Over the last 4 weeks since we restarted The Straits Times Property News Heat Map, news flow has actually been pretty slow. With 53 articles talking about the property market in 4 weeks, that’s an average of 13.25 articles per week or 1.89 articles per day. In Season 1 (9 Sep 12 – 19 Jan 13), there were 273 articles in 19 weeks, or 14.37 articles per week, or 2.05 articles per day on average.
The proportion of articles that were positive, neutral or negative is also instructive. We had 7 negative (13%), 33 neutral (62%) and 13 positive (25%) articles in the last 4 weeks. In Season 1, we had 10% negative, 49% neutral and 40% positive.
Now that the new cooling measures and the White Paper on population has had time to sink in, it’s time to figure out what the effects are, and how they will impact the property buying/selling decision.
Something’s been bothering me. I keep hearing people blaming rising housing prices on truckloads of hot money coming into Singapore and blowing bubbles into the property market, and how the property market will subsequently implode when the funds inevitably leave.
We asked you, our readers, to vote on where you think the property market will be at the end of 2015 relative to beginning 2012. Thanks to all those who voted! Here are the results!
An overwhelming majority (80%) voted either down or up by less than 10%, with slightly more voting on the downside. To be honest, I had expected a higher number of people voting the extreme cases, but I guess our readers are a little more conservative with their opinions. In any case, let’s have a thought about what to do in each scenario.
Found this article from TODAY newspaper interesting. In the short article, it brings up a few points.
International school students have increased by 25% over the last 4 years. Picture courtesy of Singaporebaby.com
Point 1: Number of international students has increased 25% over the last 4 years.
Significance: Increase in international students = increase in expat families. Singapore remains an attractive location for companies. Additionally, the expats coming over should be relatively high-level for the companies to relocate the entire family. Since companies are unlikely to purchase real estate simply to house their expats, this should continue provide support for the rental market.
Where will property prices be in the next few years? Will property prices plunge 30 – 50% as per the doomsday prophets? Will property prices trundle along sideways, moving up and down within a 10% band? Or will property prices continue its steady climb upwards? Unfortunately, I don’t know, so I can’t tell you. If I knew for sure, I wouldn’t tell you either. So, since I don’t know for sure, I will lay down how I think the different scenarios may play out so you can make your own educated guess. But before we go into the heavy stuff, let’s have some fun with a poll!
According to the NUS SRPI, the property market continued to stabilise in June, with no change in the overall index. Breaking the index into its components, the market is supported by transactions in the non-central region with a month-on-month increase of 0.7% while the central region and small units decreased by 0.9% and 1.4% respectively.
Since the best trilogies come in threes, I guess this will be the final one of the series. In part 1, I talked about the risk of additional cooling measures. In part 2, I discussed the risk of over-leverage and increase in interest rates. In this part I shall talk about the risk of over-supply in the market.
Risk 4: Risk of over-supply
Another reason why the property market may come down is over-supply of properties, or to be more specific, more supply of properties than demand. Economics 101 tells us that price is determined by the interaction of demand and supply. When there is more demand than supply, prices go up. Conversely, if supply exceeds demand, prices come down. In order to determine the risk of over-supply, we need to split it up into the different categories of housing.
Just to recap, in my previous post, I discussed the risk of additional cooling measures for the property market, which I think is low due to the demography of the people who are actually pushing up the housing prices here. In this post, I shall discuss leverage and interest rate risk.
Risk 2: Risk of US-style housing defaults due to falling prices
A primary cause of the housing crisis in the US is the high leverage that homeowners there have on their property. Leverage means the use of loans to finance purchases of assets. Leverage is good in the sense that you’re using OPM (Other People’s Money) to buy your property, which can significantly increase your return on capital. It also allows you to borrow money cheaply against your home’s equity. However, using loans requires you to pledge your property to the bank as collateral, and in the event that market value falls way below the loan amount, then the bank has the right to ask you to pay down a portion of your outstanding loan. If you were not able to comply, the bank has the right to take over your property and sell it in the market to recover their loan. Although you will get any excess after the bank and CPF board are paid, the amount is typically very little, if any, since this usually happens at the worst time when the market is down. Buyers of such properties are looking to buy at fire-sale prices, and the bank’s main concern is to cover their loan, rather than to try to get a good price for the property, so transaction prices tend to be low.