Predicting the 1Q2012 Dip in the URA Private Property Price Index

By Getty Goh (guest contributor)

URA released the 1Q2012 flash estimate for the Private Property Price Index (PPPI) on 2 April 2012, which showed a moderate decline for the index. Even though the drop was marginal, it was significant as it represented the first decline since the property market rebounded strongly from the 2008 Global Financial Crisis.

To the casual observer, the dip may come as a surprise. After all, there were many media reports on how strong new property sales were in the first three months of 2012. One of the local property portals even reported that private homes transaction in January 2012 was “a whopping 2,077 units compared to just 670 in December 2011”. Looking at such media reports, it would not have been too unreasonable for many people to go away with the impression that property prices were still on the rise.

Trends in the Singapore property market

Those of you who have read my articles (see blog by Mr. Propwise in Dec 2011) or attended my weekly free preview would have heard me share my bearish views since late 2011. Hence, this decline did not come as a surprise. So how was I able to tell that the market was at a tipping point? To me, the answer lies in the statistical trends.

While my company relies on several indicators to assess the Singapore property market, I often use the Ascendant Assets Indicator (AAI) to tell me how the overall market is performing. The basic premises of the AAI index are (1) a lead-lag relationship exists between the stock and property market and (2) we are able to tell how the economy is performing by analysing the correlation between the stock and property market.

To illustrate, let us look at Figure 1. The correlation between stocks and properties is observed to be high, i.e. when the AAI (the blue line) is more than 50% (represented by the dotted line). These phases of strong correlation occur when both stock and property prices are moving in tandem upwards (during bullish economic conditions) or downwards (during bearish economic conditions).

Figure 1: Ascendant Assets Index (correct as at 2011Q4)

Source: URA and Ascendant Assets Pte Ltd

Phases of weak correlation (blue line below the dotted line) occur when stock prices diverge from property prices. This happens because stocks, which are more liquid, react faster to changing market conditions. As a result, yellow phases indicate that the economy is turning point.

Deciphering the market trends

If you were to look at Figure 2, you will notice that past yellow volatile zones (highlighted in red) coincided with the decline of the URA PPPI (pink line). Based on this recurring trend, I was able to tell that economic conditions were gradually becoming more uncertain and that a decline in the URA PPPI was just around the corner.

Figure 2: Volatile market conditions and the drop in URA PPPI

Source: URA and Ascendant Assets Pte Ltd

As the saying goes, “knowledge is power. The ability to find good deals and knowing when is the most optimal time to buy or sell a property does not happen by chance. Now that you are aware that such market trends exist, hopefully you would be able to use it and make a more informed investment decision the next time round.

By guest contributor Getty Goh, Director of Ascendant Assets, a real estate research and investment consultancy firm.

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