Our article highlighting the BCA Research report has drawn a counter-view from a reader, who is a property industry insider. Interestingly, it is his personal take and it differs from his company's.
1. Even at current low interest rates, property buyers are not tripping over themselves
to buy physical properties in Singapore - look at the low, low URA transaction volumes.
2. Physical property prices on average have gone up 100% (e.g. East Coast - Fort Road 99-year leasehold condo price has shot up from $850 psf in 2005 to $1,600 psf in 2007) but our salaries have not doubled. So BCA's chart 3 (see below) on affordability index is very questionable.
3. The 100% surge in property prices is a result of high rental rates that force expats to BUY rather than to RENT. Genuine buyers are being forced to buy homes at 2x the price because there have been speculation, en-bloc sales and the presence of private equity funds with the financial muscle to hold on to assets for the long-term.
4. Higher-end property assets have seen prices fall but mass market is up in simple terms, as follows:
a. High-end $5,000 psf in mid-2007 to $3,000 psf in mid-2008.
b. Mid-end $2,500 psf in mid-2007 to $1,600 psf in mid-2008.
c. Mass market $800 psf in mid-2007 to $850 psf in mid-2008.
5. The reality is:
a. Property prices have surged in a short span of 2 years (2005 to 2007) because of liquidity & not affordability.
b. We are seeing prices correcting to a decent level (But what's decent, we don't know)
c. The sub-prime woes in the US are a mirror reflection of Singapore property in allowing free liquidity to result in price upside, so please be circumspect.
6. Let' not get smitten by the monthly change in property data. We have to be realists in this market:
a. Interest rates are likely to go up, not down, to combat inflation.
b. Singapore is globally exposed; any stumble in the US economy, we’ll feel the heat.
c. What we don't know: Buyers who bought property at, say, $1,600 psf could be trying to sell at $1,300 psf but there are no takers.
d. Supply, supply, supply in 2009: We expect rents to come down and property prices to weaken (by how much, we don't know)
e. Property stocks are not exactly cheap compared to Apr 06 levels. We think the high Apr 07 prices are anomalies and the result of greed. Apr 08 prices are fair.
8. We are not bears, just being realistic. We do like property stocks with regional exposure (Capitaland, KepLand) and mass-market exposure (Allgreen). So be very selective and avoid the high-end property stocks because there will be more bad news than good coming out from the US sub-prime saga.
Earlier article: “Buy Singapore property stocks” – BCA Research
