It is common for international property investors to compare how different property markets perform across the world and take their pick from the shortlisted countries. LaSalle Investment Management recently claimed that “Singapore’s property market may be closer to a bottom than Hong Kong“.
How true is that?
The peak and the pit
Prices of properties in Hong Kong have jumped two to three times since their last bottom during the SARS period in 2003. The market didn’t show any sign of softening until September last year. So far housing prices have fallen 13 percent.
On the other hand, home prices in Singapore have increased 92 percent since 2003 but have dropped 9 percent from their peak since September 2013.
Here is a possible reason behind LaSalle’s statement: Since Hong Kong’s property prices have shot up much higher from their last bottom, there should be more room to adjust downwards.
The dangerous part of this conclusion is that we are comparing two countries with totally different fundamentals – the population, housing demand, government housing policy, number of buyers and investors of the two places are completely different.
But the most dangerous part is the assumption that Singapore property prices are closer to the bottom because they have already fallen 9 percent from the last peak. What is 9 percent after a 92 percent surge?
Remember back in 2001, developers and investment companies kept telling the media that the property market was bottoming out? In reality, prices didn’t really pick up until five years later in 2006.
Pro-Hong Kong vs pro-Singapore property camps
SC Capital Partners told Bloomberg that “recent price declines make investing in Hong Kong property attractive“.
The Singapore real estate private equity firm expected the Singapore government to stay firm on its cooling measures until the end of next year. Compared with Singapore, homes, offices and hotels in Hong Kong offer more value after the recent drop in prices.
The truth is: SC Capital bought units at a Singapore condominium project in bulk just before the property curbs kicked in. It had to offload the 18 units to Blackstone Group LP in January 2015 and suffered a hefty loss of S$12 million. It is not surprising that the private equity firm won’t be touching any Singapore property any time soon.
Meanwhile, Macau casino tycoon Stanley Ho’s Shun Tak Holdings has just set a new record of property sale in Singapore by paying $145 million (a big discount from the listing price of $160 to $170 million) or $2,145 per square foot for a bungalow at 9 Cuscaden Road. The 25,741 sq ft freehold land parcel is formerly owned by the descendants of philanthropist Tan Tock Seng. With the company’s track record in the hospitality industry, the land is believed to be used for hotel development.
My poison, your meat
The two cases are only one-off incidents that do not represent the market sentiment. However, recently there are Singapore high-end projects being marketed in Hong Kong. The selling point is that luxurious apartments in Singapore are now more affordable because of the government’s cooling measures. Likewise, foreign buyers are told that they can now own a piece of Hong Kong at deep discounts.
Do you know the story behind Overstock.com? Founder Patrick Byrne started the company based on the theory that “products that cannot sell in one country can be best sellers in another country”. Instead of letting retailers dump cancelled orders, leftover stock and surplus merchandise out the back door, he paid them for just any cash and market the goods as branded stuff in the internet. Overstock.com is now a $1.5 billion listed company.
A marketer’s job is to turn a disadvantage to an advantage; to change an oversupply into inventories in demand; to make hot potatoes selling like hot cakes. You find it excessive but I find it exotic. A man’s poison is another man’s meat.
What a smart sales tactic to shift the supply and demand equilibrium to the seller’s advantage!
Price drop signals opportunities to buy?
Analysts of the stock market often comment that when stock prices drop below a certain level, it signals a good opportunity to buy. But to look at it in another way, when prices drop below a certain level, it also signals an opportunity to short.
Look at Japan. After the burst of the asset price bubble, the Japanese lost decade that started in 1989 is still counting after more than 25 years. Companies marketing Japanese properties keep persuading buyers that it’s a good time to buy now.
With a declining population and a vacancy rate of 13 percent, are you ready to take the plunge?
Jim Rogers said “bottoms in the investment world don’t end with four-year lows. They end with 10 or 15-year lows”.
And I like this piece of wisdom from his decades of investment experience:
“You do not buy unless it is cheap and unless you see positive change coming within next 2 to 3 years.”
What exactly is the positive change in Singapore and Hong Kong’s property market?
LaSalle Investment Management is currently overseeing over $58 billion in real estate funds. Whether it is a right bet that the Singapore property market has reached its bottom matters nothing much to such a deep-pocket fund. It can afford to take the risk.
But can you imagine a retail investor or a first-time buyer taking the same risk?
Thank you for sharing, Property Soul.
I too believe that the market has more to fall but in the shorter term there are still a lot of liquidity and pend up demands, and the fear of missing out will drive some buyers back into the market. Many are aware of the weakened economy and over-supplies but are at the same time pinning their hopes that the government will ease cooling measure and increase immigration to spur demand.
I do not see an 8 to 10% correction as anything meaningful after almost doubling in prices. And I think there are limits to which the government could tweak the policies. The market is still highly leveraged and it is not prudent to increase exposure given the weakened economic fundamentals, and increasing job redundancies, NPLs and mortgagee sales. The weakened job market will also limit the immigration numbers as most are job seekers. These will limit demands for both rental and sales units. With looming supplies and increasing vacancies, any renounce in the market will not be sufficient to turn the tide into another full swing bull market, at least not after a much bigger correction over the next few years. Prudent international investors will also be factoring into their yield the potential weakening of S$ by the MAS although further weakening of S$ will draw them back at some stage.
In the meantime, enjoy being a contrarian as more experts began to call for market bottoming. I will even though I am not in this industry; and I know it wouldn’t be a boring.
100 x 1.92 = 192
192 x 0.91 = 175
92 vs 9 is a bit misleading. It’s actually 92 vs 17
Yep, or 9% vs 48% would also be a fairer comparison than 9% vs 92%.
(since a 48% fall would get us back to the original base after a 92% increase)
Hi Keith, thanks for your candid comments.
We both have the luxury to state the facts because we don’t need the paycheck or revenue from property sales. For the stakeholders in the industry, they have no choice but to convince potential buyers that the market is bottoming out, the foreign investors are still investing and there may be something that we have missed out . Just like the article in TODAY http://www.todayonline.com/business/are-we-wrong-about-singapores-housing-market
Yes, totally agree. The market hasn’t corrected enough. These stakeholders are like stock analysts and our very acquiescent and facetious media play along. Property Investment is a patient game and must be played patiently. There are also much maelstrom of cacophony to distract us. Fortunately our authorities do not believe them otherwise the cooling measures will be tweak?
I like you quoted Warren Buffet’s stand of buying on two conditions: cheap( undervalue) and there is positive change within 2-3 years.
Remind me of what I wrote in an old blog post “Why you can’t trust the media”: “Every time these ‘experts’ would give answers like, “We are seeing the market picking up”, “I think we have reached the bottom already”, “Pick up some bargains now before the market rebounds soon” … only to see prices falling lower quarter by quarter”.
Peter Schiff has this to say in his book The Little Book of Bull Moves, “Industry groups are invaluable sources of data but bring a bias to the dialog that should be discounted for what it is.”
https://propertysoul.com/2010/11/18/why-you-cant-trust-the-media/
City Gate shops being marketed in Hong Kong at Island Shangri-La Hong Kong this weekend. Developer offers 7% rental return for 2 years and claims no Additional Buyer Stamp Duty, no Seller Stamp Duty and no Capital Gain Tax for Hong Kong buyers.
Read more at Property Club Singapore facebook -> https://www.facebook.com/propertyclubsingapore/
What about properties that launched below current market price norm? Like for example, Treasure Crest which has potential of launching at 700 – 750 psf as compared to neighboring EC projects that are going at 780 -820 psf? Would this project consider a good investment since its expected to be selling at 10% below market?
Why are developers lowering the prices? Because they expect prices to go lower soon. How do you define “good investment”? What is the net rental return? Where is the potential of capital appreciation?
Hi Property Soul,
A good post that provides a dose of reality checks for readers. But then again, even if the market do bottom, will the buyers come back? Opportunity is when knowledge meets preparation. We can’t predict the future market trends but we can certainly prepare ourselves when opportunity arises. So it does not matter if it is a buyer or seller market. It only matters if you are ready and prepared to play the game.
Just my thoughts.
Regards,
SG Wealth Builder
http://www.sgwealthbuilder.com
Hi Gerald, nice to hear from you.
History shows that when the market is at its bottom, there are very few buyers in the market – and that’s why it’s called the “bottom”.
Besides being ready in both knowledge and finance, buyers must be psychologically prepared that prices will go lower after their purchase even if they are buying near the market bottom.
It’s just the beginning of a down cycle. Be patient and you will be rewarded.
SO true.. we’re far far from the bottom….
Yes, just hold your horses and don’t be tempted by the sweet talk of agents and marketers out there.
Thank you for the article! How will we be able to tell when it’s really the bottom? Are we years away or are we reaching it soon? Is it realistic to expect it to go back to 2002 levels (i.e. the last bottom)?
You know it’s bottom when no one shows any interest in properties, or things are so depressed you can see ‘blood all over the streets’.
That’s a million dollar question. Read my previous blog post on “The resurrection of property prices” at https://propertysoul.com/2014/04/22/the-resurrection-of-property-prices/
I do not think investing in Singapore property is a good choice for international investors, just one more cooling measures out july 2018.
Yes, it doesn’t make sense for foreign buyers to pay 20% Additional Buyer Stamp Duty, especially when private property prices are high now. And foreign buyers only make up 6% of total sales transactions.