By Property Soul (guest contributor)
We kick-started the Lunar New Year with a Property Club Singapore education seminar titled “Reading Property Signs in the Year of the Dog”. I used the occasion to share with the audience property strategies for homebuyers and investors in the year of the Earth Dog. The presentation can be summed up by five key tips:
Tip #1: It’s a tail-chasing game
I receive many messages from people asking me for advice about buying properties. Honestly, I am not motivated to reply at all. No matter what I say, they will do what they want. Sooner or later they will regret doing so and come back for advice again. After I get back to them, they still don’t know what to do and ask for more advice. Then they continue to do it their own way … The vicious cycle goes on and on.
We see a similar vicious cycle in property headlines: “XX site sold at $XXX million by GLS (Government Land Sales) or en bloc sales”;“Prices of private residential properties went up 0.4 percent last quarter”;“Industry stakeholders confirm the market bottoming-out and predict prices to grow by 5 to 10 percent this year”;“Government officials advise buyers to be cautious about high supply in the pipelines”;“Another condo sold at record price under the en bloc craze”;“Property prices go up by another decimal point”…
It is funny to see a dog chasing its tail nonstop and running around in circles. But this strange behavior may imply a kind of sickness like compulsive disorders in human beings. Whether a dog’s tail-chasing act will stop depends on the awareness of the dog owner and the urgency to send the dog for therapy.
Property investment is also a tail-chasing game. The difference is that it takes years for the dog to go one round in a circle to catch its tail.
Using the “6 stages of a property cycle” from my book No B.S. Guide to Property Investment (which has an unending reservation list in the libraries for almost four years), it takes a long time from bottoming-out, recovery, growth, booming, consolidating, to the final stage of correcting.
Nonetheless, like most assets, property is also a cycle where you see history repeating itself.
Where are we in the current property life cycle?
We are only in between the two stages of consolidating and correcting. It is still too early to talk about recovery. We are not even bottoming-out.
“You know it’s bottom when no one shows any interest in properties, or things are so depressed you can see ‘blood all over the streets’” – Property Soul
Tip #2: A barking dog never bites
We hear industry stakeholders with vested interests, including property developers, real estate agencies, mortgage banks, industry analysts, etc., all singing the same tune: There is pent-up demand in the area. People with high liquidity are still after properties. Buyers have come to terms with the cooling measures. Developers bought sites at high costs and property prices are going up soon …
They are all sending the same message: Don’t miss out. We want you to buy now so that we don’t miss the opportunity to make money from you now.
Don’t worry. It will not happen. As they say, if a dog keeps barking, it never bites.
Remember some industry stakeholders mentioned that the government would most likely be relaxing the cooling measures in 2018? How did the government react to their wild speculation? A higher Buyer Stamp Duty of 4 percent for residential properties valued over $1 million.
And every time when someone said the HDB market and rents are recovering, numbers released in the quarterly reports would show otherwise.
Tip #3: Every dog has its day (but not today)
All asset classes have their turns to prosper. They may suffer downturns at certain point of time, but they will recover eventually.
There is no exception for properties. The million-dollar question is: When?
You know the market is bottoming out when:
- Higher (or at least growing) demand over supply in the market. Problem of oversupply solved.
- Resale (not new sale) volumes and prices show “meaningful” increase for a few quarters.
- Rental prices and vacancy rates show consistent improvement.
The following table shows the performance of resale and rental in both the non-landed private residential and HDB market. The figures prove that Singapore’s residential market is still far from the last peak.
Sorry all the numbers disappoint. I should have let sleeping dogs lie.
The media’s unanimous optimism is based on the decimal point percentage of increase or decrease. They are all technically negligible. Our property market is still stagnant.
Imagine you have a boy who is sitting for the PSLE this year. Back in Primary 1, he scored 70 marks for English, Chinese and Mathematics. Unfortunately, his marks were falling year after year. By Primary 5, they have dropped 35 percent, 46 percent and 20 percent respectively.
Nonetheless, your boy tells you repeatedly that his results have bottomed out and have already recovered. It is because the teachers are going to supply them with record amount of homework this year. Everyone has come to terms with the huge workload and high pressure. The sentiment in his class is very positive. He is optimistic that his PSLE scores will go up 5 to 10 percent or even double digits.
Should you trust your boy?
Tip #4: Don’t bark up the wrong tree
Why do dogs bark up the wrong tree? Because they trust the wrong parties, judge the situation incorrectly, and pick the doomed course of action.
Read all property headlines and comments with a pinch of salt. Learn how to separate the noise from the facts. Make sure the articles make sense to you. Avoid making the same mistake as dogs that bark up the wrong tree.
Suppose your property agent tells you the property market will have a bull run in 2018. He may come up with the following logic:
High land prices ->High new launch prices ->High resale prices ->More buyers ->Growth continues
Challenge him by asking all the right questions:
- High land prices?
What has that to do with the buyers? HDB is a necessity but condos are not. Buyers of the latter will bite only when they think the price is reasonable. They don’t care whether developers acquired their sites at premium prices.
- High new launch prices?
Will buyers pay high prices? There is a perceived value in every product. The market price is determined by the economy and supply-demand, not by the developers.
- High resale prices?
Can buyers afford to pay high prices? Again, this is determined by the economy, employment market, stock performance, etc., not by the sellers.
- More buyers?
Where are the buyers? With flat HDB resale prices, HDB upgraders are holding back selling their homes. Are investors confident to buy with disappointing rents, high vacancy rates and climbing interest rates? When will our birth rate and immigration trend up again? Are en bloc owners buying private or downgrading to HDB for retirement?
- Growth continues?
Where is the growth in the property market coming from? Is it in resale prices, resale volumes, rental prices or rental rates? What percentage of growth are we talking about?
Let’s put all the sentiments and predictions aside. Look at the supply-demand picture with some real numbers.
Unsold units as of 4th Quarter 2017: 19,755 units (source: URA)
GLS/En bloc sites : 19,900 units(source: URA)
Total in pipeline : 39,655 units (source: URA)
En bloc owners as of today : 4,070 (estimated)
Assuming all displaced en bloc owners opt to buy a newly-launched condo unit instead of a resale, HDB or rental flat, they can occupy at most 10 percent of the total supply in the pipeline. Who are going to buy the rest of the 90 percent?
Tip #5:Act like a dog in 2018
Perhaps we can learn something from our four-legged friend in this Year of the Dog.
- Homebuyers should act like male dogs
Dogs are polygamous. They can have multiple sex partners simultaneously. The role of a male dog is mating rather than being with a single partner or raising their pups.
If there are so many choices, who wants to be confined to one?
We all know that properties are illiquid, and they depreciate over time. Private residential property prices are high now. If homebuyers overcommit, they must work like a dog to pay off the loan. On the contrary, it is a tenant’s market for rental.
If timing is not right, why be tied up by a mortgage?
If you can rent, why buy?
- Investors should model after female dogs
Unlike their male counterparts, female dogs do not have to constantly make unnecessary moves (like cocking, squatting or leg lifting) to attract potential sex partners or protect their territories.
Female dogs are less reactive to any stimulus outside. They are less sensitive and moody. As a result, they can stay calm and focused. Because they understand that their main role is reproduction and taking care of the young.
For investors, you should understand that your priority is growing your income, wealth and net worth through property investment. Be focused and think for the long-term. Stay calm and avoid being easily distracted by the noises outside.