SG property prices to fall 40 % by 2016

[Barry H]

In the past theres always been a plan B or some kind of long term fix. 

This time the nations who previously created the demand for our services & products are running out of money fast. The engine is running out of fuel and the writing has been on the wall for a long time.

The entire Eurozone is heading for collapse. 

We were never in this situation during the previous downturns and this downturn hasnt hit asia yet. If you think by 2013 it will all be hunky dory and back to the good old days, think again. 

This is the big one coming.

This is what greed does to the world.

Thanks (not) to all bankers for the damage & destruction you have created.

[Curious investor]

Before I present my view, I would like to clarify that I am merely an amateur investor. Those who have more knowledge and experience, please enlighten me.

A few days ago, economist wrote:
<economist.com/node/21543524>

In brief, interest rate is expected to stay low for the next few years and US inflation rate is expected to stay below 2%. Singapore has a 2% unemployment rate. Assuming investors belong to two broad categories, overseas investors and locals/PRs who owns a second/third property, for the purpose of investing.

Considering the low interest rate, low employment rate and the high rental yield, wouldn't most existing property investors (those who own properties and renting them out, instead of for their own stay) be happy to simply keep their property, using the rental to service their mortgage, instead of selling the place now at a reduced price. If majority of the property investors decides to hold their property (assuming that they are rented out), the probability of the property price going down (or being negotiable) would be low?

Of course, this is based on the assumption that the property is rented out.

One might argue that there are many properties that are vacant, however, that is largely because the owner wants a rental yield that is over and above the mortgage cost. In such cases, I can assume that majority of such owners are not tight in cash (or simply greedy). Hence, the probability of them selling their property at a reduced price is even lesser (considering their greed).

Any comments on my theory?

[The Real Property Expert]

You are correct - more or less.....

Thousands of vacant units have always been vacant since TOP and will always remain vacant because owners are not interested in renting.

[Blaze]

Curious investor, you have to remember that private property is an investment to many, and they have used their CPF money to buy it. They need to sell in order to release the funds before they can even think about retiring.

Previously many owners used to keep their units empty and just wait for the prices to increase. Now that last quarter increase was a meager 0,2 per cent (less than inflation), this no longer makes sense. If you factor in the property taxes and management fees, you are losing money every month.

You have two choices left: sell or rent out. With the growing supply of units and less expats arriving with good packages, many will find selling easier.

I've been very active in the market and it has been slowing down the last six months. Those who wish to sell and cannot fetch the price they want might be prepared to sell at reduced price. They'll still make profit if they bought several years back.

[GDP Growth 1-3%]

Forecast for the next few years.

Jobs growth will slow too as the economy matures.

Expat numbers will not be growing much - replacements rather than a wholesale influx

Many of these expats will be regional and thus on less money.

Even the western expats are much less likely to get housing allowance ant it is all in the salary now - look at many recent threads on here. A few years ago these guys would have had a housing allowance on top of their salary.

Many more units coming online between now and 2016 - just where is the demand coming from - local renters?

[Barry H]

Indeed they will have to sell at a reduced price.  But lets take time out here and look at the bigger global picture. A world recession is coming.  Its a recession like we've never known before with the worlds leaders scratching their heads.  When weve seen downturns in the past theres always been a strategy to get us out of the poo poo.  This time there is no strategy and this time its a world problem.

Or maybe your agent 007 is right.  Maybe it is "on the up" and going to "keep rising" despite the fact the worst global recession in history is coming.

From where I sit, I cant see how any country will escape the effects of whats coming.

[Curious investors]

To Blaze> Assuming that there are two groups of people who owns investment property, namely foreigners and locals:
- Foreigners obviously won't have CPF. Hence, their view will be either to rent out the property to cover the mortgage (if there is one) or simply keep it (and wait for property price to stablize), unless their financial situation belly up. This is, of course, possible considering there is a global crisis happening. However, the global crisis is focusing around Europe and NAM area, and have not blast the bubbles around China/India yet, the actual impact is something we can't be sure until that happen.
- Locals probably own a residential property and is likely to use their CPF to pay for their residential property. They would have bought their investment, with the view that the rental income would be sufficient to cover the mortgage. Considering that a $800K loan is about $2.5-2.8K mortgage on a monthly basis, depending which bank you are with, and most rental starts at around $3K, most locals would be in a reasonable comfortable zone?

GDP Growth: While the numbers of senior level expats may decline in the recent years, there are still a big group of mid level expats coming from India & China. Despite the effort of Singaporeans trying to get the government to manage the influx of foreigners, the reality is, the locals are either not willing to do certain jobs or are not capable of doing it. Even though many people complain about the high cost of living in Singapore, many foreigners (especially those from a less developed economy) sees Singapore as their ticket out. If the landlord cannot rent out the entire unit to 1 expat family, he/she will simply rent each of the rooms out to a mid-level foreigners.

Barry> As a very small nation, Singapore is always successful in going under the rader and surviving the worse recession. Of course, let's not forget that Sg Government have a huge amount set aside as reserve.

Any thoughts?

[Te Real Property Expert]

Look out for CM6 in Feb or early March when it becomes obvious that the current measures have NOT stopped the prices going up.

[To Curious Investor]

So where are all these "Mid level" expats renting then?

Where are all these landlords renting multi-occupancy units to these mid-level expats who can not afford a whole unit on their own?

Even if this was true it does show a falling demand - increasing numbers are just not arriving - the jobs growth is pretty stagnant at the moment for those that are most likely to rent condos.

Plenty of service and low level jobs but these people do not rent condos and that is what is coming on the market in droves.

[The Real Property Expert]

There is a shortage which is actually growing every day.

[Blaze]

Oversupply has been increasing since June 2011. Ministry of National Development was warning investors already then:

http://www.youtube.com/watch?v=FOWmdSPzKu4

Desperate people like PP are now over leveraged, but it doesn't change the facts.

[Rule1]

Never perpetuate bad / negative news, as bad news gets priced into the stock market or people's sentiment very quickly and will always lose it's effect when the eventual comes.

thus instead of an expectant crash, nothing really drastic actually happens.

look at jim rogers "predictions".

[Agent007]

How to be over leveraged when money is cheaper than free?

Wake up spastic.

[Notareservedname]

Yes there is one flaw I would say in your analysis. Who is to say the government won't change the rule?

[rents coming down]

I wish rents would be coming down. I always here about less expats arriving but we are looking for a new condo to stay and are changing handles with other expats on mass.

I tried to offer 20-30% less of the published rate but so far no agent/owner has come back to us. Holding power is obviously higher than we would like it to be.