Thursday, January 29, 2009

The 2 Major Defining Issues For Malaysia & Singapore Property


1) The stock market effect in Malaysia - If you were to look at the financial turmoil in the past, namely, the mid-late 80s, the blip in 1994, the major monster of 97, the internet bust, the SARS effect, the tsunami effect and now the credit implosion... you can chart a very useful multiplier effect from losses in the stock markets. Prior to 2000, any kind of financial bust ups will see a lot of havoc and bad debts, ask any remisier... Following moves to limit contra and contango trades, this has removed a HUGE "leveraged disaster" from the domestic economy.

I can give you the excellent example of my 6 analysts working with me in mid 90s, their monthly salaries between RM3,000-10,000 and basically under 30 and real net worth probably zero. But each and everyone of them will have zero deposit with 2 or 3 remisiers, but personally will have a contra position of between RM100,000-300,000 in a few stocks depending on the mood of the market. This is not unique to my team of people, everybody everywhere were doing it. Naturally we always see a huge multiplier effect when the market corrects 10% over a week.

Since 2000 every major financial calamity has not seen similar catastrophic personal financial aftermaths.
Now you try to buy RM50,000 worth of share with zero deposit, your remisier will ask you to fly wau. This market correction was also unique to the majority of retail stock players. Many were able to sell down most of their stocks or just stop playing stocks when the market retreated from 1,400 to 1,200... sure some will still hold a few stocks in their portfolio but many have been able to avoid the carnage. When a market falls from 1,400 to 850 its the holders of the shares that bear the brunt.

This time around retail players have been able to sidestep much of the disaster movie, its the funds that got whacked royally this time, ... local, hedge and foreign.
Thus this will further help explain why most Malaysians are still relatively cash rich and under invested. Fewer job losses and fewer after effects from the stock markets = less likelihood to need to sell properties in desperation.

Hence market commentators should keep this in mind when comparing similar wealth effects prior to 2000 and after. The magnitude of the above financial effect on the broader population should not be underestimated.

2) The expatriates wave in Singapore - Singapore's population, on its own does not really grow on a net basis. However if we were to look total population from mid-2003 till mid-2008, Singapore's population grew by an incredible 17.6% to4.84m. Largely that came from a surge in expatriate staffing. That was an increase of 724,600. Official estimates had it that of the 724,600 some 546,700 were foreigners (expats) and permanent residents. If you were to assume that there were 3 per household, that would work out to an increased demand for 182,233 condo/house either for rental purposes or for purchase.

The large jump in expats and PRs were due to a sharp increase in business services segment, in particular hedge funds and more importantly private banking. The other segment of the industry which was significant was the boom related to the integrated resorts projects. When there is a major structural change in a country's infrastructure and/or the additional of a significant and viable new industry, it tends to attract a lot of investments and liquidity to partake in the euphoria. Needless to say, foreign investors piled into surrounding properties and new developments.

The wave was so strong that many developers were confident enough to lure the best architects to build the best of class condos in Singapore. The interest was so significant that pricing was at the very top end of global condo valuation standards. It even flowed into Sentosa in a big way.

To meet the increase in demand for high end housing, en-bloc sales became very popular. Developers were willing to pay a huge premium to secure good locations. They will then tear it down and build a new swanky and pricier place. En-bloc sales resulted in many Singapore owners suddenly turning into multimillionaires. That in itself, feed well into the demand for the pricier new condos as well. If your condo was worth S$1.0m in 2003, it could have been sold for S$1.8m in 2005 in an en-bloc sale. Assuming you had some mortgage left, you may still have a cash position of S$1.0m-$1.5m. That would be more than sufficient to pay down payment for the pricier new developments, maybe even flip them a few times thus tripling that capital within a short period.

The credit implosion will hit Singapore harder because of the "property and expat situation" cited above. Credit Suisse estimated that some 200,000 expats could leave Singapore in 2009, or a net drop of 160,000.

On the local front, Singaporeans themselves could see a net job loss of at least 100,000 among themselves in 2009.

p/s photos: Nia Ramadhani


5 comments:

de minimis said...

Dali

Another excellent piece of insight. I learn much from you, bro.

stoneman said...

Interesting point. I think you are right to point out that Malaysia's property will be more resilient than SG, except for those super expensive ones around KLCC. I was monitoring the Marc residence - price which hit more than 1500 psf from 750 psf. rental for a studio is like 7500. yet the built quality is crap - there are huge cracks on the wall !!! Possibly due to construction at the side and opposite.

S-Reits are trading about 60% + lower than their peak in 07/08. i think Sg top end prop should come down about 50% since it doubled in just 2 years - 06/07 - clearly not sustainable from a domestic economic or supply/demand angle. Pure speculation and demand from expats as u mentioned.

Am waiting for it to hit down 75% then I think it is a good time to buy S-Reits. No recourse loans risk to us; liquid; and good yield >10% or at worse >5% if rentals collapsed 50%.

easystar said...

Hi Savatoire,

Just like stock, house prices will go down if no one is buying. It is true that there is no huge leverage bust, but people aren't able to leverage up easily either (i.e. can buy 10 units zero down even if one wants to).

And yah..this will obviously be a fairly local thing where the housing market will perform differently depending on areas. (e.g. Penang - INTEL etc go, bad for Bayan Lepas. Good for Kulim..)

see said...

There's really a structural change which many still don't realise. We moved from T+14 when an office boy can play contra with millions worth of stocks to a more prudent system now. To those who still hope for a 5, 7 or whatever year cycle hoping for next superbull.....keep on wishing!

Butt said...

i'm actually hoping for klcc prices to come down significantly however this has yet to happen. there are a lot of foreign buyers including from mid-east. these buyers have very strong holding power and some may not be bothered with yields but more on finding a home for their money and kl is relatively cheaper compared to our regional peers.