You cannot argue with the fact that Singapore property prices have been falling. The market sentiment is weak and buyers are holding on the sidelines with ready cash in anticipation of good deals. However, at times the expectation of the buyer seems to be one whereby the market will implode. Yet sellers of properties seem to be holding out in anticipation of a market recovery. Let’s look at a few hypothetical situations.
“I want to go to auctions to pick up fantastic buys! I believe that if the property is taken back by the bank and sold at an auction the price will be way below value.”
Reality: The bank has the right to forcefully acquire a property when the lender defaults on his repayments. However, the bank cannot sell the property way below value. It still has to exercise a duty of care to market the property at the best possible price. If the owner of the defaulted property owes the bank $500,000 but the property is worth $1,000,000 and can be sold in the market for $1,000,000, then the bank has a duty to sell the property at or close to market rate, deduct administrative costs incurred and collect the monies owed to them and then return the excess to the lender. There is no way that the bank can sell at the price whereby they merely cover the monies owed to them. To all those hoping to get a good sized, freehold landed property at below $1,000,000 at auctions, please continue to dream as that is perhaps the best place to get such a deal.
“The Singapore government wants to crash the market”
Reality: It is never in the best interest of the Singapore government to crash the market. Property loans take up a large amount of banks’ balance sheets and the minister for national development has already spoke of aiming for a soft landing. Banks have extended loans up to 80 percent of the value of some properties. If the value of these properties were to fall by larger than 20% then the bank would have to adjust their balance sheet to reflect such a shortfall in value. Thus what do I think a worst case scenario could be? About a 20% drop in property values from their peak in 2013/2014.
“Those who bought earlier with super low interest rates did not factor in the fact that interest rates will rise. So when interest rates do rise then all those who took loans will have to sell as they cannot afford the higher installments.”
Reality: Financial literacy and prudence is rather prevalent in buyers as compared to pre-Asian financial crisis. Buyers these days do understand that interest rates cannot remain at the ridiculously low rates when they bought the properties. Most have factored in higher installment rates when interest rates do rise. I agree that there are some who might have over leveraged and may be in trouble when interest rates start to rise but in general, especially the younger buyers. are more financially savvy and educated to make informed choices. Will there be people “jumping down”? I doubt so. Real income is rising and inflation is negative. ie. things are getting cheaper. This can also help to mitigate any increase in housing installment.
“I will buy when the market is at an all time low”
Reality: Even financial gurus like Warren Buffet cannot predict when the market is at an all time low. The smart ones go in when they can afford it comfortably. The silly ones go in when everyone is going in. The “know it all” ones never go and and keep telling the rest of the world that they will go in at an all time low. These people are not property investors but mere property market observers. They spend loads of time scouring the internet and classifieds for fantastic deals but no deal is ever fantastic enough. Truth be told, not everyone makes money from property investment. We would like to think so but this is not the case. It is human behaviour to speak loudly when one has made a wise investment and to tread silently when one has suffered investment losses. The winners are more vocal than the losers and thus it seems as though everyone is winning.
“The Singapore government will not make changes to the cooling measures.”
Reality: On the contrary. The Seller’s Stamp Duty (SSD) is not relevant in today’s market as it was designed to curb speculative activity i.e. flipping, the Additional Buyer’s Stamp Duty (ABSD) is perhaps too prohibitively high especially the 7% levied on Singaporeans for their 2nd property. Finally, dare I say it, even the Total Debt Servicing Ratio (TDSR) can be toned down. It is imperative to remember that none of the cooling measures are permanent. Even though many have stated that TDSR is here to stay, I for one believe that if the property market is hit too severely, the TDSR can be tweaked to allow for greater investment opportunities. If the current TDSR is to allow for financial prudence, then it can be tweaked to allow for a larger degree of risk taking as well.
Reality bites. It is still currently a buyers’ market but like a sale at a departmental store, things are already marked down and will not continue to be marked down forever. The reality is that Singapore is still an extremely livable city and is perhaps one of the safest places to invest in. To all buyers, please treasure the market as it is currently in your favour. However, please face up to the fact that we are not in a financial meltdown.
Yours Sincerely,
Daryl Lum
