By Mr. Propwise

Okay so you’ve read various outlooks for the property market in 2014 and beyond, you’ve heard everyone’s arguments about why the property market should go up (yes someone actually predicted that), down or sideways. But what you really want to know is – how much will property prices fall (if at all) in 2014?

The danger of expert forecasts

Long-time readers of will know that I don’t believe in making forecasts. Instead, I believe we should keep track of where we are in the Property Market Cycle and prepare ourselves for it (HINT: we should be preparing for a bear market ahead).

Others have written about the folly of following expert forecasts, but suffice to say that nobody knows what will happen in the future. At best, we can only make an educated guess based on our analysis of the data, and that guess is only one of many possible future outcomes. That being said, I thought it would be helpful to compile the property market forecasts that a wide range of market watchers are making, and share some of my thoughts about them.

What the experts are predicting

Here’s the table of forecasts I’ve compiled – I’ve also included details on the person making the forecast, organization he or she belongs to, their position, and the type of organization they belong to. It is sorted roughly in the order from the most positive to most negative.

Figure 1 – 2014 Singapore Residential Property Price Forecasts

We can see a few things from the table above.

First, the range of forecasts is wide, from an increase of 2% to a fall of 20%. This should tell you something about how predictable the market is – not very. There’s a lot of uncertainty due to the myriad factors that influence the market – interest rates, employment, supply, taxes, financing rules etc.

Second, most of the forecasts are for the property market to fall. And while it is not possible to take a simple average as we will not be making an apples-to-apples comparison, if I had to summarize the forecasts I would say the general range is looking at a 5% to 15% fall in property prices. While a single forecast is likely to be inaccurate, the average of a large number of forecasts is likely to be closer to the eventual outcome, if you believe in the Wisdom of the Crowds.

Third, the type of organization matters when trying to determine how reliable a forecast is. When you next hear a forecast, one of the key things you should ask yourself is – what vested interest does this person have in the property market? From the table above we can see that the most positive forecasts are from property agencies and developers. Hmm… I’ll leave you to figure that one out yourself, Sherlock.

Cooling measures not going away anytime soon

While property developers and agencies were hoping (praying?) for a loosening of property measures after a mild 0.9% quarter-on-quarter decrease in the 4th quarter of 2013 (after rising by 61% since mid-2009), their hopes were dashed post the announcement of Budget 2014.

Take a look at what Finance Minister Tharman Shanmugaratnam said about the property market: “Given the run-up in prices in the last four years, it is too early to start relaxing our measures… We are not engineering a hard landing. But neither are we able to eliminate cycles in the property market, with upswings in prices in some years followed by corrections.”

My read is that the government is not going to support the property market at all costs – it will let the cycle play out and try to minimize the damage to Singapore’s financial system and the impact on household balance sheets. In other words, the government will allow property prices to fall, as long as that fall is not too extreme.

When you read news about market watchers calling on the government to relax the cooling measures, think again about the vested interests we discussed above. Who is calling for it and what do they have to gain from it?

Wisdom from the Wolf of Wall Street

One of the most interesting movies I’ve watched in a while, the Wolf of Wall Street, is probably Leonardo DiCaprio’s and Martin Scorsese’s finest work. Among the best scenes in the movie, in my opinion, occurs at the beginning when a young Jordan Belfort is taken to lunch by his new boss Mark Hanna (played by Matthew McConaughey).

At lunch, Mark gives Jordan some fundamental advice about succeeding in the financial industry, including this gem: “First rule of Wall Street, nobody, and I don’t care if you’re Warren Buffett or Jimmy Buffett, nobody knows if a stock’s going up or down, or sideways, least of all stock brokers. But we pretend to know.”

As you listen to the various forecasts of the market from property experts, just remember that for some it is their job to convince you that they know exactly where it is going to go.

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