Wednesday, December 24, 2008

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Will DPS Property Buyers default come 2009-2010? Property buyers' discussion

The following are some forumers' views on the recent news reports on defaulting DPS property buyers ( "Size of the DPS behemoth" and "D-Day for Home-Buyers") extracted from the Singapore Property Forum:

unfounded wrote:
Even all the uncompleted units are bought under DPS, there is no effect because these speculators or buyers bought under DPS in 2005/2006 are still sitting pretty with between 50% to 250% capital appreciation . Most of these speculators are rich and dont underestimate them, they have more wealth than you think. When they go to the bank, the valuation is still much higher than the purchase price and most of them get financing easily unless they got burnt badly in the stock or currency markets. The full impact of worldwide recession do not seem to hit Singapore too badly. With bank loans, what is the problem ? It is at low interests. Do you think property prices can drop by more than 50%? Impossible in politically safe Singapore, a Global city with IRs, Sport Hubs, YOG, F1,growing foreigners and rich migrants and so much to offer to investors. The Singapore government with billions in reserves will never let this happen and they will intervene strongly to prop up the market as they are also biggest property owners. Property market in Singapore is safe and unique, even for speculators of 2005/2006.

bull wrote:
come next month budget, govt is going to approve S$5B or more for infrastructure projects, the more the better, can create jobs, drive our GDP, eventually these development will make your property appreciate their value much more.
Like Jurong lake, if govt can complete it within 5 yrs from now on, that will be nice when it completes, Punggol marina center, Buona Vista R&D hub, MRT line, expressway.....

Guest wrote:
Buyers under DPS has to pay more in total, so those with cash will not opt for this. We can conclude many of these DPS buyers are shallow-pocket flippers. What makes it worse is the unexpected credit crunch. Besides, flippers are normally people with a risky-income profile like bankers, remisers, property agents ... who make a lot of money in the 2007-boom and became too optimistic about the property market. These people will be faced with sudden loss of income and will find it very hard to get a bank loan.

bear wrote:
DPS buyers cannot just walk away from the deals and think their maximum loss is the 10-20% downpayment. Developers can resell at any lower prices and the defaulting buyers will have to pay the difference plus all legal fees. So these shallow-pocket flippers will have to sell their units at whatever prices the market will pay. I see a property price crash coming from middle 2009.


May also want to read:
99 Leasehold Property: Calculation of Depreciation Rate based on Singapore Land Authority Data
Spore Property History 1960-2008
Property Investment Tip: Don't put all your eggs in one basket
HDB Resale Price Index 1990-2008: Graph & Chart

10 comments:

Ang Mo PR said...

@ unfounded:
How many more times do we have to read this garbage about Singapore real estate being sheltered from depression by F1 Grand Prix, IR's, YOG, growing foreigner population, etc.?

- how many foreigners have bought a property in Singapore as a result of F1? No statistics available, but given the extremely low number of transactions in the past 6 months, it's a safe bet to say: none or little. It will attract some tourists, that's for sure, but investors???

- YOG: give me a break. I know it's a big deal for Singapore to get the YOG, but let's be honnest, it's not an event that's massively followed. Beijing just had the "real" Olympics, and the real estate market there is down significantly compared to 6 months ago. Do you seriously believe people buy a property because of a one-off event?

- IR's: will get tourists that normally just transit through Singapore to extend their stay a day or two. So it will have an impact on hotel occupancy rates, and that's about it. Besides, the opening of the IR's could hardly come at a worse time, when American and European tourists have to tighten their belt, and China growth is decelerating massively. Just go to any travel agent and see the big discounts being offered: this is telling me that the tourist industry is already experiencing acute issues in the region

- growing foreigner base: the biggest fallacy of all. Property prices got inflated by the conjunction of en-blocs constraining supply and a number of expatriates flowing in the country in 2007, that much is true. You could see this in the fact that it was next impossible to secure a place in an international school. The American School had a waiting list of 200, and one had to pay, if I remember correctly, a SGD 50,000 fee to secure a place there. Now, the American School has to advertise that they have places available to fill-up their classes. What this is telling me is that a number of expats have left the country and have not been replaced. I know for a FACT that a number of multi-national companies have totally frozen international relocations because of cost cutting and the incertain 2009 outlook. My company just cancelled 2 senior execs opening here for this very reason. Rents are already down singificantly compared to a year ago in expats popular condos. My personal experience: I negociated a 2 years lease in October 2006 at SGD 3,800 / month. Last year, at its peak, a similar unit would fetch 6,000. I renegociated 3 months ago at 4,500, up from 2006, but way below 2007. I reckon that, right now, it could be had at around 4,200. So with rents coming down so massively, real-estate price will have to come down as well as rental yields are shrinking

- Singapore being a "global" city where the rich and cool of the world flog into. I love Singapore, its cleanliness, world class infrastructures, effective administration etc. and personally I don't imagine moving anytime soon. But although it's come a long way in terms of nightlife, it's nowhere near cities like Hong Kong, Tokyo, New York, London or Paris when it comes down to cultural life and sophistication. Most of the high fliers who live in these cities would be bored to death in Singapore. When was the last time there was decent concert in this city?

- Singapore's GDP, relative to its size, depends on international trade more than any other economy in the region. International trade is hugely impacted by the current crisis (just look at how much dry shipping has tanked), so thinking Singapore will be sheltered is completely delusional.

- "the Singapore Government will never let that happen". Like they prevented it in 1997 (Asian Crisis) and 2003-2004 (SARS)? Ludicrous.

Realist_08 said...

It is those who bought property in 2007/08 who are the optimisits and bulls. They have to be, since they are sitting on major paper losses now.

They emotionally rely on literarily anything that brings them hope - IR, YOG, Growing Foreigner Base, "Global" city, Singapore Government "Will Save Us".

It's only a matter of time that the floods of this economic tsunami will eventually start hitting the shores of Singapore. Already, we are beginning to feel the "ripple" effects.

Anonymous said...

Your interesting views should be encouraged in this type of forum. Therefore, either we are being misled by the developers on how property prices can be influenced by IRs, YOG, Sport Hubs,foreigners or Global City, etc or there is something wrong with the way this is being communicated to us by the Government or we stand not to be corrected.We are made to believe that this is the case and further, prices are well supported by HDB prices.

The fact that you are an Ang Mo and PR means you are attracted to Singapore and not being bored.

The Government should also start reviewing PR status for foreigners now where this category of people always have a tendency to make comparisons and will leave at the slightest political and economic problems. Where are their roots and loyalty? They cannot simply made their monies here, married Asians, sing the national songs and claim to be good citizens or loyal. Some conditions in the interest of the nation have to be established.

It is this category of foreigners (whether Ang Mos, Indonesians, Chinese, etc) who are artificially driving property prices up (although not all) and when prices/other countries/economics are more attractive, some of them just move and pull out of Singapore.
This is bad for Singapore in every respect.

In general, your candid inputs strongly suggest that our properties prices have to be adjusted competitively. Current property prices are ridiculous high in Singapore.

Anonymous said...

I wonder what property investment got to do with nationalism, per se (I am a Singaporean btw). One can buy property any where in the world, welcome to globalisation era. You really do not want to invest your money in a very poor regulated country like Indonesia or any third world country. Investor came to buy properties/park their money here hoping for a good return, and this is where money flows and economic is created (property tax etc), what is so bad about that. Property price go up and down, as long as you buy to live in it, you are fine, and for that options to have HDB is within your reach.

This is for the same very reason Singapore economy is sustained by the climate created by the government, and investors are just like birds/insects who migrate to a good climate and bring with it abundance of wealth and other benefits as well (not discounting its problem too).

Ang Mo PR said...

@ Anonymous:

I enjoy a healthy discussion, so let me answer the points you make.

As for developers’ hype vs official information, I guess it’s both. Developers are in the business of selling the properties they have built, so of course they will use any excuse to hype the market. This is hardly specific to Singapore. More specific to the country is the way the information is being distilled. Clearly, what you read in the Business Time or the Straits Time reflect the views that the Government wants to promote. And right now, the last thing I would want if I were the Government would be a panic in the real estate market, followed by a crash, followed by households running negative equity, developers getting bankrupt, and the dire consequence on the local economy. Therefore, we get a constant stream of information / declarations destined to calm market angst and avoid a hard landing. Frankly, seeing senior or very senior officals feeling compelled, almost every week, to assure that Singapore real estate “will be OK in the long run” would make me very nervous about the short term (2009-2010).

HDB prices holding up: I do not understand this specific market’s dynamics enough that I feel I can comment on it

I am an Ang Mo and a Permanent Resident, and I am not bored indeed. But I would hardly categorize myself as a high-flier. I am clearly not one of of those who would be interested (or can afford) a high-end property in Sentosa Cove or near Orchard at more than SGD 2,000 psf. I don’t even understand the craze about living in Orchard, it is so congested and overcrowded. My point was: when you target such a wealthy crowd, they will have expectations in terms of entertainment, nightlife, cultural events, style, and from that perspective Singapore still falls well short of other global cities. Just go out in Hong Kong Island on a Friday / Saturday night and you’ll understand what I am talking about. As for me, I am happy with the trade-off I made coming here: it is less vibrant and a lot less stylish than the city I was living in before, but the infrastructures, security and general “user-friendliness” make up for it in my view. I’m a big fan of Singapore, but just be aware that some people would not make the same trade-off as I did.

Not sure I understand the part about PR status, loyalty, etc. A PR is not a citizen, plain and simple. As a matter of fact, the Government recognized it a few months ago when they reduced health care subsidies for PR’s so that they could fund appropriately Singapore citizens’ healthcare. Thus confirming that PR’s are not equal to citizens, and this is absolutely fine by me. A PR is a person who has decided to stay in Singapore for an extended period of time, and was allowed to do so by the Government because he was deemed to make a positive contribution to the country. Will people make comparisons? Of course they will, because they have a basis to do so, and if the situation here degrades obviously they will think about going back. Same as a Singaporean having achieved PR status elsewhere would consider coming back to Singapore if his situation was deteriorating where he lives. I am very happy, and honored, that Singapore deemed me worthy enough to be a Permanent Resident and it is my wish that I can stay here as long as possible. But keep two things in mind:

- people having an international career like me might be asked to relocate elsewhere
- I would not give up the passport of my country of origin for a Singaporean one. My country is where I received my education, where my family lives, and where I spent the longest part of my life. By choice, personal and professional, I decided to come live in Singapore. But it does not mean I would abandon my roots, nor would I consider it fair that anyone would ask me to do so

As for restricting the conditions for eligibility, I don’t think this will happen as long as Singaporeans continue to have such a low birth rate. Right now, the only thing that enables the country to maintain or even expand its population is the influx of foreigners. So like it or not, they are indispensable to Singapore’s prosperity. Not that this should excuse in any way the poor behavior some of them might adopt. At all time, I keep in mind that I am a guest here, and try to behave accordingly and be as obedient and respectful as possible.

Lastly, on the argument that foreigners will pull their investment out of Singapore if it becomes less attractive than other countries, it is completely natural in an open economy and is called international competition. Singapore has been better at this than most, and let’s not forget that a whole lot of Singaporeans became richer in the past 2 years by selling their properties to foreigners. You can’t have your cake and eat it: enjoy a real estate bull market driven by foreign demand, and then complain about foreigners when the market turns.

Anonymous said...

This is an open,lively and free communications in this forum. For sure, read the foreign news, listen to BBC and others, the year 2009 is going to be of grave uncertainty. The greatest enemies for property prices is uncertainty and poor economic sentiments. We going to have these plus more stunning news or pockets of corporate frauds/failures emerging. Even Toyota is making huge losses soon!!! Who in the right frame of mind want to commit himself with big ticket like property purchases and being leverage. They should be the least in the mind of any astute or smart investors. Why do you want to restrict your option in this period of great uncertainty or even depression? We can therefore tell whether a certain piece of information from the Government or Developers/agents contain an amount of agenda or propaganda, hidden but can read carefully and analyse. There is no doubt property prices have to fall and it is healthy for this expensive city. On all accounts, we are entering a prolonged economic hardship in 2009/2010, tighten your belts and stay lean, trim and liquid. Dont think all the talk about a short recessions. You dont need an analysts or expert to tell, you can feel it is coming and it is fast and swift and devastating. Do not be misled.

Anonymous said...

Hi Smart Buyer,

I have been closely monitoring your blog for a while now. and have seen quite a number of posts are indeed market news or info from forums. appreciated it a lot. However, is it possible to let your reader knows your views as well. Even though you may say that you 'may' not be a smart buyer (of whom some may doubt it), but at least some of your views would add some thoughts to a pool of thoughts for this industry.

However, keep it up your good work.

Smart Buyer said...

Hi anonymous,
I've expressed my views mostly in all the earlier posts and in my replies to blog visitors' questions. News and forum discussions are included to give property buyers a more complete picture of the market. After all, I'm just one person and my views are just mine.

Thank you for your encouragement.

Anonymous said...

Singapore had experienced the past financial crisis and this past experience, has not been forgotten but in turn, has served as a guide for future work which we are experiencing now. Some bloggers here is confident that our government will help the sluggish economic and i agree to their comments.

While US and other westerners are taking time to clean up its mass of credit cruch which will take some time to recover, we are already targetting at middle east super rich to come here to enjoy the IR/casino for singapore is their preferred choice politically.

From the bilingualism we introduced and and the fostering of good relationship with China some 20 years ago has benefited many singaporeans a great deal. Becoming the financial and medical hub and the new water plant have brought us to one step ahead of others.

The investments brought into here by the rich will see us thru the present crisis and the properties here will take another step further.

Ang Mo PR said...

Sometimes, I wonder if I live on the same planet as some of the people who post here...

The government can only do so much, and if the exports fall by 20% and people get retrenched, there's not much they can do about it. PM Lee said yesterday in his new year address that he expected a very tough year ahead and people need to be mentally prepared for that.

As for the super rich, they are a lot less rich than a year ago given how both stock markets and real estate markets worldwide have performed over the period. And people don't get rich by accident: if indeed they decide to invest in real estate, they will go to markets where the prices have already taken a big hit and look for opportunities. Places like HK or even London, not Singapore where the consensus is that the prices will drop 20%-30% over the next year.

As for the rich Middle-Easterner, I'm sure you have noticed that oil prices have been divided by 4 compared to a year ago. And a lot of them have been badly burnt by the real-estate crash in Dubai.

The Chinese too are going through some not-so-merry times. Their wealth is directly connected to exports, which is in free fall and plants are closing across the country.

In the long run, both Middle-Easterners and Chinese should be OK and might be lured back in the Singapore real estate market. But to think they will "see us through the present crisis" is completely delusional. The volume of transactions over Q4 2008 is the lowest in 18 years (worse than during the Asian crisis), so it's only a matter of time before an adjustment happens and it will be brutal.

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