By Gerald Tay (guest contributor)

In my previous post I reflected on my experience of the Asian Financial Crisis and considered whether it’s the right time to jump into the Singapore property market (it’s not). In this post I outline why I’m negative on the future direction of Singapore property prices and when I think will be the right time to enter the market.

Reasons why I’m negative on Singapore property prices

  1. One out of every three Singaporean investors are heavily indebted via personal debts apart from housing loans.
  2. One out of every two Singaporeans cannot retire.
  3. By 2030, one out of every five Singaporeans will be 65 years and older – placing financial pressures on retirement savers and for increased social spending.
  4. Slower population growth of between 1% and 1.3% in the years ahead.
  5. Plenty of upcoming supply available in all property segments.
  6. Sufficient land supply has been planned and set aside for residential, commercial, public infrastructure, defence, and other important land uses to sustain economic growth to 2030 and beyond.
  7. The Government’s forward policy on asset consumption rather than asset appreciation to boost productivity for the future.
  8. The economy is projected to grow at a more modest pace of 2% to 3% from now to 2030.
  9. A mature economy and a mature property market facing tougher global economic changes and competition.
  10. A dark future macroeconomic outlook

A buyer who bought at the recent market peak might ask, Will my property command a higher price than what I’ve paid for today, say 15 years or 20 years into the future?”

I think that’s very unlikely.

Some property buyers who bought at the peak of 1996 never saw a recovery to their purchase prices even till today. After 20 years of escalating price appreciation and excellent GDP growth in certain years, the buyer’s real returns remain negative.

Let’s assume a modest 2% per annum property price inflation which corresponds to an anaemic economic growth of 2% per annum.

Potential Property Values in the Future

What sort of property prices should you expect in the future?

If you bought a property in the Outside Central Region or Rest of Central Region anywhere between 2009 and the first half of 2012, add whatever capital gain you have so far, plus a modest 2% appreciation rate per annum (compounded) moving forward.

If you bought a property between the second half of 2012 and today, accept zero real returns or negative real returns on it. In short, be prepared to lose money.

When to Jump In? There Must Be FEAR

FEAR is when bad things happen. Think of all the past recessions over the last 20 years that have led to property prices slumping. All these massive events led to the closure of businesses, the extensive loss of jobs both within and outside of Singapore, the loss of people’s retirement savings and loss of fortunes built on straws.

FEAR is when you see tears and despair on the streets; you are praying you can hold on to your job so you can service your own mortgage.

FEAR is when your friends beg you for money or a job.

In truth, the strong has always taken from the weak. There will be opportunities to take advantage of for those who are brave and patient enough, and who see the whole picture and think beyond the tip of today’s illusion.

It would be naïve to think the current property price slump is an investment opportunity for the masses.

It is NOT a great opportunity when:

… You see many of your friends talk about entering a “discounted” stock or property market.

… You see plenty of expensive COE cars on the roads (and a $330,000 car-licence plate).

… When HDB flats are sold for close to a million dollars.

And certainly not when major property developers continue to generate increased sales revenue despite “depressed” local conditions. For instance, Singapore-listed UOL Group’s revenue from property development, the group’s largest revenue generator, rose 27 percent to $557.5 million in 2015, mainly from local residential projects.

Summing up

I’m not predicting a market-crash or bubble-bursting kind of scenario. The real danger comes not from within our shores, but from the turbulent world outside. Our government cannot prevent an external crisis from happening, but only seek to minimise it with good policies. As in previous recessions, how catastrophic the damage will be is anyone’s guess. It’s a matter of when ratherthan if.

It is naïve to believe markets have learnt their hard lessons from previous recessions. They have not. Their continued greed and lack of judgement only serves to amplify the magnitude of the eventual correction.

By guest contributor Gerald Tay, who is the founder and coach at CREI Academy Group Pte Ltd, an organization dedicated to empowering retail property investors with smarter investing philosophy and strategies. He is a full-time investor with over 13 years of solid experience in building his wealth through Property Investment and is financially wealthy today.

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