By Gerald Tay (guest contributor)
Tempted to buy a property due to the falling prices? Think again. In this article I will go through five reasons why I think it’s still a terrible time to buy Singapore property.
1. Property prices are still high for mass market homes
Since Q1 2009, prices in the Core Central Region (CCR) have risen 30 percent, 42 percent in the Rest of Central Region (RCR), and 60 percent in the Outside Central Region (OCR).
Since the peak in Q3 2013, prices of mass market homes have fallen a measly 5.5 percent. Properties in the OCR are still overpriced. Mass-market home prices haven’t dropped as much as those for luxury housing. Rental incomes are falling and vacancy rates are rising. A huge oversupply is looming on the horizon.
The bottom is still far from sight even though vested players claim it will happen in the next three to six months. While new home sales have dropped significantly, prices have stayed relatively high due to developers’ holding power.
There is still room for a further decline of property prices in the OCR. Investment opportunities will arise over the next couple of years when prices decline further.
My last purchase of a Singapore residential property was in mid-2012 before the policies came in. I won’t be re-entering the Singapore residential market until I see a further decline in prices. Prices need to drop by about 20 to 30 percent to make residential investments attractive again, not a measly 5.5 percent!
2. Interest rates are low but rising
Property prices rose as interest rates fell, and property prices will fall if interest rates rise with a weakened economy.
The way to win the game is to have cash on hand to buy at a low price when others cannot borrow very much because of high interest rates and the constraint of the debt servicing ratio. Then you get a low price, and you get capital appreciation caused by future interest rate declines. To buy an expensive property or believe in the fallacy of “affordable” property at a time of low (and rising) interest rates and high prices is a mistake.
It is far better to pay a low price with high interest rates than a high price with low interest rates, even if the mortgage payment is the same either way.
3. Government property curbs are here to stay
Many are betting on a removal of the cooling measures. I don’t see the government removing property curbs for the next two years. With interest rates on the way up, there will be pressure. The policy is working, there is no reason whatsoever for the government to relax it.
When stringent property curbs are here to stay, this only means property prices are still high.
4. Buyers are still biting the marketers’ bait
The problem with buyers who act like lemmings is that they become obvious targets for clever marketers. In today’s property market, how does a seller of real estate use human weaknesses to sell and profit?
Here’s a case study from the latest property launch near Seletar:
The Solution – Sell, market and lure “desperate” buyers with under $1,000 per-square-foot on average condominium units to beat the TDSR (Total Debt Servicing Ratio).
The Outcome – 1,110 lemmings rushed to snap up smaller units with empty cheques and balloting. 78% of project was sold within a weekend.
The Profits – 1,400 small unit apartments are cramped into every space possible.
This new successful sales model will soon be copied by other developers. As long as foolish buyers keep biting, sellers will continue to sell to them. Watching others get rich during boom times while you don’t is terrible enough. Lemmings want it now and that’s why they are prime targets today.
5. We may have an even greater financial crisis coming
Look for falling oil prices and another scare in China to spook the speculators, followed by a series of growing defaults like in 2008, but worse. They’re also kidding themselves if they think they can stop everybody from selling their stocks (look at China).
And expect the global crash that follows to be even more brutal thanks to all the financial manipulation in the system.But even beyond a global stock bubble, housing bubble, fracking bubble, and pension problems, there are signs of economic destruction across the world.
The air has been let out of China’s stock market. Commodity prices are down across the board to the detriment of the world’s emerging markets.Long-term interest rates are rising despite global efforts to suppress them with continued stimulus.Europe is enlarging the black hole of Greece by funnelling even more money into it. The euro zone as a whole has an unemployment rate over 10%. Japan is caught in a downward demographic spiral.
Chaos is erupting. And despite efforts to stop the global economic system from melting down, free market forces are finally starting to show governments and central banks who’s in charge. That’s the simple, bitter truth of it.
Inaction for now is the best action for savvy buyers and investors.Many are tuned in to the devastating market forces ahead. Those who are listening will be the best prepared. Those who have been patiently waiting on the side-lines and preparing themselves to take advantage of the coming crisis will be best rewarded.
For the buyers of today, I wish them luck.
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.