Recent articles in Property Report Magazine that Getty Goh was quoted on.

See what the recent Buy RIGHT Property Graduates say about the course

Beverly, together with many others, attend the recent Buy RIGHT Property Seminar.  Hear what they say about it and decide whether it is worth your time to come for our FREE information session before you take the plunge to buy your first property.

Talk for Property Agents “Close More Deals as a Buyer’s Consultant!”

Ascendant Assets Research Office along North Canal Road is now open

Reception area

Training area (sits up to 50 pax - semiar style and 20 pax - classroom style)

Congratulations to all those who graduated from Feb’s run of Buy RIGHT Property seminar conducted at Ascendant Assets’ Research Office

Getty was featured in Propertyguru.com’s article “Calls made to increase ABSD to 20%” (dated 3 Feb 2012)

Getty was featured in Sunday Times Article titled “Stock v Property: Which will give you better returns?” (dated 22 Jan 2012)

Past article on Propwise.sg (Aug 2011): The coming Singapore property market correction and what you should do

Not too long ago, I wrote two articles to remind readers that the property market is cyclical and that a correction was due. If you have not read them, you can access them from the following links: http://sg.news.yahoo.com/blogs/property-blog/stay-property-market-now-045008511.html and http://sg.news.yahoo.com/blogs/property-blog/buyers-versus-sellers-blink-first-022531502.html).

In the recent weeks, we have been receiving a series of bad news from the stock market as well as the global economic outlook. Some of the negative news includes the US debt ceiling debacle, the downgrading of US credit rating from AAA to AA+, Singapore government lowering its economic forecast and the increasing concerns of a double dip recession. With so much bad news presently in the market, it seems like conditions are ripe for property prices to drop. If a property market contraction actually happens, the main question on many investors’ minds would be how long would the downturn last and when they should jump into the property market again.

How long did past downturns last?

To give you an idea of how long property down trends can last, let us take a look at the URA Private Property Price Index (PPPI) shown in Figure 1. Based on past trend, the property downturn in late 1990s lasted from 1996Q3 to 1998Q4 (about 2½ years). In the early 2000s, the down trend lasted from 2000Q3 to 2004Q1 (about 3 years and 9 months). However, during the most recent Global Financial Crisis, the downturn only lasted from 2008Q3 to 2009Q2 (about 1 year) before staging a dramatic rebound.

Figure 1: URA Private Property Price Index (PPPI) from 1996Q1 to 2011Q2

Source: URA

Based on this, what are some of the conclusions we can draw?
From the inconsistent duration of each property market downturn, it seems apparent that there is no “standard” period of recovery. The length of each market downtrend will depend on the market conditions as well as investors sentiments then (there goes the 7 year feast and 7 year famine theory).

Nonetheless, if a correction does happen, you should be prepared that it would not go away immediately and should let the down trend run its course before starting to look for a property. If we use historical data as a guide, a suitable time for you to start looking for opportunities would be 6 to 9 months from the point when the URA PPPI first contracts. I must qualify that no one, including myself, knows for sure when the bottom of the market will be. However, entering the property market during the maturing stages of a down trend will ensure that you are not paying a premium for the property you buy.

Will it really happen?

To end off, I must caveat that nothing in life, and especially investing, is certain. Despite the concerns raised over a double dip recession, no one knows for sure if it will actually happen as there are many measures that central banks as well as governments can take to arrest the flight of confidence.

Even if a recession was to happen, the Singapore property market could still be resilient as the inflow of excess hot money from the West in search of investment opportunities could bolster the market. Conversely, even if there is ultimately no recession, it is still possible for the Singapore real estate market to dip due to an increased apprehension for long term investments. In short, the market now is presently very volatile and it will take some time for a clear trend to emerge. However, when banks start to lay off staff and developers start giving attractive discounts/renovation packages to entice buyers, it would not be too unreasonable to expect a market downturn soon.

Past article on Propwise.sg (Jul 2011): Buyers versus sellers – Who will blink first?

People who have read my articles or spoken to me before may go away with the thinking that I am a perennial pessimist. In the last few months, I have been telling my friends and potential clients to stay away from the property market. Some reasons behind my views are: (1) Private properties are very expensive right now and good deals are not as easy to find as compared to several quarters ago. (2) Government intervention measures put in place have increased the opportunity and investment cost of owning private properties and they are not as worthwhile as before. (3) Property prices will eventually turn and those who bought at peak prices would be caught with a loss-sustaining asset when property market sentiments cool.

Interestingly, Singapore private property prices have been continuously on the rise and market observers have come up with many explanations on why this is happening. Some reasons range from the increase in foreign buyers to the low interest rate environment. I think most of them are valid assessments. However, if I were to attribute it to a single factor, I assess that high prices are a result of an abundance of liquidity in the Singapore market. My company uses savings and other deposits as a proxy for liquidity within the real estate market as they represent monies that can be used for property deposits. They are also used as an indication of interest rates as there is an inverse relationship between liquidity and interest rates – the more liquidity the economy has, the lower the interest rates will be.

Figure 1: Extract of Finance Report from Monetary Authority of Singapore

Source: www.singstat.gov.sg

In an interview I did with Mr Propwise for his book Secrets of Singapore Property Gurus, I raised the point that liquidity is going to be a key driver in determining how the Singapore property market will behave in the coming months. To illustrate my point, the extract from the Monetary Authority of Singapore (MAS) in Figure 1 shows that the savings and other deposits (including current account deposits) as at 2008 was more than S$100billion. This was twice the amount that Singapore had in 1998, after the Asian Financial Crisis. In 2009, this amount increased by about 20% to S$120billion.

As for the question, ”Who will blink first?”, I opined that as long as buyers have money for the high deposits and access to financing for their properties, properties will continue to be bought and sold at a price premium. From a cash-rich investor’s perspective, it still makes sense to buy a property for rental right now. As even though the yield could be as low as 2%, interest rates that banks are currently giving for cash deposits are comparatively much lower. Meanwhile, sellers will have to price their units higher to account for the additional charges brought about by the anti-speculation measures that were supposed to keep the escalation of property prices in check. In another words, as long as there is abundance of liquidity and buyers are prepared to pay, there is no incentives for developers and property owners to lower their high asking prices.

I recently had a discussion with a friend who worked as an editor with The Economist and he wondered if high property prices will be the new norm. Seeing how some new HDB flats were almost launched at S$880,000, the environment of high property prices looks set to stay. However, I have to constantly remind myself that the property market is cyclical. Hence the real issue is not whether property prices will eventually fall, but when it will actually happen. And when it does happen, it will likely be brought about by changing financing conditions rather than increasing transaction fees or controlling ownership.

Past article on Propwise.sg (Jun 2011): Can new HDB units sold to first time buyers be cheaper?

In Singapore’s recent General Elections in May 2011, various issues on public housing were raised (i.e. the long waiting time as well as the high prices). As the topic on public housing is something very close to many Singaporeans’ hearts, I thought that it would be relevant to write an article about it. Specifically, on whether new Housing and Development Board (HDB) flats can be sold at lower prices.

Before I write further, I would like to highlight that, unlike the private property market, HDB does not release historical prices of new flats; the HDB website only releases information of the resale flat market. As such, there is no historical data to draw any direct conclusion from and much of my views are substantiated by circumstantial and anecdotal evidence extracted from press releases, annual reports, etc.

I would also like to emphasize that this article is not intended to criticise the housing policies we currently have in place. Singapore has one of the best public housing systems and the HDB has helped many Singaporeans own their own home. The intent of this article is really to discuss the possibility of having lower HDB prices and the impact (if any) it will have on the property market. To start this article, let us first tackle the question…

Can increasing flat supply lower new flat prices?

In the recent months, the new Minister of National Development, Mr Khaw Boon Wan, has been announcing a series of new HDB launches to boost available supply of new flats in the market. Based on established economic principles, we would intuitive expect flat prices to drop when supply goes up. Conversely, we would expect the reverse to happen and prices to increase when supply is limited. However, if we were to look at how the Singapore private property market has done, we can tell that increasing supply does not necessarily lead to a decrease in price.

Since 2008, numerous analysts raised the possibility of a housing crash due to an impending oversupply of private properties over the next few years. Based on URA figures on the available housing stock, the number increased from 236,903 in 2008Q1 to 260,108 in 2011Q1. This translates to an increase of 9.8% within 3 years. On the other hand, the property prices saw a rapid recovery after the Global Financial Crisis and the URA PPPI has been on the rise since 2009Q2. Evidently, the property market did not adversely view the increase in supply and there was no damper on housing prices (see Figure 1). As a result of strong demand and high property prices, the URA PPPI even broke the previous peak of 181.4 set in 1996Q2.

Figure 1: URA PPPI and Private Property Supply Volume (2008Q1 to 2011Q1)

Source: URA Realis and Ascendant Assets Pte Ltd

This comparison suggests that property prices are influenced by a myriad of factors and supply is just one aspect to consider. Ultimately, increasing property supply will not automatically translate to lower property prices as prices can still remain high (or even increase) if developers do not feel the need to lower their launch prices and/or banks are prepared to accept high property valuation. By extension, launch prices of new flats are determined by HDB. As a result, increasing flat supply will almost have no impact if launch prices of new flats remain unchanged. This brings us to the next question…

How are HDB flats priced?

At present, HDB does not reveal how it works out the launch prices of new flats. However, if we were to look at some anecdotal examples from previous launches, one would inevitably wonder if there is scope for new HDB flats to be priced even lower.

When Pinnacle @ Duxton was first launched in 2004, prices of 4-room flats started at $289,200 while 5-room flats were priced at up to $439,400. However, when the development was re-launched in 2008, the prices of 5-room flats were between $545,000 and $645,800. With a 24% to 47% price increase, one cannot help but to question HDB’s pricing strategy and whether the significant price increase was a true reflection of the increase in material and labour cost or was it a veiled attempt by HDB to build financial surplus in a booming property market. Based on figures extracted from the HDB annual reports, it is interesting to note that 2006/2007, 2007/2008 and 2009/2010 saw positive surpluses being generated (see Figure 2).

Figure 2: Annual Surpluses and Deficits extracted from HDB Annual Reports from 2005/2006 to 2009/2010

Source: HDB Annual Report

From these figures, does this mean that HDB is actually making profits from the sale of each new flat? And if HDB is making profits, wouldn’t it mean that new flats could be made affordable if the profit margin was lessened?

While surplus generated by HDB is not a bad thing as it could eventually be used to defray costs during the market downturns, I always thought that HDB, being a statutory board whose main role was to provide affordable public housing, was a cost centre instead of a profit generator. After all, the purpose of providing the housing grants of between $30,000 and $40,000 is intended to making housing more affordable for Singaporeans. Thus, could the fact that HDB has net surpluses imply that more could be done to make new flats more affordable?

That said, I do not think prices of new flats should be lowered for everyone who is eligible to buy a flat directly HDB. Instead, any surpluses generated by HDB could be used to help first time home owners by giving them larger subsidies. While Singapore’s economy has evolved, the need for housing, especially for first time home buyers, remains unchanged. For many young Singaporeans, getting married, financing a home and building a family can be very financially taxing. Hence, giving first time flat buyers more subsidies would significantly help them out.

Conclusion

From this article, many questions, such as whether HDB should be profitable and whether more can be done to make new flats cheaper, have been raised. I am not the best person to answer them as I am not privy to some of the considerations that HDB has. Nonetheless, I would not be surprised if HDB already knows the various problems and is working on a solution. Given our government’s track record and effectiveness, I am confident that the HDB will not have any problem lowering the launch prices of new flats. What remains now is whether they will see it through.