Covid-19 is a man-made catastrophe spread by our ignorance, recklessness and stubbornness. The pandemic unveiled the weaknesses in our social norms and cultural practices. It also exposed the problems in government systems all over the world, particularly in healthcare, housing, finance and infrastructure.
Times are tough. An unknown future is frightening. But no matter how challenging tomorrow will be, there is still a gift from the crisis: If we choose to stay sane during these turbulent times, we get to see the true colors of people and things around us.
The reality is cruel. Nothing is sadder than seeing how the villains, including politicians, leaders, influencers and spokespersons, who made good use of our confusion, fear, naivety and greed to serve their own interests.
We see politicians in some countries who convinced the public to believe their own interpretation and solution to coronavirus, above the lives of the citizens. We have conmen who lured retail investors into buying “the next big thing” to reap huge profits for themselves, then dumped it and let prices collapse. There are marketers who made good use of our fear of missing out, cast the spell of a fictitious recovery or inflation on them in order to close the last deal in time.
An incurable Covid-19 related symptom: panic buying
An unexpected market upheaval may catch many of us off guard and make us look foolish. Nassim Nicholas Taleb said, “we behave as if the Black Swan does not exist”; because “human nature is not programmed for Black Swans.” Nonetheless, every time when a Black Swan (a high-impact unexpected event) happens, it helps us to understand better how our world works. It also teaches us many important lessons, both in life and in investment.
Humans may be the most intelligent beings on earth. But they tend to be at a loss when facing the Black Swan. They can easily lose their orientation and sanity and resort to following the herd.
A deadly pandemic dropped from the sky has caught everyone by surprise. Human beings under panic attack became irrational shoppers. More and more people joined the insane crowds under unprecedented threat. Everywhere we saw wandering zombies queuing in front of pharmacies and supermarkets. They behaved like possessed spirits going around hoarding for masks, food and toilet rolls, and months later, panic buying of properties as well.
For very long many had no choice but to work, study, eat and stay all day at home. People could become irrational after being locked up like prisoners for months. Depending on the “cell” they were confined to, , they could be suffering like never before. During the lockdown, they had plenty of time to imagine how a new or bigger home could alleviate their pains – from lack of privacy and personal space, to a terrible family relationship at home.
There are people who aren’t particular about hygiene or health on normal days. But they suddenly believe that the safest way to protect themselves and their families is to move to the eastern part of Singapore. The air is fresher there. The whole family can exercise as often as they like at the East Coast Park. They are willing to pay for a property much higher than the market valuation in order to move there as soon as possible. Thanks to their insistence on purchasing a new home in the east. They have managed to drive up both the volumes and prices of homes in the district.
What contribute to the housing bubbles?
In an unexpected twist, the pandemic has benefited house prices.
That’s because governments around the world helped homeowners by temporarily banning repossessions and providing trillions of dollars of support for workers and businesses. Interest rate cuts kept mortgage repayments affordable in many places, while temporary reductions to purchase taxes in some markets spurred home buying.
These measures cushioned the housing market from the coronavirus recession. But the pandemic itself has actually turbocharged prices.
Twelve months ago, people were panic buying toilet paper for fear they might run out. That’s very much the sensation we have today (in the housing market).
– “People are panic buying homes as prices skyrocket around the world“(CNN, 13 May 2021)
Our government’s generous Job Support Scheme (including an excess of $370 million wrongly paid out to companies) didn’t only save jobs. It also saved many struggling companies from big losses. The landlords were benefited by the government’s retail rental rebates, while passing them down to tenants “on a case-by-case basis”. Each of our three local banks approved 8,000 to 9,000 deferment of home loans, while maintaining low mortgage rates to help existing loan repayment and boost new mortgage applications.
The European Central Bank (ECB) said in a biannual stability review on May 19 that property bubble and corporate debts are among Europe’s top risks. Read carefully what ECB was trying to warn us:
“Governments face a delicate balance between prematurely adjusting support measures, which may contribute to triggering a wave of corporate insolvencies, and maintaining support measures for too long and thus keeping unviable corporates alive.
Property prices are another key vulnerability … Commercial real estate prices are already facing a substantial market correction as the pandemic reshapes work habits and further price drops are likely, leading to possible lending losses or a collateral squeeze.
Residential property markets are in better shape but overvaluation, partly a factor of ultra cheap credit, is already evident.
The risk of a correction in residential property markets has increased amid signs of overvaluation for the euro area as a whole.”
In my new book Behind The Scenes of The Property Market, I mentioned that there are two kinds of demands in the private property market: pent-up demand and new demand. The former is from people who “need” to buy a home for their own stay. In any time, there are real buyers who need to buy a new home. The latter is from people who “want” to buy a home for upgrade or investment. It is not a must, but good to have.
When there is economic uncertainty, both will hold back unless there is an emergency need. After all, a real growth in property demand must be the result of a thriving economy, a favorable business environment, an increase in incomes and a growing population. Conversely, a fake property demand arises from market speculation, wishful thinking, false hope or panic buying. It is nothing but a market bubble that cannot last long.
Keeping sane during these crazy times
Our vested online and print media have tried their best to convince the public that there is strong market momentum. It works to manipulate the FOMO mentality of potential homebuyers. It’s only when we see the new wave of Covid-19 that we understand this global pandemic still has a long way to be over. And a market recovery that has been claimed by the optimists for months has never been there.
With no less than 15 new private home projects queuing to be released, developers’ launch activities are now forced to be put on hold. And so are their handsome advertising budget that are badly in need to save the declining revenues and profits of the local media.
It is dangerous to rely on the local news headlines to read the property market. The content can be misleading because they quoted property reports with sales and rental data based largely on pure estimations rather than real transactions. It is not difficult to camouflage the real picture and come up with a conclusion to suit one’s own interest. To the salarymen, it is not important to say the truth, but to let their bosses and customers hear what they like them to say.
The industry stakeholders will tell you that prices will continue to shoot up. So it’s wise to buy now. But they said the same thing in the years 1996, 2000, 2008, 2013 and 2018.They also told Singaporeans to buy Johor properties in 2013 and 2014. Did more people regret buying or regret not buying? (Read “4 lessons we learned from buying homes in Johor“)
George Bernard Shaw said, “There are two tragedies in life. One is to lose your heart’s desire. The other is to gain it.”
John Templeton said the four most dangerous words in a bull market is “It’s different this time.” The numbers and details may be different. But the mistakes that ruthless investors made are basically the same. As the saying goes, the market can stay irrational longer than you stay solvent. It only takes a short time to build a property bubble. But it can take years for it to deflate.
When there is a bubble forming in the market, prices will be well above the actual value. Take a step back and adopt a wait-and-see approach. Stop any buying activity and start saving money. Get prepared and wait for the right time to shop for distressed properties. “To buy when others are despondently selling and to sell when others are avidly buying requires the greatest fortitude and pays the greatest ultimate rewards.”
If you need advice on property matters or residential properties in Singapore, you can check out my personal consultation service.
My new book Behind The Scenes of The Property Market is now available for preview and order online. You can also check out my online courses.
Thanks Vina for writing.
I agree w you, business fundamentals on the ground appear unstable and the mutable and transmissible nature of the COVID-19 virus further adds to the uncertainty weighing on the longer term.
Some views have heard that it may be different this time round include the amount of monies / wealthy individuals and families coming to Singapore due to our being a safe country in a turbulent world (as compared to other countries)
A proxy on this is the observation that the Michelin star restaurants in SG are booked out on months! 😂
So argument is that prices will continue to go up, things will get more expensive
I think this could be in the short term, but eventually fundamentals should come through, plus the existing and coming supply of uncompleted units coming through
We can’t deny the fact that Singapore still has a sizable group of people who are unaffected by the pandemic. Some even leverage these turbulent times to pocket large sums from their business, the US stock market and other speculative investment. And we can’t expect the rich to give up living their lavish lifestyle just because they can’t travel now. So the alternatives are private dinning and 6-star hotel staycations.
However, the majority of us aren’t. So it is dangerous to live our life like money falling from the sky. We learned from the past financial crises how huge sums of money were wiped away overnight.
Honestly, I don’t think there is any inflation in Singapore now if you can avoid buying properties now. In fact, there are discounts everywhere, including F&B, retail and hotel stay. We are fortunate that Singapore doesn’t print money like the US which accelerates the devaluation of the US dollar and makes things expensive for the US citizens. And unlike the US, Singapore doesn’t have China-US trade war that the country is forced to import everything from other countries outside China with higher costs.