Monday, October 27, 2008

Singapore Property Outlook

Singapore property market is always very interesting. There is a high degree of speculation and much of excess liquidity would always find their way into properties there.

Thanks to its clear cut policies and very stable currency, Singapore properties attract investors from HK, Brunei, Indonesia and Malaysia as well. Hence, when it is hot, it is very hot. When it is not it can go south very quickly.

Its a very brutal market place. One that is not so dependent on "employment" as a main factor - i.e. if you have jobs, you still can make the installment payments. In Singapore, the dominant factor in properties has to be speculative element. The investors that buy 2 or 3 lots per launch. For them, the jobs factor is not in calculation but rather more important to predict the flow of capital.
Prices of private homes have fallen for the first time in four-and-a-half years. This marks the end to the property boom that started since 2004.

Consultants say prices are likely to keep falling well into next year. Overall prices of private homes slipped 1.8 per cent, after flattening out in the second quarter. Consultants called it a turning point after almost a year of deadlock between buyers and sellers. Citigroup analyst Wendy Koh predicts that high-end home prices will fall by 25 per cent, the mid-end by 15 per cent and mass market by 5 to 10 per cent.

On the jobs front, Singapore has been the strongest beneficiary of hedge funds setting up shop there. Thanks to proactive measures, many hedge funds have chosen Singapore as their base. The pollution in HK has also seen some relocations from HK to Singapore. The number of expatriates, in particular from India, have also boosted inherent property demand.
The events over the last few weeks would have put a halt to many of the expatriate postings. The more severe effects have been from those linked to hedge funds.

A cursory glance would reveal that more than 50% have closed shop over the last few months, no kidding. More are likely to close due to a huge loss in assets under management, poor performance and redemptions. The fact that Singapore dollar has held up the best among major currencies will only cause many of those affected by the crisis to sell Singapore property first to get cold very hard cash. I mean, who would want to sell their OZ properties now if they were a foreign investor?

The last 4 years have seen the Singapore mid-high end market being beneficiary to the enbloc sale phenomenon. Older condominiums were sold enbloc for premiums (to prevailing market prices) from 50%-100%. This freed up a loy of capital and saw much of the seller buying back into the private high end market with their windfalls. The first 3 years were very profitable for these players as they could buy and sell for a quick 30% gain after just a few months. As usual, greed takes over and you will find the same buyer now having 2-4 such properties for speculation (they'd call it investments). How fast can you scale down to protect your capital? First out best dressed.

The other related problem is the ruling that you can pay 10% deposit and nothing till the property is completed. Well, that sounded like a great idea before. Now a lot of properties will be completed in 2009 and 2010 and even 2011. If you have that, you are like holding a call option until the property is completed. The danger is that many would still be able to make the installments but would you be happy to make the payments if your property by then had sunk by 20% in value? First out best dressed again.

Evidence that more downside is to come: a blogger went to a couple of launches and was given the aggressive sales pitch. As long as you can put down 30% as deposit, they can arrange for a line of credit amounting to your yearly income. Hint, hint! You know where this is going. Its almost like maxing out your credit card on cash advance to put as down payment, something's gotta give. Desperate times call for desperate measures.

Naturally, there will be a lot of those who will come in to defend that property prices won't fall by that much, and that things are different in Singapore. I would like to remind all that we are going through a massive de-leveraging process globally. There is a huge aversion to leverage and credit, and the first asset to get de-leveraged will always be property to individual investors.
But you say that Asian players are not that affected by the US subprime and CDS crisis. Really?? Asian markets have already tried to factor in the massive downswing. Asian markets have actually fallen more than the US markets dollar for dollar, and if you take in the dollar effect, the market cap loss is even higher. As you all know, Asian economies are tied very closely to their stockmarkets. Many have been able to avert the large losses as there was plenty of time to scale down your stock holdings, almost all could see the correction before it actually happened. Safe to say that the huge wipeout in market values over the last 6 months have been on institutional investors and die-hard traders only. Most of the individual investors have largely been unhurt.

Having said that, most of the rich individuals with substantial equity portfolio have seen their value being decimated. Though they may still have cash and not reached pauper status yet. Their net worth may have shrunk by 50%, just ask Lee Shin Cheng or Lim Kok Thay. Try and sell them a few Sails condo, they would wave you off as being stupid,.... unless it was at least 30% cheaper.

It is very hard to write negatively about properties, even for consultants, journalists and analysts, as most have properties of their own, and would be loathed to write anything bad about it. So, beware of those who try to mount a defensive argument.

p/s photos: Ema Fujisawa


Sara (Property To Let) said...

Yes it is very hard to say anything on property rates as it keeps on fluctuating... Nice info.

Ivan said...


So, how about the price of house in msia? I do remember you share a article with high end property before. ..

how about condo or residential house worth Rm200-300K? Base on your experience,do you think the price for residential will drop 20%?

KoSong Cafe said...

In the late 70s, a HK guy with a Malaysian wife migrated to Singapore. He bought a terrace house in West Coast Road for around S$150,000 and sold it a couple of years later for S$500,000 when they moved to Australia. We were so envious then because the decision has nothing to do with speculation, just right timing. But I am sure the property must be worth at least a couple of millions now.

Many millionaires or even billionaires today owe their success to the simple idea of investing in landed properties. Just imagine, in Malaysia, buying estates at Rm500 per acre! Prices in the short term may rise and fall but over a generation, there was no mistake in doing so. This is still applicable but how many young folks have that kind of patience and thriftiness.

Houses in Malaysia within Rm200-300k, especially in and around KL should be able to hold as there are so many first time buyers. But for high-end properties, like what Dali mentioned, the big timers are even more discerning during bad times. At their level, they are also looking at returns on capital and maximising profits. I am sure they enjoy a good bargain any time. That is why many people do not believe we can mix business with friendship. With a good offer out of desperation, do you think they will sympathise with you and offer a higher price, or offer it to someone else?

On the other hand, I have come across many ordinary folks being selfless in offering good opportunities to others. It is like being averse to being rich, always thinking for the good of people rather than profiteering.

Having read the above again, I seem to have given the impression that rich people are not good. To clarify, I wish to say that they are looking at business opportunities on a detached basis, without knowing who is selling, like when we buy shares in the stock market. If we desire to be rich, we need to look out for opportunities and grab them, otherwise, we would miss it. This might be averse to some. Hope I have got the right message across.

Salvatore_Dali said...


the 200k-400k is ok as buyers there are 90% home owners and will stay there ... its those above 600k... just go to some gated communities, even Sierramas East and West, you will still find many houses unoccupied and not rented out... of course who is to say the buyers need rent money... but there will be some who will need the rent money if they over extend....