Bottom in Singapore Housing still Far Off

The modus operandi of a slowdown as evident in the US and UK is as follows:

Equity Markets Collapse - Real Economy Slowdown (evident in drop in corporate profits) - Spike in Unemployment - Drop in Real Estate prices.

In Singapore, I think we are still in the second phase (real economy slowdown). The next shoe to drop is the employment rate. The Singapore government is pulling out all stops to prevent the unemployment rate from increasing. It remains to be seen if the measures work. Expect to see Singapore's unemployment rate to at least match that in the 2002 - 2004 slowdown.

The adjustments to real estate prices will follow but these adjustments will take time to work through. Real estate prices are usually 'sticky' primarily due to the fact that price discovery is usually delayed and information is not as readily available as exhibited in the equity markets. In addition, expectations of market participants in the real estate market are managed by estate agents who has every incentive to push prices up. Globally investors now have a slew of properties to chose from - London and New York property prices have dropped significantly (approx > 40% at SGD prices) - can Singapore still attract these investors?

Dr Live Freely encourages you to FLIP your property

I have been watching the spectacular growth in the Singapore property prices for the past year. Before coming to London, wife and I were actually looking at a couple of apartments but due to our plans to move abroad, we decided not to commit ourselves to purchasing an apartment. The last time I checked, one of those apartment I was interested in, was sold en-bloc, the owner of another apartment is now asking for a price 40% above valuation.

So it is not surprising at all that everyone is trying to jump onto the property bandwagon, even this fellow here. A few points he made in his article which I do not agree with:

a. Mentions about the buzz and hype of the coming events - the assumption that these events will attract more investors is misleading. There is no clear correlation between those events he mentioned and the asset prices. There is a certain amount of risk to undertake if we are to assume that investors looking for properties will be drawn to Singapore because of an IR or an F1 race. In addition,, we are still not sure if there will ever be a night race due to safety concerns and we cannot be certain if the integrated resorts (IR) will ever be as successful as those in Macau or Las Vegas.

b. Suggests that anyone with cash should invest in properties and it is almost certain to make money. In the example he gave in the article, the investor has no intention of living in the property - the intention is to quickly offload the property before its completion date to a higher buyer. Everything works perfectly in a exuberant market but one of the key points which he seems to have missed is the liquidity of the market when the property holder wants to sell. In a market downturn, there may not be enough buyers to support the market.

c. 'Buy Low, Sell High' - isn't this the correct time to sell High? Why is he touting to buy now? Unless he is selling ....

With a population growth at about 1.275% per year, and with the supply of residential properties in Singapore growing at approximately 3% for the last two years , surely there will be an overhang at some point in time.


It is in the good times that bad decisions are made.