Basically, there are a few factors that can push up the property prices in a certain district, one salient factor is the government funding for development.
Government funding for development
It all started with development plans for some districts to improve infrastructure and amenities in the area with the interest of its residents, as part of the bigger master plan.
This will lead to more demand in properties as better infrastructure means better price, which will attract more real estate developers to build more properties. Eventually, new properties and amenities will reach a saturation point and this district will be considered as ‘developed’ or mature estate.
However, as it gets more crowded, some issues are now more intolerable such as traffic congestion, limited parking space, crowded public transport.
At this moment, the funds from the state will then be channelled to develop newer districts such as Punggol, Bukit Batok, Woodlands and Bidadari etc.
This is when early adopters receive comments from their friends saying that their new home is so out of the way. But soon enough, one can imagine, these districts will be the new hot topics in town as they get the new facilities such as roof gardens, sky terrace designs, waterway hub etc. Such branding will draw more crowd to invest and move in.
With the eight rounds of cooling measures, the property market has retraced southward by 10% and showing signs of a bottom. If you are still hoping for it to go south by another 10% or even to 2009Q2 level, do you know what sort of events can cause it to happen?
Here are some hypothetical events that are essential to make that happen.
New cooling measure adding on top to the existing 8 cooling measures
Direct foreign investment withdrew – more companies leaving Singapore for another country, severe oversupply of properties to let
Singapore unemployment rises to double digit – more people unable to repay their mortgage
Fewer developers bidding for Government land sales resulting in lower successful bid for land prices
Sustained increase interest rates – unlikely but if it happens buyers will need to pay more for monthly mortgage
Fewer attractive new private condominium launch that cannot be missed – leading to oversupply of unsold properties
Smaller property developers reduce price point to reduce penalties from unsold completed units
Lower transaction volume from a reduction of qualified buyers or sellers
Rising tension and instability geopolitical situation in the south-east Asia region repelling investors to channel their funds elsewhere
When terror threats slip through Singapore’s multiple layers of firewalls
and many more.
Now, do you still think the property market can go south by another 10%?
If you think so, when would that happen? Share with me.
As I started off my career in a supply chain where managing supply and demand is what I do day in day out. I see great similarity when this concept is translated into the real estate arena,and this is how I visualise it to be.
Let me first talk about the black box which is the complex events that happen whenever a new property listing enters the market till an interested party decides to buy it. The characteristic of this black box is expounded in another post of mine.
As for this post, we will focus on what is happening outside the black box – the big picture.
Arguably, the number of properties entering and leaving the black box is determined by the collective efforts of different players and two driving forces, which are illustrated by the gears, wind turbine and the Sun respectively.
The players in the supply side are as follows;
Creates supply when they choose to upgrade or down-size their properties by selling the current one.
Housing Development Boards (HDB)
Creates supply by launching new flats to ensure a steady flow of affordable public housing for Singaporeans.
Real estate developers
Creates supply when they won land tender, build and sell the residential units subsequently.
Creates rental supply when they have properties to rent out and generate passive income.
On the demand side, there are four main players ;
Generates demand when they are doing bulk purchase for collective sales.
Generates demand when they stagger units in new launch into different batches.
Generates demand when they want to rent a property.
Generates demand when they want to buy another property.
Generates demand when they want to buy another investment property.
Other than the players in the real estate arena, there are two important driving forces which affect all the above-mentioned players.
Whether is it cooling or warming measures, it has the aim of bringing property market to a certain future state that is aligned with the government’s growth plan in a sustainable manner.
Arguably, the supply and demand of Singapore real estate market are probably the most well calibrated one in the region, possibly in the world as well.
Having the interest of his/her client in mind, agents have to seek the best deal either by selling high or buying low by designing personalised strategies to facilitate transactions in the most optimal manner.
These collective efforts of agents become a strong driving force that drives supply and demand, particularly in times of a property price reversal whereby a strong volume is vital to ensure a sustainable reversal.
If government policies are the gears of a manual car, broker’s strategies will be the acceleration and brake pedals that facilitate getting to the right speed based on the gear selected by the government.
Hence, you being a small player in the property market, have to understand the government plans well and work closely with your property agent to design personalised strategies for optimal growth of your real estate portfolio growth for the next 10 years.
If you have not taken action in the last four months, you could have already missed some good opportunities. From March to today, there were 8,284 private non-landed transactions and 8,404 HDB transactions.
Just by looking at the volume since march, many have already accepted that fact of cooling measures is going to stay for awhile longer and strategized their portfolio accordingly.
This may sounds absurd to you because logically you (as the owner of your property), should be the person who cares the most of the property. You may say that regular cleaning and maintenance is considered caring for your property, yes i do agree but what i see more importantly is how you value add your property.
From the day you agreed upon a certain value to purchase it till the day you agreed upon another value to sell it off to someone else, the difference between the two values will be the value you bring to your property. If there is a proceed, it means that the next buyer agrees that you (directly or indirectly) have increased the value of your property. Otherwise, if there is a loss, it means that both you and the next buyer agrees that you have decreased the value of your property.
How are you a liability to your property
Your decisions and actions made on behalf of your property has direct impact to the value it can generate through its life when it belongs to you.
By being adamant about lowering the rental rates in a market down trend results in longer vacant period, which your property is not only producing zero income but incurring mortgage expense.
By being ruled by greed, you cause your property to lose its value to alternative properties which its owners chose to protect it’s value rather than seeing it diminishes in a market down turn. The proceeds may be slightly lower than what it could be sold at during the market peak but it is still better than no interested buyers.
The above are only two examples which you as the legal owner is in fact a liability to your property by not protecting its interest from your emotion, judgement and poor planning.
How to check if your are already destroying your property
Did you buy it when you know it is over-priced, driven by your emotion?
Did you over-renovate and make it a stigmatized property?
Do you have an exit plan?
What should you do if your property is damaged by your actions
Treat it as separate entity, put on your rational thinking cap and have an exit plan
Speak to professionals or friends who have good and bad experiences to share
How to keep your property safe
Have regular reviews on property with respect to the current market situation – use SRX property tracker for easy status updates of your property.
Leave it to the experts, let your trusted agent knows about your plan and let them monitor it for you.