10 Good reasons to be a Singapore property bear
10 Good reasons not to listen to a Singapore property bear1. The current "greenshoots" recovery is totally driven by taxpayers money. Not just cash reserves but mostly future tax income. This means for decades, Govts will not be able to spend on essential services and infrastructure. There has not been an upswing in production or demand just a inflow of borrowed taxpayers cash. So we have yet another mini bubble created by false liquidity without any new wealth creation.
Judging from China's ISM data this week, more uptrend in production than you think. However, even if you buy into what you are saying, the taxpayers money will most certainly NOT be sucked out of the system by 2010-11. This is trillions of dollars we are talking about. Therefore, highly unlikely for Singapore property to fall back to those reasonable levels you are talking about, if liquidity is indeed what is driving the equation.
2. The global economy has stopped its downward spiral but it is still sick and many parts of it are still dying. It is most likely the West will flatline and stagnate for decades which will put the entire Singapore economy at risk. Just look at the last Q loss for NCL.
Not sure why you think the above is the 'most likely' scenario. There are just as many economists who believe that the West will not 'flatline and stagnate for decades' (and, in any event, I would hardly consider NOL's Q1 loss a bellwether for conditions in the next few decades...). Regardless, again yours is a subjective take based on pessimistic interpretation of about 6-9 months of data. It is just as likely that the next 6-9 months will be better than the previous ones. And, over the decades you are talking about, it is even more likely that the additional development of China and India will have enough time to take root and act as alternative markets for a place like Singapore. Over the next 5-7 years, Singapore's success has as much to do with seeking alternative markets and reducing dependency on the west, which many are of the opinion that it will do quite well...
3. While the economy may not yet hit its bottom, interest rates certainly have. The only way forward is up for interest rates as banks attract private equity to re-capitalise. Singapore will need to follow this trend. This will devastate property affordability. Because Singapore is comming off such a low base rate now. Just a 1% rate increase will cut the amount able to be borrowed by 20 -30%. This will reflect with a corresponding price drop.
Singapore will continue to attract foreign investment capital, which will continue to increase liquidity (it doesnt take much in actual capital flow to expand monetary demand in such a small economy). As a result, any interest rate adjustments in Singapore will likely lag the US by a period of 6-12 months. Unless you believe the US will be adjusting rates upwards this year, I would expect this scenario to unfold over a 2-3 year time horizon rather than the next 18 months.
4. Supply. The supply is 3 X higher than during the last property crash in 97. The supply issue compounds from 2010 onwards.
This is just flatout misinterpretation of statistics. Oversupply in 1997 was relative to a population of 2.8 million people. Today it is 4.6 million people (with a higher percentage, as you mention, living in private housing). If you are in the camp that believes Singapore will emerge with stronger employment growth than most countries (considering a low 3.2% unemployment today) then you will realize that supply overhang is overstated (particularly in prime areas).
5. DPS. This is Singapores subprime on steriods. If it wasnt a problem, the Govt would not have cut it off in 07. This hits the fan in 2010
Fundamentally disagree. DPS refers to less than 10,000 remaining units. Of which you can expect 20% will be owner occupied and at least half are either going to complete in cash or have absolutely no problems holding (especially considering recent price run ups). My bet is many developers can even afford to allow for renegotiation of purchase terms or other concessions for their 'best' customers in the worst case.
Sure there will be some good deals available on a project by project basis, but to think 2-3,000 units will drag down the entire market of 260,000 units of private housing is beyond paranoid. Think about it, if the banks really thought this was going to be the case, would they really be increasing valuations to match today's rising purchase prices? Especially not, considering they only earn about a 1.25% spread on mortgage income...
6.Historical data. The 15 year historical data shows Singapore property to be one of the worst performing asset classes in the world both from a yield and capital gain. Its been said here before that if you bought in 96 you were still underwater even at the peak of 07. The people here who talk about "missing the boat" are just dumb. The boat hasnt been built yet. The agent trolls who bought in 07 will be passing on negative equity to their children.
This is just flat out wrong. Just like 1996, some who bought in mid 2007 might take a long time to make back their paper equity (although they will be earning at least some rental in the meantime). Again, this represents maybe about 5-10,000 units out of the entire stock of 260,000. But to label an entire asset class as one of the worst performing in the world when the other 95% of people who bought into it are doing just fine is plain lunacy.
7. Cultural. The kiasu culture will always mean that the Singapore market will vastly overshoot its value in an upswing. The controlled mindset of the masses by the media etc means they have a lemming mentality that doesnt know its falling off a cliff until they hit the rocks. Like now.
Subjective bias against Singapore. Completely misapplied in the context of the property market. Not even worth rebutting, considering same mentality applies everywhere else in the world where human nature = greed.
8. Structural. The structure of the Singapore property market is inverse to most Western markets ie it is 80% public and 20% private. This will change over time as more HDBs are replaced with Condo apartments. There is no lack of space in Singapore just a lack of 1st world accommodation. As this changes over time the relative value of Condos will decrease.
The only reason that the percentage of HDB's relative to private stock will decline is through non-Singaporean population growth (ie. people who are prohibited by law from acquiring HDBs). This will NOT reduce the total stock of HDBs (which will continue to grow). You also overlook the fact that the government CANNOT control the property market in prime areas such as Orchard as they do not own land here. As the urban master plan develops, you will see that fringe prime areas will continue to become more and more expensive, as development encroaches further out from the center. In general terms, the market structure in Singapore is exactly why private housing will continue to be viewed as a wealth creator, not just by investors but also by the establishment that sets policy.
9. Affordability. Singapore has one of the worlds highest household debt levels because they are paying too much for housing. 8% of HDB owners are in default. The price of housing has been pushed up by speculation and poor economic management. Now the expat exodus has begun, the ability of the market to repay this debt is at risk.
If there was any correlation between HDB owners in default and private housing prices, you would likely see an even higher default rate among private property owners. But there isn't. In fact, out of all 260,000 units of private housing, there were only 18 bank sales in the last month. Interesting observation in the context of holding power... In any case, there is no expat exodus to speak of. In fact, you will note that, as compared to 1997 and the SARS period, far more expats continue to stay in Singapore despite the recent global economic turmoil.
10. Global unstability. With a flatline western demand, China will struggle to fill its factories with workers. China faces an un certain future in a low growth world. This will mean more global tax resource will be focused on defence and security. Refer to point 1 which means even less money for building a better world.
I see by the time you got to point 10 that you were really scraping the bottom of the barrel for ideas. Honestly, after reading your points again, I am actually even more bullish about price trends in the Singapore property market for the next 12 months than I was before. Obviously we live in an uncertain world, however considering that everyone and their grandmother is working double-time to avoid the so-called Armageddon scenarios, I for one have a little more faith in humanity`s ability to avoid destruction and I certainly would prefer to take the approach that you plan for the worst but don`t let it stop you from living your life.
The way I look at it, Singapore property SHOULD do well, as it has all the right ingredients, provided the invisible chef in the sky is paying attention to the recipe. If not, we will all need to run for the hills with that remaining 20% of our portfolio sitting in gold and commodities anyway, so who really cares!
