We kick-started the new year with a Property Club Singapore education seminar titled “Reading Property Signs in the Year of the Dog”. I used the occasion to share with the audience the property strategies for homebuyers and investors in the year of the earth dog. The presentation can be summed up with five key property advice.
Advice #1: It’s all but a tail-chasing game.
I receive many messages from people asking me for advice about buying properties. Honestly, I am not motivated to reply at all. No matter what I say, they will do it their way afterwards. Sooner or later they will regret doing so and come back for advice again. After I get back to them, they still don’t know what to do and ask for more advice. Then they continue to do it their own way … The vicious cycle goes on and on.
We see a similar vicious cycle in property headlines: Xxxx site sold at $xxx million by GLS (Government Land Sales) or en bloc sales. Prices of private residential properties go up 0.4 percent last quarter. Industry stakeholders confirm market bottoming-out and predict prices to grow by 5 to 10 percent this year. Government officials advise buyers to be cautious about high supply in the pipelines. Another condo sold at record price under the en bloc craze. Property prices go up by another decimal point …
It is funny to see a dog chasing its tail nonstop and running around in circles. But this strange behaviour may imply a kind of sickness similar to compulsive disorders in human beings. Whether a dog’s tail-chasing act will stop depends on the awareness of the dog owner and the urgency to send the dog for therapy.
Property investment is also a dog tail-chasing game. The difference is that it takes years for the dog to go one round in circle to catch its tail.
Using the “6 stages of a property cycle” from my book No B.S. Guide to Property Investment (which has a similar unending reservation list in the libraries for almost four years), it takes a long time from bottoming-out, recovery, growth, booming, consolidating, to the final stage of correcting.
Nonetheless, like most assets, property is also a cycle where you see history repeating itself.
Where are we in the current property life cycle?
We are only in between the two stages of consolidating and correcting. It is still too early to talk about recovery. We are not even bottoming-out.
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’.
– Property Soul
Advice #2. A barking dog never bites.
We hear industry stakeholders with vested interests, including property developers, real estate agencies, mortgage banks, industry analysts, etc., all singing the same tune: There is pent-up demand in the area. People with high liquidity are still after properties. Buyers have come to terms with the cooling measures. Developers bought sites at high costs and property prices are going up soon …
They are all sending the same message: Don’t miss out. We want you to buy now so that we don’t miss the opportunity to make money from you now.
Don’t worry. It will not happen. As they say, if a dog keeps barking, it never bites.
Remember some industry stakeholders mentioned that the government would most likely be relaxing the cooling measures in 2018? How did the government react to their wild speculation? A higher Buyer Stamp Duty of 4 percent for residential properties valued over $1 million.
And every time when someone said the HDB market and rents are recovering, numbers released in the quarterly reports would show otherwise.
Advice #3. Every dog has its day. But not now.
All asset classes have their turns to prosper. They may suffer downturns at certain point of time but they will recover eventually.
There is no exception for properties. The million dollar question is: When?
As I said in my blog post “Recovery? What recovery?”, you know the market is bottoming out when:
1. Higher (or at least growing) demand over supply in the market. Problem of oversupply solved.
2. Resale (not new sale) volumes and prices show “meaningful” increase for a few quarters.
3. Rental prices and vacancy rates show consistent improvement.
The following table shows the performance of resale and rental in both non-landed private residential and HDB market. The figures prove that Singapore’s residential market is still far from the last peak.
Sorry all the numbers disappoint. I should have let sleeping dogs lie.
The media’s unanimous optimism are based on the decimal point percentage of increase or decrease. They are all technically negligible. Our property market is still stagnant.
Imagine you have a boy who is sitting PSLE this year. Back in Primary 1, he scored 70 marks for English, Chinese and Mathematics. Unfortunately, his marks were falling year after year. By Primary 5, they have dropped 35 percent, 46 percent and 20 percent respectively.
Nonetheless, your boy tells you repeatedly that his results have bottomed out and have already recovered. It is because the teachers are going to supply them with record amount of homework this year. Everyone has come to terms with the huge workload and high pressure. The sentiment in his class is very positive. He is optimistic that his PSLE scores will go up 5 to 10 percent or even double digits.
Should you trust your boy?
Advice #4. Don’t bark up the wrong tree.
Why are dogs barking up the wrong tree? Because they trust the wrong parties, judge the situation incorrectly and pick the doomed course of action.
Read all property headlines and comments with a pinch of salt. Learn how to separate the noises from the facts. Make sure what the articles said makes sense to you. Avoid making the same mistake as dogs that bark up the wrong tree.
Suppose your property agent tells you the property market will have a bull run in 2018. He may come up with the following logic:
high land prices -> high new launch prices -> high resale prices -> more buyers -> growth continues
Challenge him by asking all the right questions:
1. High land prices?
What has that to do with the buyers? HDB is a necessity but condos is not. Buyers of the latter will bite only when they think the price is reasonable. They don’t care whether developers acquired their sites at premium prices.
2. High new launch prices?
Will buyers pay high prices? There is a perceived value in every product. The market price is determined by the economy and supply-demand, not by the developers.
3. High resale prices?
Can buyers afford to pay high prices? Again, this is determined by the economy, employment market, stock performance, etc., not by the sellers.
4. More buyers?
Where are the buyers? With flat HDB resale prices, HDB upgraders are holding back selling their homes. Are investors confident to buy with disappointing rent, high vacancy rate and climbing interest rates? When will our birth rate and immigration trend up again? Are en bloc owners buying private or downgrading to HDB for retirement?
5. Growth continues?
Where is growth in the property market coming from? Is it in resale prices, resale volumes, rental prices or rental rates? What percentage of growth are we talking about?
Let’s put all the sentiments and predictions aside. Look at the supply-demand picture with some real numbers.
Unsold units as of 4th Quarter 2017: 19,755 units (source: URA)
GLS/En bloc sites : 19,900 units(source: URA)
Total in pipeline : 39,655 units (source: URA)
En bloc owners as of today : 4,070 (estimated)
Assuming all displaced en bloc owners opt to buy a newly-launched condo unit instead of a resale, HDB or rental flat, they can occupy at most 10 percent of the total supply in the pipeline. Who are going to buy the rest of the 90 percent?
Advice #5. Follow a male or female dog in 2018.
Perhaps we can learn something from our four-legged friend in this Year of the Dog.
1. Homebuyers should act like male dogs.
Dogs are polygamous. They can have multiple sex partners simultaneously. The role of a male dog is mating rather than being with a single partner or raising their pups.
If there are so many choices, who wants to be confined to one?
We all know that properties are illiquid and they depreciate over time. Private residential property prices are high now. So do initial investment and maintenance costs. If homebuyers overcommit, they have to work like a dog to pay off the loan. On the contrary, it is a tenant’s market for rental.
If timing is not right, why need to be tied up by a mortgage?
If you can rent, why buy?
2. Investors should model after female dogs.
Unlike their male counterparts, female dogs do not have to constantly make unnecessary moves (like cocking, squatting or leg lifting) to attract potential sex partners or protect their territories.
Female dogs are less reactive to any stimulus outside. They are less sensitive and moody. As a result, they can stay calm and focused. Because they understand that their main role is reproduction and taking care of the young.
For investors, you should understand that your priority is growing your income, wealth and net worth through property investment. Be focused and think for the long-term. Stay calm and avoid being easily distracted by the noises outside.
Did my Year of the Dog property advice make sense to you? Drop me a note to share with me your thoughts.
SYN says
Good article! I think mostly it applies to residential property. What about commercial property market? What is the advice for year of the Dog? Thanks
Property Soul says
I am not an expert of the commercial property market. If you are interested, please read up on the vacancy trends, supply pipelines and tenants’ industries. Knight Frank’s research is useful to give some hints -> http://www.knightfrank.com.sg/blog/2017/10/13/sustained-buying-interest-for-shophouses-and-muted-growth-for-strata-office-and-retail-markets
JC says
I think most ppl are steered cos of the heighten land sales with the mindset “sold by agents” that “which company would wana make a lost if they cant see themselves selling the new units from the land sales at sky high prices?”.
Hope it wont be a scenario where developers “gang” together to “beg” gov for help when things aren’t moving.
Property Soul says
Hahaha, that’s not new. Developers had been pleading the government to relax cooling measures (especially the ABSD) for long. But it never happened. I’ve mentioned this interesting phenomenon in my blog post “Say it until it comes true” (https://www.propertysoul.com/2016/03/11/say-it-until-it-comes-true/). Since mid of 2017, pleading has become speculation.
The difference between Hong Kong and Singapore is that the former’s government always put the interests of developers or property tycoons first. Fortunately, this is never the case in Singapore.
Jacky Ha says
Another awesome one!!
Remind me during that day chatting with a visitor.
I asked him what he thought about the seminar. He told me that his real purpose was not for the seminar, but rather to have a vibe and feel of how people’s response to property market right now.
He is a rich man, and he is living in a rented place, waiting for the true “bottom-out” timing.
Property Soul says
Thanks Jacky.
Remind me last time when I tried to convince my husband to sell our home at the peak of the market in mid-2013. We could have sold our house and rented it back from the buyer. The value of our home has dropped 17 percent since then. The difference would be enough for us to rent the same place for 6 to 7 years, while we free up the money for other investment.
Jacky Ha says
We are all human beings … and a house can have emotional and sentimental values when it becomes a home.
The good time will come. 🙂
Property Soul says
Agree. Should separate home from investment. Don’t think of profiting from your own home.
Goh says
The number of en bloc units is 19.9k but the owners are only 4k. The numbers dun seem to match. Could you explain?
Property Soul says
19.9k includes units from Government Land Sales and en bloc sites. Developers bought en bloc land to maximize the plot ratio. They will build many times the original number of units in the old projects, hence a few times of 4k.
Benjamin says
Very insightful article blogger. This really is a very contrarian view. What is your take on all the hot money coming in from overseas esp cash rich mainlanders, do you think it will prop up this bubble awhile more?
Property Soul says
Unfortunately, unlike Canada, UK, Australia and Hong Kong, Singapore’s property market still mainly depends on “domestic demand”. Foreign buyers is still a minority. In 2017, total sales transaction volume is 25,010. Only 1,600 (6.4%) are from foreign buyers. The number of “foreign buyers” also includes those foreigners who are staying in Singapore for some time but haven’t got their PR approval yet.
China capital outlow is still ongoing though it has plunged 67 percent last year after Beijing’s crank down. Compared with Hong Kong, Chinese capital pouring into Singapore properties is negligible. The Chinese are still finding new ways to get their money out. But they have thought of more “creative” ways to do so other than investing in properties.
https://www.chinamoneynetwork.com/2018/01/10/chinas-capital-outflow-drops-67-2017-reflecting-effectiveness-governments-control