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Property Market – Let’s Talk about 2017 and Beyond

There are many reasons that you should be paying attention right now.

So much is going on in the global economy that I find very interesting and disturbing at the same time. We’ve seen incredible changes in governments, economies, stock markets, currency and real estate.

I am not making a forecast that a crash is going to occur.

My best guess is there are unavoidable, short to long-term economic forces that are about to deal a devastating blow to our real estate market, our economy and our society.

I am not exactly bullish on Singapore’s real estate market in the near or far term, as much as the parties with selfish vested interests are inferring otherwise.

Looking back at the lessons of the past, it had been oversupply, speculative buying, lack of affordability, and lack of sustainable investment that have really deflated the market.

I am still 100 percent pro real estate no matter how “bearish” you think I am.

But it would be irresponsible to wildly claim that there are no clouds on the horizon near and far, when building cranes are casting very visible shadows on the market.

I believe what I have to say will be very valuable to you.

3 DANGER SIGNS:

1.     PER CAPITA GROWTH GDP CONTRACTION

The industry might lie, and the cronies the industry hired might refuse you answers, but the numbers wouldn’t deceive you, no matter what. They added, and the result didn’t, wouldn’t, couldn’t change from what it was. Wishes don’t count.

Below is a historical real per capita GDP growth rate for Singapore’s aging society. Notice the obvious growth decline over the decades.

1961 – 1965: 4.52%

1966 – 1970: 10.71%

1971 – 1975: 7.58%

1976 – 1980: 7.2%

1981 – 1985: 4.26%

1986 – 1990: 6.35%

1991 – 1995: 5.46%

1996 – 2000: 3.12%

2001 – 2005: 3.67%

2006 – 2010: 2.93%

(Source: World Bank and Singapore’s Economic Development)

The most recent number for 2016 GDP growth rate was 1.8%.

What do you think your property values might be moving forward if you have bought into the peak/high market?

2.     RISE OF THE USA ECONOMY… AND (LIKELY) SLOWDOWN OF ASIAN ECONOMIES

The USA economy trends are completely inverted to Singapore’s economy and Asia – so is their real estate markets. Interest rates in the US is currently at all-time low, 4.5%p.a.

The US economy continues to improve, so much so we now know the FED is projecting to raise interest rates three times instead of twice in 2017.

it’s going to take quite a while before interest rates revert back to their previous norms – and some years before we see another 2008 type of bubble.

Since 2013, the US economy recovered from the Great Recession of 2009 and has improved quite a bit. On the other side of the ocean, our own economy has contracted in the same period.

As the US economy continues its uptrend, Asian economies like Singapore will continue its downtrend. The Singapore property market will likely fall further as US real estate market improves. Economic history had proven that since 1975.

If you want a cue when to enter/re-enter the property market – here’s the BIG “secret” – Pay close attention to the USA economy. (and Donald Trump’s policies) –  It’s that simple!

“Gurus” who opined today is a good time to enter the property market for “attractive deals” just because prices are down 8% from peak – are either in serious denial, lying or misinformed.

3.     DIMINISHING LONGER TERM PROSPECTS

All investments consist of two main components: risk and reward. But all real estate investment books and “experts” and “authorities” that I know of consist of only one component: reward.

Risk? What’s that?

In much larger and older economies like USA, their real estate markets are largely supported by a large base of local renters and giant business industries. Singapore do not enjoy that kind of support yet as a new entrant into the “oldies” club.

I just can’t see how we can achieve XX% in total net growth for real estate values in the near or far future.

The current weak housing market is not a cyclical issue. It is one impacted by long-term changes in global economic issues, aging population and a extremely challenging real estate market and economy; it has little or no room left for accelerated growth.

The mantra “Real estate values always go up” has therefore become a fundamentally flawed belief for the changing markets of the future.

A recent Mckinsey Economic Report including world central banks and economists suggest “diminishing returns” will be the new norm for at least the next two to three decades.

For Singapore’s real estate market, 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 and a fast-evolving geo-economics landscape; only seek to minimise it with good policies.

As expected of a mature economy, economic growth rates will be lower.

In the past decade, Singapore’s annual real GDP per capita growth has slowed to about 3% to 3.5%.

We can assume a rather a more optimistic real property growth of 3% and slower real growth rate of 0.5% to 2% from the recovery of a major recession. This is quite a reversal from the bygone golden years of 6-8% annual growth.

A slow economy and real estate growth is likely to be the new normal going forward and it may not be such a bad thing.

SELL OR HOLD

“Due to the lack of positive economic news, we are expecting that prices will generally continue their decline. However, buyers may capitalise on this continued window of falling prices to snag some attractive deals,” said Eugene Lim, Key Executive Officer of ERA Realty Network, who expects private home prices to drop by three to 3.5 percent this year.

Crony snakes-oil-commission-salesmen love to sell guns to untrained kids.

If property prices are on an uptrend, they sell you the idea of not missing out on “future gains”. If property prices are on a downtrend, they sell you the idea of not missing out on “discounts”.

We blame the shooter, not the gun. And we’ll hang the guy who place the gun in the shooter’s hands.

Dangerous ideas kill… painfully and slowly if things go awry.

Beware of the hubris of those in charge who may be taking your safety for granted.

Think different – If you follow the crowd, and take average actions, and have an average mindset. That would make you average.

There are no “attractive deals” in a market when every important indicator points DOWNWARDS – falling rents, falling prices, a potentially devastating recession on the horizon and rising interest rates. The term is cheap marketing to mislead uneducated buyers. Clearly, “they” have nothing left to sell you on.

Buying into a “discounted” market versus a “recession” market makes a huge impact on your financial future.

The latter has massive financial “blood and death” that requires major reconstructive surgeries. The former has plasters with little cartoons on it.

As a savvy asset-buyer, you only want to buy into a recession since prices always revert back to their fundamental values/base when euphoria ends. Leave the measly discounts (and the balloting) and cheapskate marketing ploys for penny wise, pound foolish buyers.

SELL or HOLD is the ONE and ONLY action for property owners and buyers today. There’s no “but” or “if” unless you want to be kicked in the butt when things go further south.

Wishes don’t count remember?

WHAT YOU SHOULD DO NOW?

From 1960 to 2013 Singapore, there are 8 major economic crisis in the markets. This means recessions occur roughly once every 6.6 years.

Our present economic expansion has lasted far longer than 7 years. The last recession ended in June 2009, about seven and half years ago. Even though certain indicators look amazing today, if history is any guide, we are due for another economic downturn.

Economic theories, such as works by economist Hyman Minsky, explain that the longer an expansion continues, the more likely a recession becomes.

Whatever the reasons that expansions end, the fact that Singapore has never had an expansion that lasted longer than 7 years in the last 50 years. There was only one (and the one & only) exceptional period from 1986 to 1996. This does not bode well for the current one lasting much longer.

The economy is like a game of musical chairs at a party. Everyone has a wonderful time until the music stops and everyone wants to sit down simultaneously. Then suddenly “the euphoria becomes a panic, the boom becomes a slump.”

No individual has the power to stop a recession. However, by planning you can mitigate the impact an economic downturn has on you and your family.

Right now most people are enjoying good economic times. They will not last forever. Save some money now. Pay down credit card debt and other loans. Stop listening to sales bulls*its; and avoid “Upgrading”! Give yourself a financial cushion that will protect you in the event of an economic downturn.

Recessions do not come like clockwork, however. It’s best not to be overconfident that the current one will continue forever.

Instead, make some plans now to mitigate the next downturn. Even if I am wrong, the worst thing that will happen is that you will have less debt and more money saved. Is that so bad?

Click Here To Find Out How You Can Harness Your Intentions And Turn Them Into Reality.

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To your investment success,

 


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)
  • James Tan Jan 6 2017 - 11:40 pm Reply

    Excellent post! I agree with almost every point you make. Your persuasive articles Are my reasons to resist the temptations of getting into the real estate investments for the past two years. Looking back, I am just greatful that I have read your blogs and saved myself from making poisonous decisions that would have ruined my retirement life!

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