoes and paying interests and affecting cashflow which is definitely not in the interest of the shareholders. They are not stupid, but they miscalculated.
How many people stuck with hot potatoes are stupid? They are just greedy and miscalculated."

Another Buyer:
"since when are developers so generous to sell cheap just because land and construction are cheap?... in 1996 (property peak) construction cost is definitely cheaper than today but price was high until people go bankrupt ... developers will sell high high if buyers are suckers enough to pay high high price... if nobody is willing to pay or just cannot find bank loan to pay for high high price, then nobody buys ... then developers will have to sell at price people can pay or willing to pay .. so dont keep on talking about construction cost going up ... only stupid people believe you "

"so be careful when you read about comments by bearish people. just think about it, if they are so bearish they would have sold their own homes and renting now. do they do that? NO. these people already own their own property and want to buy a second property and hence they go around shouting for prices to go down. they use the US credit crisis as reasons for prices to go down."

"There is no point in selling and renting now as we are not property speculators. We do not shout for prices to drop and to buy cheap. It is to tell people not to be SUCKERED to buy expensive as what you wanted them to do."

"so if you own a home and can afford your mortgage there is no need to be afraid. as long as you are not overleveraged and live within your means, you should do ok."

"Unfortunately a lot of people are over-leveraged and greedy. For these people, what advice do you have? Isn't it the same advice as bears? Be prudent, don't over-leverage or just sell if you have a chance?....If you have made a mistake and then you try to cover it up (by being in self-denial or telling others that market will continue to go up) you have made another mistake."

May also want to read:
History of Singapore Property 1960 to 2008
Buy or Not Buy: How to decide amid mixed market signals
Livia Condominium @ Pasir Ris 160 units sold during Launch
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...

Of course the developers will tell you the property price must rise! How else would they make money! Look at what happened in US, up,up,up......then kaboom! Who profited from this? Your guess is as good as mine!

Anonymous said...

The singapore overall property market is still very high and artificial. It needs a bad shake- out. The Government should not try to prod it up and let market take its course. Political and developer specches seem to be slanted to hold the market which is unhealthy and the impact of the collapse will be even greater as the mother of all meltdowns is gaining momentum now and it is better we leave it to market forces than to defering it.

Anonymous said...

I agree with the view that "Political and developer speeches seem to be slanted to hold the market which is unhealthy and the impact of the collapse will be even greater as the mother of all meltdowns is gaining momentum now".. Singapore should just come to term that it cannot afford to be this expensive and stop thinking that rich people get rich by being stupid .. that rich people will be sold to all the hypes and glamours we've pitching recently .. rich people are shrewd investors .. they don't buy hypes and glamours .. they go where they can make money .. they want return on their money.

Still Shocked said...

Agree with all of you.

Up to now, developers still insist that this will be "V" shape downturn. Let's face it, this is the WORST financial crisis of the century. It won't go away just in a year or even 2 no matter what the government does. It's going to take years to repair the damage. It's right to call this "the mother of all meltdowns".

Last year when the subprime just erupted, people here dismissed it as nothing and that we'd continue to charge ahead. But now we can see for ourseleves it is not nothing. Maybe that realization already comes too late for some people but for others, we might really want to lean on the safer sider now.

Smart Buyer said...

Dear all,
I hate to be a doom-sayer but personally, I'd do my financial planning with Tony Tan's "severe and prolonged recession" in mind.

I hope by being the doom-sayers today, we'd be the doom-savers for many people in time to come.

Anonymous said...

when bank is less willing to lend money, interest rates go up. If this happens then people are less likely to afford mortgage payments for the same loan. Thus, demand falls and prices go down.

Anonymous said...

Yes, credit crunch has hit Singapore!!

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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 :)