By Getty Goh (guest contributor)
Not too long ago, I wrote two articles to remind readers that the property market is cyclical and that a correction was due.
In the recent weeks, we have been receiving a series of bad news from the stock market as well as the global economic outlook. Some of the negative news includes the US debt ceiling debacle, the downgrading of US credit rating from AAA to AA+, Singapore government lowering its economic forecast and the increasing concerns of a double dip recession.
With so much bad news presently in the market, it seems like conditions are ripe for property prices to drop. If a property market contraction actually happens, the main question on many investors’ minds would be how long the downturn will last and when they should jump into the property market again.
How long did past downturns last?
To give you an idea of how long property down trends can last, let us take a look at the URA Private Property Price Index (PPPI) shown in Figure 1. Based on past trend, the property downturn in late 1990s lasted from 1996Q3 to 1998Q4 (about 2½ years). In the early 2000s, the down trend lasted from 2000Q3 to 2004Q1 (about 3 years and 9 months). However, during the most recent Global Financial Crisis, the downturn only lasted from 2008Q3 to 2009Q2 (about 1 year) before staging a dramatic rebound.
Figure 1: URA Private Property Price Index (PPPI) from 1996Q1 to 2011Q2
Based on this, what are some of the conclusions we can draw?
From the inconsistent duration of each property market downturn, it seems apparent that there is no “standard” period of recovery. The length of each market downtrend will depend on the market conditions as well as investors sentiments then (there goes the 7 year feast and 7 year famine theory).
Nonetheless, if a correction does happen, you should be prepared that it would not go away immediately and should let the down trend run its course before starting to look for a property. If we use historical data as a guide, a suitable time for you to start looking for opportunities would be 6 to 9 months from the point when the URA PPPI first contracts. I must qualify that no one, including myself, knows for sure when the bottom of the market will be. However, entering the property market during the maturing stages of a down trend will ensure that you are not paying a premium for the property you buy.
Will it really happen?
To end off, I must caveat that nothing in life, and especially investing, is certain. Despite the concerns raised over a double dip recession, no one knows for sure if it will actually happen as there are many measures that central banks as well as governments can take to arrest the flight of confidence.
Even if a recession were to happen, the Singapore property market could still be resilient as the inflow of excess hot money from the West in search of investment opportunities could bolster the market. Conversely, even if there is ultimately no recession, it is still possible for the Singapore real estate market to dip due to an increased apprehension for long term investments.
In short, the market now is presently very volatile and it will take some time for a clear trend to emerge. However, when banks start to lay off staff and developers start giving attractive discounts/renovation packages to entice buyers, it would not be too unreasonable to expect a market downturn soon
By guest contributor Getty Goh, Director of Ascendant Assets, a real estate research and investment consultancy firm. Getty has a MSc (Real Estate) and BSc (Building) from the National University of Singapore.