Why people miss the big picture

If you observed the property market long enough, you would notice that homebuyers and investors tend to go with the flow. Many are ready to trust what others said and follow what most people do. However, believing a half-truth is what makes people lose sight of the big picture.

We are often carried away by what is happening at this moment. After reading some headlines in the media, people go around repeating and amplifying them like parrots. No one bothers to check the source of the news or the intention of the author. Nobody cares what makes something happen, what is really happening, and what will happen next.

We are ants preoccupied with carrying crumbs

2021 was the year when cryptocurrencies, unicorns, SPACs and IPOs were media darlings. Founders became instant billionaires and brokers made fat commissions. From fund managers to retail investors, they were like bees to honey. Barely a year later in 2022, the words unicorns and SPACs magically disappeared in the headlines. And hardly a week passed without the media reporting some crypto crash, ban, fraud or lawsuit.

Did we miss the big picture here? Anybody asked about the intrinsic value of cryptocurrency? Any crypto holder ever managed to buy food or groceries with it? Why most of the retail investors are millennials? Who can’t use traditional currencies besides criminals and terrorists? Why cryptocurrency will forever be the banks’ enemy?

In 2021, everywhere we hear people saying interest rates are at historical low. Money saved in the bank is eroding fast. Now is the best time to buy properties. This is how we can beat inflation and preserve wealth. Follow the herd and it can’t be wrong.

Did we ask the key questions: Are properties offering good value now? Why are interest rates low? How long can it last? What if rates go up? Can we still afford it when that happens? What is plan B if we can’t?

Ray Dalio explained this phenomenon in his book Principles for Dealing With The Changing World Order: Why Nations Succeed and Fail.

“I believe that the reason people typically miss the big moments of evolution coming at them in life is because they experience only tiny pieces of what’s happening. We are like ants preoccupied with our jobs of carrying crumbs in our very brief lifetimes instead of having a broader perspective of the big-picture patterns and cycles, the important interrelated things driving them, where we are within the cycles, and what’s likely to transpire.”

Why we miss the big picture

There are four main reasons why we often lose sight of the big picture.

1. They give empty promises.

Talk is cheap. That is why we get empty promises from salespeople. It is not uncommon to see marketing agents at sales galleries bluffing about rental return or how price will go up upon completion of a new project. But in reality, owners can still be under water years after collecting the key to their property. (Read “What happened to buyers who overpaid at new launch?“)

Throughout 2022, property agencies were eager to show us their optimism. Below is their predictions (or wide guess) of developers’ annual sales volume reported by the media.

Did they miss the big picture? With interest rates climbing every other day, how could affordability of homebuyers particularly HDB upgraders not be affected?

Last Friday (January 27), URA released 4th quarter 2022 real estate statistics. Developers sold a humble total of 7,099 new units for the whole of last year. The number plunged by 45.5 percent compared with 13,027 units sold the previous year. The total number of resale transactions in 2022 is only 14,026 units.

Fortunately, these spokespersons work in property agencies. Imagine they worked in the sales department of any organization and met only 70 percent of the sales quota they committed. With their disappointing performance, they would probably be shown the door.

We know it is common that people don’t keep promises. Listen to what they say with a pinch of salt. Above all, be realistic when setting expectations. Focus on things that are under our control.

Over the years, many of these unfounded forecasts have proved themselves wrong. As time passes and the mistakes of the fortune-tellers forgotten, similar market prophecies come up again with the start of every new year.

– Vina Ip, Behind The Scenes of The Property Market

2. They don’t want us to know.

If developers and their marketing agents are convinced about the investment opportunities themselves, why can’t they present the full picture and cover all the pros and cons confidently?

– Vina Ip, Behind The Scenes of The Property Market

After URA released the latest data, a Business Times article came up with the headline: “Private home prices up 0.4% in Q4 for full-year gain of 8.6%”.

But this is only a half-truth of the big picture. In actual fact, the 0.4 percent increase of prices for private residential properties in the last quarter is a let-down compared with 3.8 percent increase in the previous quarter.

Think carefully. How significant is a 0.4 percent price increment when sales volume deep dived last quarter? Developers sold only 690 new units – a 77 percent year-on-year decrease from the 4th quarter of 2021. Similarly, there were only 2,694 resale transactions which was a 43 percent year-on-year drop.

On a side note, how would the property headlines in the SPH media look different if the government was not so determined to prove the effectiveness of the September 29 cooling measures?

By the way, did any headline tell us prices in OCR decreased by 2.6 percent last quarter? Did any property article highlight the fact that rental increase of private residential properties has moderated, and with lower rental transactions last quarter?

Is there any write-up about the jump in developer unsold units, the 51,747 units in the supply pipeline, or the 19,291 units expected to complete this year? The truth is: Together with developer unsold units and over 45 new projects waiting to be launched, supply will well exceed demand from now on. As long as high interest rates and ABSD are here to stay, private residential properties will remain unattractive to investors.

3. We are blinded by our recency bias.

Recency bias is a cognitive error when we make a conclusion based on recent events, thinking that what is happening recently will continue into the near future.

We just read in the news that there is another record million-dollar HDB flat sold. We conclude that HDB flats are now selling over a million dollars. Never mind the fact that the over 200 million-dollar HDB transactions every year is just less than two percent of the total number of transactions.

Is higher HDB resale prices the result of more new resale flats being sold after reaching MOP? Also, the number of buyers who paid cash-over-valuation has dropped from one in three buyers in 2021 to one in four buyers in 2022.

“We lament that HDB resale prices are high and conclude that prices are going to go up. But we forgot that HDB resale prices have been miserable for seven years between 2013 and 2020.

Most people only read the article headline “HDB resale prices rise for 27th straight months”. If they bother to check the history of HDB Resale Price Index, they will know that prices did rise for 10th straight quarters from 2020 Q2 to 2022 Q3. But they forgot the fact that HDB resale prices have fallen 27th straight quarters from 2013 Q3 to 2020 Q1.”

– “New cooling measures is a waiting game“, PropertySoul.com

We complain that tenants are asked to pay ridiculously high rent. It is a landlord’s market in Singapore. Last year was a good year for landlords after our border reopened. But we forgot that the private residential rental market was soft for quite a number of years before 2022, especially in 2020 and 2021. Low rents from tenants could hardly cover monthly mortgage, maintenance fees and taxes. Many landlords are literally subsidizing tenants to stay in their properties. (Read “What rental viewings told me about the leasing market“)

4. We don’t ask why.

When it comes to buying our homes, we tend to trust conventional wisdom, without verifying the facts behind those traditional beliefs. These include but not limited to:

– New is better than resale properties
– Freehold is better than leasehold
– Property prices will always go up
– Any time is a good time to buy
– Putting money in properties is better than putting money in banks

– Vina Ip, Behind The Scenes of The Property Market

In 2007, with our first born we need to move nearer to my in-laws. In this OCR district, I found a 5-year-old leasehold terrace housing estate asking less than a nearby 7-year-old second-hand EC project. At that time, people believed that the value of a 99-year leasehold terrace house would only depreciate over time. For landed properties, buy freehold not leasehold.

This doesn’t make sense to me. After the purchase of four investment properties, I know that the value of a private home is determined by its age, location, building quality, maintenance and resident profile. Both freehold and leasehold properties appreciate in value during good times and vice versa.

Fast forward to 15 years later in 2022. The price of a 3-bedroom unit in the EC that we didn’t buy has increased close to 30 percent. In contrast, the valuation of our 20-year-old leasehold landed home has increased by three times. During the pandemic, houses in the estate were very much in demand.

Nonetheless, as the house is for our own stay. Whether its valuation goes up or down has nothing to do with us. After all, a residence is an expense, not an investment with return. The lower price we buy, the earlier we pay up, the better.

Lesson learned: Ask the right questions with curiosity until you see the full picture.

Food for thought

Buying a home is likely the most expensive item we will purchase in a lifetime. It is silly to leave making that big decision to fate. Instead of listening to strangers, conduct a thorough research and gather all the facts. Think carefully before taking the plunge. It is only when we can see the big picture that we are able to anticipate what will happen next.

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.

If you need advice on property matters or residential properties in Singapore, you can check out my personal consultation service.