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Killing the Sacred Cows – Where Property Prices Will Go from Now?


I’m a very cautiously optimistic investor, who rather see ‘money on the table’ today, than someone with an over-realistic expectation or even try to make ‘godly’ predictions of an unknown future. As an investor, I avoid trying to be a future trend predictor, a ‘fortune-telling’ guru or think I possess super-power psychic. Trying to be either will simply make me lose sleep every night, worrying or thinking about what’s going to happen tomorrow with so many changes abound, and might even put unnecessary pressure on my limited brain capacity.

Recently within a short span of time, there were many new policies announced by the government, from 7th property cooling measures, population growth projections, future GDP growth, enhanced used of land for businesses and residential, new MRT networks, population ageing, productivity growth, and many more in future as you can name. How will these policies affect property prices in future? Well, for starters, I bet my every last dollar, in the coming years ahead, there will certainly be many sales predators using these new policies as ‘killing’ tools to hunt down more unwitting preys in our rich property savannah.

Firstly, it’s very hard or near impossible to pinpoint to any specific or even a range of policies that may cause property prices to fall or rise per se.

Due to our extremely volatile property market (besides Hong Kong) and being an open economy since 1965, there are many highly complex variables that worked concurrently and we can never determine what affect our property market specifically. Previously in my articles, I remarked that ‘experts and ‘gurus’ in the media who often try or profess to be able to predict the unknown future (and with so much unrealistic positivity) are no more intelligent than you and me. There are huge differences between someone becoming a visionary with the likes of Li Ka Shing and Donald trump, an amateur who tries to be or thinks he can be one, and someone selling snakes oil to unwitting buyers who think it is a life elixir.

The many complex variables involved in the rising or falling of property prices are simply too many i.e. interest rates, open economy, currency exchange rates, government policies, population growth, world economy, regional stability, liquidity, money supply, investment inflows & outflows, local bank lending policies, foreign bank to bank lending policies, MAS policies, land supply, market psychology, equity & commodity markets, etc. In past instances, especially in Singapore and Hong Kong, when land supply goes up, property prices goes up rather than come down as opposed to simple economics theory of demand and supply. (Governments, Property developers and Banks cash in on this opportunity) And are you aware that this property price rise is not a fundamental growth but rather a pure inflationary growth caused primarily by hot money inflows which may very well disappear once an unexpected financial crisis erupts? (Asian financial crisis, 2008 crisis, Spain/USA/Greece/Dubai/Iceland housing crashes is some good examples) Are you also aware that it does not take a high interest rate of 4% and above to see a fall in property prices? (A mere 2-3% is more than sufficient based on historical data) In short, the property prices we are paying today may go up in value on paper, but to say if there is a real buyer in future who is willingly to fork out a higher price is still a question to be asked by any savvy investors. It will depend on those many unknown variables like future supply of dollars/money in the market which we don’t know till then. What we are paying today may already be the inflated price of tomorrow with little or zero capital gains. A clear example is the many properties that were bought by unwitting buyers at a high during 1996, cannot even break even after 17 years today!

In my personal opinion, to boost economic growth and GDP numbers to compensate for the tremendous economic loss (and taxes) between 2000-2005, 2008 financial crisis and for the very possible future anaemic GDP growth of only 1-3% from now to 2030 as compared to a previous 8% a year on average, the government has taken advantage of a huge GDP growth on the back of foreign migrants to collect vast amount of taxes through rising property prices between 2009 – 2012. This uneven growth has benefited some, but has also created a high inflation that affects many ordinary Singaporeans from home prices to daily expenses. Home prices shot up and many could not afford a new home. For those who sold their homes to profit from the capital appreciation were forced to rent for an unknowing period, hoping that prices will fall down to more sane levels before buying again. But prices kept going up, up and up. Many readers have asked, where will prices head to? Up or down in next few years? My honest answer: I don’t know or rather, I can only predict with no more ‘accuracy’ than those experts in the media. In other words, I can be wrong and they can be wrong; I can be right and they can be wrong; they can be right, I can be wrong; vice versa. Nobody can give a bull’s eye answer or even come close to the outcome of the future.

Secondly, 17 years from today, is 2030. What are we expecting? Will prices to continue to go up from now because of all the recent policy announcements like more MRT networks?

Will prices will always go up in future and not fall? Will buyers, who buy today, be able sell at a profit in year 2030 and use the proceeds to fund their retirement? Are buyers expecting the same kind of tremendous capital appreciation of the booming 1970s to 1990s period of a growing Singapore economy with average GDP growth of 8%, while in the next 17 years, an anaemic GDP of 1-3% expected? Are investors expecting the World/Asian economy to continue to be like 2009-2012 in the years ahead? Are buyers hoping to retire comfortably with their homes by 2030 expecting a still booming economy by then, or will we become another Japan, Spain, USA, Greece and many other countries where many retirees cannot retire because they were too highly dependent on their increasing home values to provide for their retirement and it turn out completely otherwise? Our position is very precarious because as long as the world economy is healthy we are in business. What will happen to a small economy like Singapore if there is a world-wide recession and worse, a prolonged one?

That’s why I always emphasis on buying any property for immediate rental today (as opposed to new launches, or just buy, hold and pray for prices to go up), as I believe apart from the fact that real returns are higher, rental rates will also go up faster than property prices in future, especially due to the urgent need for many lower-skilled foreign workers (which many highly educated Singaporeans are not willingly to do in future) in the services/manufacturing industries which are primarily the core economic drivers.

The most favourable investment ‘tip of the day’ for many unwitting investors is with limited land and a growing population, property prices can only go up in future. As you can see by now, before concluding unwisely that the rise or fall in property values are primarily due to these 2 variables, we cannot simply pin it to a demand /supply of limited land and population growth alone, because there are no simple answers to the many deciding interchangeable variables.

Our Singapore Government is facing a dilemma balancing between ‘growth versus inflation, and growth versus social stability’. Not surprising since housing was one of the most hotly debated issues at the last elections. Whether or not you should play the waiting game, depends entirely on whether you have the time and money to wait, or not wait.

Your home, for example, is a personal consumer choice, rather than an investment. Use affordability and personal lifestyle choices to make that buying decision. However, when coming to an investment, it’s an entirely different ballgame and you need to separate that as 2 different issues.

Some readers want only favourable answers they only want to hear, and not a view that is opposite to what they think. Some are not realistic and not willingly to accept the truths. My article is not to offend anyone, but rather, hope to convey the realistic truth, that being cautiously optimistic is a lot smarter than being totally unrealistic of future expectation on property prices.

Over the last 50 years, especially after 2008 financial crisis, the world has changed rapidly and is still constantly changing. Our investment strategies that have been applied successfully in the last 20-30 years may no longer be applicable in the more volatile economic years ahead. We must change to suit the times, failing which may lead to dire financial consequences.

Rule of Thumb: Buy to make money today, not by selling tomorrow. Take care of the bad times, and let the good times take care of it-self.

 

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To your investment success,

Gerald Tay

 

 

 


About the Author

Gerald Tay Author, entrepreneur, professional investor and loving father, runs crei-academy.com with a tongue-in-cheek approach to property investment - and himself. He is widely regarded in the industry as 'The Common-Sense' Investor. Gerald writes with passion and straight-forwardness, disclaiming wild claims and impractical investment strategies behind lies and ignorance pervasive in the property industry for vested interests. His well-known statement, "All I did is to value my investments with science, logic and common sense.'

Comments (1)
  • Michael Rebaczonok-Padulo Apr 9 2013 - 3:29 pm Reply

    Good, commonsensical advice! Thanks for sharing that with those of us who have far less expertise in this area.

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