By Gerald Tay (guest contributor)

This the key question on everyone’s mind today: “When is it a good time to re-enter the property market as prices continue on their downward spiral?”

This aims to provide an overview of the Singapore Private Residential Property Market and allow investors, buyers and sellers to:

  1. Form their own view of when to buy and sell
  2. Understand the historical property market trends
  3. Manage risks rather than predict an unknown future
  4. Make better property investment decisions

I am a property investor, not a property consultant, analysis or “expert.” Like many savvy investors, I don’t predict the unknown future, rather I manage my risks with current and available information.

The charts and tables are based on public information collected and collated from various sources, including:

  • Urban Redevelopment Authority, URA
  • Monetary Authority of Singapore, MAS
  • Singapore Statistics, Singstat
  • PropertyMarketInsights.com, PMI
  • SingaporePropertyCycle.com.sg

Notes for readers:

  • The charts show market trends of the Singapore private property residential market over a 38 year period (from 1975 to 2013)
  • Over a 38-year period, the compounded annual inflation rate was close to 2%.
  • The “Real Returns” on an investment measures “not how much you can buy with the money you get out of the investment”, but “how much more you can buy with the money you have” after taking consumer price inflation into consideration.
  • It would be meaningless if our property prices hardly beat the increase in inflation and stayed the same after long years of mortgage payments and other costs.

Firstly, a quick look at historical market trends.

Singapore Private Residential Property Price Index (1975 – 2014)

150112 Figure 1

  • Note the period from1983 to 1996. This section forms a shelf that dropped off precipitously. It corresponded with Singapore joining the ranks of the world’s richest nations with rapid industrialisation and high economic growth rates in excess of 7%.
  • Note how the sheer climb for each peak became shorter over the maturing years.

Property Market Cycle – A Pattern of Bulls and Bears

150112 Figure 2

  • Note an obvious pattern of bulls and bears from 1996 to 2014.
  • Note a bowl-shaped curve from 2000 to 2008. For some Generation X property buyers like myself (born 1965 to 1976), we owe our first real estate wealth to this period of the property cycle.
  • I started my research on the Singapore Property Market in 2001(Early Bear) and bought my first property in 2003(Late Bear)

Investor’s Tip of the Day:

As according to PropertyMarketInsights.com we’re in the Early Bear period currently, I strongly urge ordinary investors who are serious to enter/re-enter the property market to kick-start their property and financial education today, rather than wait till the Early or LateBull stages of the Property Market Cycle to do so.

When it does, you’ll be in a stronger position to capitalise on opportunities than those who are less prepared (remember the fable of “The Ant and the Grasshopper”).

Private Residential Property Price Index (1975 – 2013)

Property Returns at Different Buy-Periods

Peak to Peak

150112 Figure 3

  • Even though periods from year 2000 to 2013 gives a positive real return of 1% or less, a buyer’s risk/returns trade-offs are unjustifiable if they are buying at or close to the market peak. Taking on such substantial risks in property is poorly rewarded.
  • Real property growth has evidently declined with each new peak over the last 38 years, dropping drastically from 14.18% in the early growth years to an insignificant 0.68% in a maturing market.
  • Unfortunately, we’ll expect most buyers who enter at or close to the peak of 2013Q3 to face negative Real Returns on their property values for a very long time.
  • The property market recovered extremely quickly after the 2009 Global Financial Crisis.

A Warning for Buyers

For most of the “lucky” buyers who bought during the peak period of 2007/8, they were rescued from becoming “porkchops.” Tons of printed money were injected by world governments into the worldwide financial system immediately after the crisis.

We may just run out of financial ‘rescue’ options in the years ahead. And you don’t get lucky twice!

Bottom to Peak

150112 Figure 4

  • For the last 38 years entering from close to or at the bottom of the market, a buyer’s Real Returns have diminished from high double-digit grow thin the early years to single-digit today. In the future, this growth rate may further decline to low single-digits due to mature economic and market conditions.
  • In the future, I conservatively estimate a range of 3% to 5% in Real Return seven if buyers do enter at or close to the bottom of the market. And likely negative Real Returns for buyers who enter at or close to the peak of the market.
  • The next time you hear someone says the property market has historically registered double-digit price growth, refer him/her to these trends and question which period he/she is referring to, and also ask, “From the bottom?” or “From the Peak?”

Wisdom for Investors

To be conservative, I always project my properties to give 0% to 3%Real Return seven if I bought them low. Rental Yield is my main investment consideration, but if property price does grow beyond my conservative figures, I’ll simply take the extra capital gains as bonus.

However, going in and out of market is simply “foolish”, even though you may realise capital profits. If the world’s greatest investor Warren Buffet does not, why should you?

Peak to Bottom

150112 Figure 5

  • Other than 2000Q2 to 2004Q1, a period which was just recovering from Asian financial crisis and subsequently hit by dot-com burst and SARS crisis, the rest of the periods registered an annualized double-digits percentage decline in property prices from peak to bottom. Many buyers who entered at or close to the peak experienced gruesome losses in these unfortunate periods.
  • The latest market crisis of 2008Q2 to 2009Q2 registered the largest price decline since 1983.

Buyer’s “Kopi” Topic-of-the-Day

Many people believe that prudent financial regulations and government measures will provide better stability to the property market.

But the Global Financial Crisis of 2009 experienced a steeper and larger price decline than during the 1997 Asian Financial Crisis within a very short period of just four quarters.

In coming years, if another crisis hits our shores, compounded with an over-supply situation, are we currently expecting the worst in property prices?

Is property really a good “Mid to Long Term” investment and hedge against inflation?

From the two tables below, the answer greatly depends on whether a buyer enters at or close to the bottom or peak of the market.

Both tables show Real Returns of buyers who enter a peak property market and holds on to the next peak, which takes between 5 to 17 years.

Mid-Term Holding (Less than 10 years)

150112 Figure 6

Long-Term Holdings (10 years and above)

150112 Figure 7

  • Property can be a negative hedge against inflation even after holding for the mid-to-long term if a buyer enters at or close to the market peak.
  • From 1996 onwards, only two out of five periods result in property acting as a positive hedge against inflation even after a mid-to-long term holding period.
  • A buyer who bought into the peak market of 1996, held a depreciating property with negative Real Returns in 2013, even after 17 years.
  • All other periods showed poor or negative Real Returns for buyers who enter at or close to the peak of the market, except for the 13-year period from 1983Q4 to 1996Q2, and 38-year period 1975Q1 to 2013Q3.
  • We see tremendous property price growth which corresponds with Singapore’s early rapid growth years, especially period 1975to 1996.

Frequently Asked Questions

What are the significant “red-flags” to indicate when theproperty market is peaking?

  • Buyers buying at inflated or record-breaking prices:
    • Owner-occupiers being scared of prices rising beyond their affordability so they buy a property for more than what it is worth.
    • Owner Occupiers buying lower price quantum units at high PSFs due to perceived “affordability”.
    • Speculators bank on prices rising at the same rate as in the past.
    • Properties have negative cash flows and low rental yields
    • Net Rental Yields are below the inflation rate.
    • Low interest rates and higher consumer price inflation.
    • Professional investors stay out of the market. Owner-occupiers and speculative investors remain core buyers.
    • Property cooling measures are implemented to curb further property price increases.

What are the significant “hints” to indicate when the property market is bottoming?

  • Owner-occupiers are unwilling to buy and force prices down further.
  • After significant double-digit price declines.
  • Low but positive yields even as property prices fall further (rent is static but price is volatile)
  • Removal of property cooling measures.
  • Peaking interest rates and low consumer price inflation.
  • Property has a bad name and buying property is now considered a stupid thing to do.
  • The lower end of the market plummets due to lack of interest.
  • Repossessions are higher than they’ve ever been.
  • Professional investors, like vultures, watch property prices on a daily basis to see when the price falls to a level that will put money in their pocket.
  • Professional investors start bidding wars (some are cheeky and do not care if they offer 20% below what seller is asking!)

When is it time to enter/re-enter the property market?

Cooling measures will stay on for a long time. So sit tight and wait patiently for further correction. Historically, expect a 20% fall in prices before we’ll see the bottom of the market.

Say “bye-bye” to the high growth years

It’s 2015. Today’s smart phones are the size of our palms and getting smaller. In the 1980s, mobile phones were the size of one-litre water bottles, and not smart!

Technology evolves quickly and so do the markets. It certainly does not take an expert economist to know the high growth years of our parent’s generation are gone.

I’m no “expert” and neither do I try to be one. All I did was to use logic to value my investments, rather than follow the crowd and listen to “experts” whose investments contribute little their net worth.

If you believe a projected 6.9 million future population and addition of MRT lines will fuel general property price growth till 2030, you are short sighted. Buyers who buy area-specific opportunities at close to or at the bottom of the market will profit. Buyers who buy at “future prices” in over-hyped areas will see poor returns.

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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