By Gerald Tay (guest contributor)

We know property prices have gone down, albeit just an 8% dip since the peak in 2013.There’re plenty of arguments from “experts” (who mostly argue against) on whether the Singapore Property Market will face further severe price correction, perhaps to the lows seen during the 1997 Asian Financial Crisis, the economic stagnation period between 2002 and 2005, and the 2008 Global Financial Crisis.

Time to jump in?

Prospective buyers who are eagerly waiting on the side-lines are looking for answers can be easily misled.Some arguments suggest buyers, instead of waiting for the “impossible” scenario of a bloody market, should take advantage of the “discounted” prices by developers who are desperately clearing stock today.

Those who argue that buyers should jump in now cite the following reasons:

  1. A low employment rate of 1.8%.
  2. The economy is projected to grow positively, albeit at a modest pace of 2% to 4%.
  3. The Government has already acted early against over-leveraging with prudent lending measures such as the Total Debt Servicing Ratio (TDSR)
  4. Higher interest rates are already expected and will be manageable.

The best lies are seasoned with a bit of truth

If you read local property reports or watch the financial news, they often have a sophisticated panel of “experts” to predict the market direction and tell buyers and sellers what to do. They look the part with their slicked-back hair, fancy suits and snazzy market efficiency theories. What’s not to believe?

The problem is that these “experts” are famous for collectively never having predicted a recession or a property market plunge before it happened.None predicted the 1997 Asian Financial Crisis (AFC), 2000 dot-com bubble-burst, September 11, SARS, Asian economic stagnation of 2002 to 2005, and the 2008 Global Financial crisis.

Our government could not prevent any of it. Major corporations were too blinded by profits to even notice.

Asian Financial Crisis – A Period of Mass Hysteria

The period leading up to 1997 AFC saw unprecedented economic growth and high spending from consumers in Singapore, just like Japan in the 1980s before their own bubble burst. There were clear signs of frothy valuations and plenty of speculation in the local property market. A capital gains tax was implemented in response, causing massive panic among both buyers and sellers.

Between 1996 and 1997, local property prices plunged 45%. When the giant financial tsunami hit our shores between 1997 and 1998, all markets sunk to the deepest levels of the abyss. There was prevalent mass hysteria and blood in every financial and real estate market in Asia.

Local property price levels never recovered until late 2006. The aftermath of the 1997 AFC went on to create more unfortunate financial losses in the years after. For almost 10 years between 1997 and 2006, apart from a couple of short-lived recoveries, the Singapore economy was in the doldrums. This gloomy period coincides with high unemployment rates, plenty of job losses, income losses and stagnation and plenty of FEAR in the markets.

My experience witnessing financial devastation

As a young adult back in those tumultuous years, I witnessed the financial devastation from personal interactions with its victims. My family’s fortunes dwindled drastically and wealthy businessmen I knew had their fortunes wiped out overnight.

Personal and corporate bankruptcies were not uncommon, businessmen became taxi drivers, stock brokers became broke for and unemployed property buyers and even property agents themselves who could no longer afford mortgage payments had to let go of properties way below what they paid for it at the peak.

Many went from Rich to Poor – and some from Poor to Rich. But for every darkness, there is a glimpse of light if you know where to shine the torch. Opportunistic buyers who knew how to take advantage of FEAR became wealthy. I was one of the privileged ones.

During periods of distressed prices between 2002 and 2005, interest rates were as low as 0.8% per annum – the market had NO buyers. During the price-spike periods between 2006 and 2008, interest rates were 4% per annum – yet buyers stormed the markets like herds of pigs to the slaughter houses!

Reckless Affluent Buyers

In reality, the real danger to today’s property market does not lie with higher interest rates, but with a dark macroeconomic outlook, a slowing economy, and an overleveraging of the affluent.

In Singapore, the number of affluent middle-class private property buyers grew rapidly since 2008. From 2009, the number of private properties and Executive Condominiums launched and sold in the Mass Market region were the largest ever seen since 1975. This growing number will be further supplemented by a massive upcoming supply this year and in 2017.

This is not a coincidence with endless Quantitative Easing and stimulus since 2008. This has led to easy credit and low borrowing costs. Going forward, that will be less and less the case. Interest rates are already negative in certain major economies. They cannot go any lower.

Currently, the group of property buyers consists of primarily HDB “Upgraders” and Executive Condominium (EC) buyers. Many investors have left the scene. This is a worrying sign.

HDB “Upgraders” benefited financially from the price appreciation of HDB flats in the recent years. New EC buyers whom are mostly millennials (born after 1981) grew up with instant gratification and expensive life aspirations. These two groups have benefited the most from zero interest rate policies and the artificial bubble and “recovery” since 2008.

The clear lack of financial judgment is extremely disturbing especially for buyers who bought at the peak of 2013 and onwards.

So what will happen to the property market in Singapore?

And guess who will lose the most wealth in this next, larger crash? The top 0.1%, 1%, 10%, 20% and 30% because they own almost all of the financial assets that have been favoured in this bubble period with endless QE and zero interest rates.

The S&P Global Luxury Index which specifically measures the spending of affluent consumers on global luxury goods plummeted 16% year-on-year from the peak of 2014. What this means effectively is, we’re seeing lesser spending from affluent consumers who have been the pillars of global economic growth in past years. This will be a major cause of concern for world markets.Less spending means lower growth. And lower economic growth means bad news for real estate markets.

Worse, it’ll be years before buyers see another great boom in the overall local property market – not until 2022 and later optimistically. Based on my observation and analysis, the recovery won’t be like the booms and price-spikes we saw between the periods 1975 and 1984, 1985 and 1995, 2006 and 2008, 2009 and 2013.

Not even close.

In my next post I will go through the reasons why I think property prices will continue to struggle going forward and when the best time to enter the market will be.

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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