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Friday, 23 September 2011

Revisiting The Property Bubble & Investment Trap Part 2 - It is back to basics again

Those who have visited this blog recently after the Presidential Election should have noted my focus back on the watch of the external economic "drivers". Those who are not familiar with what the word "driver" means would probably have to re-visit and search in my postings in the first series on "The Property Bubble & Investment Trap". Yes, I am not talking about same "driver" analogy WP's MP LTK was talking during GE 2011. They are what could be driving the volatile financial market recently, especially the last one week.

As I write this posting, I had watched the S$ vs RMB exchange dropping from S$1 : RMB 5.36 to as low as S$1 : RMB 4.86 today. With all the attention now shifted back to the Euro-zone, we had seen in the past weeks US$ vs S$ rising from US$1 : S$1.21 to above US$1 : S$1.31. The volatite market is certainly worrying. If this persist, our construction workers from China are going to shake their heads. The smart ones would have remitted a substantial portion of their savings back home to China.

Many investors on expensive properties in Singapore are notably from China. If they are relying on monthly rental income as remittances, they be very keen to know ... Will this trend continue? What will the MAS do?

Just as I was wondering about the global financial picture, I came across this article, "Safe havens in Singapore property" by a pretty well known property analyst. While I may not have totally agree with some of his views on other topics in certain of my previous postings, I like what he said in this article, on the following points.

Leaving his points about S&P and fundamentals about stocks and REITs aside, I will pick out some interesting points he said or mentioned in his article:-

(a) "For most global investors, it is back to basics again ...".

This is particularly so, after what we had all have seen with the Lehman Bros Crisis.

(b) "The thin ray of positive light coming from the U.S. is for interest rates to remain low over the next two years, hopefully on the back of a U.S. recovery. Let's not forget that troubles in Europe and Japan may delay the U.S. recovery by some more."

I had mentioned somewhere in my previous postings, that property prices might move sidewards due to the world recession from 2009 and probably drag on for sometime longer due to the Earthquake, Tsunami and Nuclear Crisis in Japan and then the re-emergence of the Euro-zone debt crisis.

(c) "... they stated that the Federal Reserve's pledge to keep U.S. interest rates at record lows until mid-2013 will benefit REITs through low interest costs which can possibly widen profit margins."

If you look at this mid-2013 date, you would also realised that I had cited it in several of my postings in the first series. More specifically, my prediction of a major correction / possible crash of our property market in 2012 ~ 2013. You may re-visit my article, "The Property Bubble & Investment Trap Part XI - Currency war may fuel bubbles - Impact on Mid Range & Luxury Class Properties" posted on 24 Oct 2010. Other analysts had also mentioned the same about 2013. So, is 2013 or even earlier a year to watch?

One year has past since my article, and the past 2 QE. PM Lee had also bought time and taken a year to implement the revision of "income ceiling" for BTO flats & ECs - what I termed the $10K salary dilemma.

Is the sudden rocking of the financial market a pre-cursor for QE3? Or is it the start of another real nightmare or the "perfect storm" for our property market and also who ever has been given the mandate to safe-guard our reserves? Hang Seng Index had just dropped over 900 points and oil prices dropped 4%...and the whole world financial markets are rocking ...

(d) "... what might be considered "safe haven properties" in physical real estate?" ...

1. Freehold or 999-year leasehold properties
2. Trading at more than 10 per cent discount relative to other projects within walking distance
3. Comes with a good quality tenancy contract of at least 3 per cent of gross rental yield

With the prices rising faster in the outskirts of Singapore, and prices of older freehold properties in districts 9, 10, 11 being stagnant, my choice targets are centered around properties in the core central region (CCR).

Wow, short-term yield is only 3% for "safe haven" properties. If that is the case, why should you be buying ECs (especially if they are new launches) still at ridiculous prices rather than such "safe haven"  properties, when there is a possibility that the EC prices may correct by 20~25% from current high, whether or not "control measures" are still in place, unless FH ones in these key districts are too expensive for you as an average middle income earner. The analyst's advice maybe be for the richer "long-term" investors, but do watch the external economic "drivers" and interpret his advice correctly if you are not in the extraordinary richer class.

(3) "And given the low interest rates over the next two or more years, investors can consider taking on some borrowings to boost the cash-on-cash returns. However, leaning on the side of conservatism and allowing some space for errors, an investor can borrow at between 50-70 per cent of the property value and still sleep soundly even if the downpour should become a thunderstorm."

Why did he put a cautionary note to his whole advice if it is really that "safe heven"? Now, you would probably see why I had re-posted recently certain good advices from Tan Kin Lian's blog postings, as well as other bloggers here in this blog. It is not because I had supported him in his recent PE campaign and wish to help him recover his standing after the PE. It is simply that I share his insights and thinking that things must return "to the basics again". At least, this would give some hope for a cure, for the average middle income earners, who still believe in investing in properties, having seen through the rough waters since the Lehman crisis.

Now, you will see why I had advised to use "single" income as a gauge, even if you can make $10,000 a month. Now you will see why Tan Kin Lian say if you use "dual income" do factor it to about 70% of the combined income. Our analyst above said, go as low as 50%; even if it is "safe haven". So when you are talking about ECs which is just LH 99 years, do think twice.

Finally, there is a "driver" to watch in China & US as 2012 will certainly be a year for change of political leadership in China and possibly in the US too. Will President Obama finally "CHANGE" the US economy or will the US economy finally "CHANGE" him? I believe it would be about "going back to the basics" for him too and the US economy and world financial system, if not for other politicians and political systems worldwide.

Thursday, 22 September 2011

Home loan rates likely to climb

Home loan rates will likely climb next year, warn analysts

Analysts warn that Singapore's interest rates will likely climb in March next year, according to a Channel NewsAsia (CNA) report.

This means that loans, which currently range from one to 1.2 percent, will likely increase by as much as 0.3 percentage points by early next year. This comes even if the Singapore interbank offered rate (Sibor) component of mortgage loans remains low.

The report said that refinancing loans in the country is increasing but the rising cost of funds offshore, along with banks' profitability, may force banks to increase rates.


Sunday, 18 September 2011

Saturday, 17 September 2011

Revisiting The Property Bubble & Investment Trap Part I - What's next with the MND Minister, with the New Parliament Opening Soon?

Read this posting in Yahoo News :- Private home and EC sales slide 16 per cent in August. Sales slide but not the price.

REDAS is requesting the Govt to review the current control measures on property purchases.


Since the stepping down of Mr Mah Bow Tan as MND Minister and the taking-over by Mr Khaw Boon Wan, I believe nothing has changed to the pricing formula for new BTO flats or even EC. If Mr Mah could not explain about profits on BTO flats and do something to the pricing formula, I believe there is nothing more Mr Khaw would do too, judging from his actions so far.

Happy watching to you on what our Govt can do further to the property market, while I follow up more closely on the "external drivers" to bring you more interesting reads and postings, as this article by Collin Tan in TODAY seems to suggest, Link : Worry more about risk levels and less about supply. And if you had read my posting on 14 Jan 2011, The Property Bubble & Investment Trap Part XIV - Opening Shock in 2011; it could also be something for you to ponder and know why Collin Tan had said to "worry more about risk levels" and "less about supply".

The developers would want to push out new "supply" to test and push up the private property market, and the Govt would still want to profit from "land sales" [especially when GIC had just lost more billions from investing in UBS] ... and there you are, its back to "EC" after taking exactly one year to adjust "income eligibility bracket" for BTO and ECs, after PM Lee had announced it in the previous N-Day Rally and having seen MBT stepping down from his MND ministerial post.

Thursday, 15 September 2011

Diary of A Singaporean Mind: Developers to Khaw : Review cooling measures...

I had posted the following comments in Tan Kin Lian's Blog a few days ago. There was also a request from a keen visitor to my blog that I write an update about the Singapore property market. While I will be following up shortly on this topic, I thought it might be apt to post the following while referring to a posting by a popular Blogger, Lucky Tan; on this same subject. All these testify to the "perspective" and direction many independent minds are watching and thinking about (be it Tan Kin Lian, Lucky Tan, Yahoo News or even myself) what our PAP Govt would and should have done and how the property market is currently reacting...in the light of evolving circumstances facing the world economy.

Quote

Developers are a calculative lot. They are afraid of the oversupply.

Now REDAS is asking the Govt for an indepth review of the property cooling measures.

Read :-
http://sg.news.yahoo.com/redas-calls-indepth-review-property-cooling-measures-160000774.html


But if you look at the prices of the recent EC launches at Arc at Tampines ... the price isn't cheap. It starts at above S$741~$875 psf for 2rm, $693~$810 psf for 3rm.

Those who are not careful enough of the mechanics of their marketing techniques, they would be "tricked" into committing when price is still high.

Wait for a real correction of the property market, which looks quite certain if the world economy is going to be dragged down further...watch the US and Europe.

Unquote

Read also :-

Diary of A Singaporean Mind: Developers to Khaw : Review cooling measures...