Below is a guest article from Gerald Tay of Conspiracy of Real Estate Investments (CREi) Academy Group. CREi provides property investment education tailored specifically to the ordinary investor & folk; and share time-tested, proven investment strategies which every keen ordinary investor can learn and apply with consistent success.
We know property prices have gone down, albeit an 8% dip since the peak of 2013.
There’re plenty of arguments from “experts” (mostly against) if the Singapore Property Market will indeed face another round of severe price correction – low price levels as seen in the 1997 Asian Financial Crisis, the economic stagnation period between 2002 and 2005 and 2008 Global Financial Crisis.
The arguments suggest prospective buyers who are eagerly waiting on the side-lines are looking for answers in the wrong place.
Some arguments have the audacity to suggest buyers, instead of waiting for the “impossible” scenario of a bloody market, they should take advantage of (somewhat) “discounted” prices by developers who are desperately clearing stock today.
- A low unemployment rate of 1.8%
- The economy is projected to grow positively, albeit at a modest pace of 2% to 4%.
- The Government had interceded early against over-leveraging with prudent lending measures such as Total Debt Servicing Ratio (TDSR)
- Increase in mortgage loans manageable with higher interest rates.
Words are wind. The best lies are seasoned with a bit of truth.
If you read local property reports or watch financial news, they often have a sophisticated panel of “experts” to predict market directions and tell buyers/sellers what to do. They look the part with their slick backed hair, fancy suits and snazzy market efficiency theories. What’s not to believe?
The problem is that these “experts” live in a bubble and their own denials. They’re 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 – 2005 and 2008 Global Financial crisis.
Our government could not prevent any of it. Major corporations were too blinded by profits to even notice.
From 1996 to 2005 – A Period of Mass Hysteria and Blood and Death
The period leading up to 1997 AFC saw unprecedented economic growth and high spending from consumers in Singapore – Just like Japan in the 80s before their own bubble burst. There were clear signs of froth-valuations and plenty of insensible speculations in the local property market. A capital gains tax was implemented on response causing massive panic among both buyers and sellers.
Between 1996 and 1997, local property prices plunge 45%. When the giant financial tsunami hit our shores between 1997 and 1998, all markets sunk to the deepest levels of abyss. There was prevalent mass hysteria and blood and death in every financial and real estate markets in Asia.
Local property price levels never recovered until late 2006. The aftermath of 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 its doldrums and property price levels never saw the light.
This gloomy period coincides with high unemployment rates, plenty of job losses, income losses and stagnation and plenty of FEAR in the markets.
As a young adult back in those tumultuous years, I was to comprehend the financial devastations from personal interactions with its victims. My family’s rich fortunes dwindled drastically and wealthy businessmen I knew had their fortunes wipe out overnight.
Personal and corporate bankruptcies were not uncommon, businessmen turned taxi drivers, stock brokers became broke for real and unemployed property buyers and even property agents themselves who can no longer afford mortgage payments had to let go of properties way below what they paid 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 those privilege.
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 price-spike periods between 2006 and 2008, interest rates were 4% per annum – Yet buyers stormed the markets like herds of pigs to slaughter houses!
Reckless Affluent Buyers – May Not Lack Wit, But a Clear Lack of Judgment and Impatient.
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 overleveraging of the more affluent group.
The more affluent (a better term use is glorified middle-class) – the spending of the top 10%, 20% and even 30% has been driving the economies of many Asian and emerging economies.
In Singapore, the number of affluent middle-class private property buyers grew astoundingly 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 & 2017.
This is not a coincidence with endless QE 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 primarily HDB “Up-Graders” and Executive Condominium (EC) Buyers. Many investors have left the scene. This is a worrying sign.
HDB “Up-Graders” benefited financially from HDB price appreciation in recent years. New EC buyers whom are mostly millennials (born after 1981) grew up with instant gratification and financially marginal with expensive life aspirations. These two groups have benefited the most from zero interest rate policies and this artificial bubble and “recovery” since 2008.
The clear lack of financial judgment is extremely disturbing especially buyers who bought at the peak of 2013-onwards.
So What is Going to Happen to the Property Market in Singapore?
And guess who will lose the most wealth in this next, larger crash?
The very group I’m talking about. 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 lesser growth. And lesser 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 late 2022-forward with little optimism. With a certain amount of observation and common sense, it 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.
10 Major Negatives on Future Property Values:
- One out of every three Singaporean investors are heavily indebted in personal debts apart from housing loans.
- One out of every two Singaporeans cannot retire.
- By 2030, one out of every five Singaporeans will be 65 years and older – placing extreme financial pressures for retirement savers and increased social spending.
- Lesser population growth between 1% and 1.3% in years ahead.
- Plenty of upcoming supply available in all property segments.
- Beyond 2030, sufficient land has been planned and set aside for residential, commercial, public infrastructure, defence, and other important land use to sustain economic growth.
- Government’s forward policy on asset consumption rather than asset appreciation to boost productivity for the future.
- The economy is projected to grow positively, albeit at a modest pace of 2% to 3% from now to 2030-forward.
- A mature economy and thus a mature property market facing tougher global economic changes and competition.
- A dark future macroeconomic outlook
A peak-market-buyer might ask, “Will my property command a higher price than what I’ve paid for today, say 15 years or 20 years-forward?”
Property buyers who bought at the peak of 1996 never saw recovery in price levels even until today. After 20 years with escalating price appreciation and excellent GDP growth in certain years, buyer’s real returns remains negative.
Let’s assume a modest 2% per annum property price inflation in accordance to an anaemic economic growth of 2% per annum.
Potential Property Values in Future:
If you bought a property (OCR/RCR) anywhere between 2009 and 1st half 2012, add whatever equity growth gained, PLUS a modest 2% appreciation rate per annum (compounded) moving forward.
If you bought a property between 2nd half of 2012 and today, accept zero real returns or negative real returns on it. In short, be prepared to lose money.
If historical loss performance buying at the peak were to reflect today’s market peak, property buyers of 2013-onwards will face similar losses. Talk about “Long-Termism”.
For Opportunistic Prices to Happen, There Must Be FEAR.
FEAR is when bad things happen. Think of all the past recessions over the last 20 years that have led to property prices slumping. All these massive events led to the closure of businesses, the extensive loss of jobs both within and outside of Singapore, the loss of people’s retirement savings and loss of fortunes built on straws.
FEAR is when you see tears and despairs on the streets; you would be hoping you can keep on to your job so that you can service your own mortgage.
FEAR is when your friends beg you for money or a job.
A FEAR market is not going to be a happy party. And certainly not something we want to rejoice in.
In truth, the strong has always taken from the weak.
The property market is like an iceberg with ¾ of it below the surface is ice. There will be tremendous wealth opportunities to take advantage for those who are brave, patient enough, see the whole picture and think beyond the tip of today’s disillusion.
It would be naïve to think the current property price slump is an investment opportunity for the masses.
It is NOT…
… When you see many of your friends talk about entering a “discounted” stock or property market.
… When you see plenty of expensive COE cars on the roads. (And a $330,000 car-licence plate)
… When HDB flats are sold for close to a million dollars.
And certainly not when major property developers continue to generate increased sales revenue despite “depressed” local conditions. For instance, Singapore-listed UOL Group’s revenue from property development, the group’s largest revenue generator, rose 27 percent to $557.5 million in 2015, mainly from local residential projects.
FEAR Stands For…
I’m not inferring a local market-crash or bubble-bursting kind of scenario. The real danger comes not from within our shores, but from outside a turbulent world. Our government cannot prevent an external crisis from happening, only seek to minimise it with good policies. As in previous recessions, how catastrophic the damage will be is anyone’s guess. A matter of when than if.
Humans are creatures of habits evolved thousands of years. It is naïve to believe markets have learnt their hard lessons from previous recessions. They have not. Their continued greed and lack of judgement only serves to multiply the magnitude. The buying psychology is simply repeated. The tribulations will be similar if not worse.
My years in the trenches has not shaped me to fight with words. It has taught me humility and FEAR. With that, I’ll make a bold statement,
FEAR in catastrophic times stands for “False Emotions Appearing Real”.
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