The Property Market is Not Bottoming Out – It’s a Dead Cat Bounce

by Aktive Learning on May 16, 2017

Property Soul (guest contributor)

Question: How do I know home buying sentiment has improved?

Answer: When I receive more email asking me which units to buy in a new project than email regretting buying at new launches.

If property purchase sentiments are weak, there is a reverse in the number of messages from both sides. This is very accurate – there is no need to conduct any survey.

Now is the perfect time to launch

There is usually a three month time lag between the performance of the stock market and the property market. This is because it takes around 12 weeks to complete a property transaction. The Straits Times Index is on the way up since January. When people can make money from stocks, they feel “richer” and are in the mood to buy properties.

What are developers waiting for? If not now, when?

We see developers going all out to launch new projects: Park Place Residences, The Clement Canopy, Grandeur Park Residences, Seaside Residences… and there are countless re-launches of not-so-new projects with unsold units.

It is a one-size-fits-all formula: The media conveys the optimism of the developer, marketing agent or mortgage bank, not forgetting to mention a “highly anticipated” new project will be launched over the weekend.

After the first launch weekend, the media reports the selling of half of the total units in the project. (Every new launch project moves half of its stock in that critical first weekend. But what happens to the other half of the inventories? When will they be cleared? You go figure it out.)

Where is the optimism coming from?

Since March this year, realtors have all jumped on the bandwagon to show their optimism about the property market:

  1. Strong buying interest continues for popular launches in the OCR and RCR due to pent-up demand, rare project, good location, future hub… (Are they hotspots or just hot potatoes?)
  2. The Government’s good intention to save borrowers from refinancing woes and hefty Seller Stamp Duties in view of an impending interest rate hike is conveniently interpreted as hints to remove more cooling measures. (We see that industry stakeholders are all very upbeat. But uplifting of Additional Buyer Stamp Duties? Are you sure?)
  3. 3.JLL predicts residential property prices will bottom by 2018. (So fast? Prices have corrected only 10 percent so far.)
  4. Morgan Stanley saysSingapore property prices will double by 2030. (How much more do prices have to drop before they can double? Will the salaries of Singaporeans also double by 2030?)

New sales have a direct impact on a developer’s report card for the next quarter. Property agents have to make money regardless of good or bad times. Banks have to show some results after a recent cut-throat price war on housing loans.

So, if you are not a developer, a property agent, a mortgage broker, or not even an industry stakeholder, what are you so upbeat for?

Did you smell the dead cat?

Do you notice that the improved sentiment is mainly on developer sales, but not from the HDB, resale or rental market?

The URA recently released the price index of private residential properties for the 1st quarter 2017. Prices of landed properties declined by 1.8 percent while prices of non-landed properties remained unchanged.

New sales made up 59 per cent and 66 per cent of total sales in the RCR and OCR respectively. Launching more projects in the same quarter doesn’t mean that the market is turning the corner. It only implies that developers are in a hurry to launch new projects. If they miss this golden opportunity, nobody can tell how long they need to wait.

According to the URA, at the end of 1st quarter 2017 there are 46,016 units (including ECs) in the supply pipeline and 18,870 units remain unsold. From now till the end of 2017, there are 14,242 units waiting for TOP.

How long does it take for actual demand (HDB upgraders, import of foreigners, natural population growth etc.) to catch up with ongoing supply?

Can anybody tell how fast the Fed will raise interest rates? Can we foresee the economy picking up or deteriorating in the next 6 to 12 months? How will macro factors (political tensions, global debts etc.) impact the Singapore economy?

If the negatives outnumber the positives, any small upward movement in sales volume or price movement is not called bottoming-out. It is a dead cat bounce – except that the bounce is almost non-existent because we don’t really see a recovery in the market.

And after that, expect a ‘real’ correction in the market. A 10 percent drop in prices from what we are seeing now is nothing.

Don’t believe what I say? Take some hints from what the media had predicted in 1994 and 1995. Do you remember what happened to the property market after 1996?

To tell or not to tell

I was thinking about keeping mum about it. Why waste time writing a blog post to warn home buyers to think twice? People will buy anyway. After all, didn’t I earn my first pot of gold from buyers who overcommitted in the previous property cycle?

But I have given up the thought of profiting from fire sales of units bought directly from developers in recent years. I am not interested to buy shoebox units or tiny flats with three bedrooms magically squeezed into less than 800 sq ft.

Although Senior Minister Josephine Teo reminded us that “you do not need much space to have sex,” she has yet to demonstrate how to do it with minimum space. There is an urgent need to conduct show-and-tell sessions to teach young couples how to maximize the use of limited space; to make good use of oversized balconies, aircon ledges , bay windows, etc.

Buying properties for the long-term?

Your property agent may tell you that property is a long-term investment. You can buy it any time because no one can time the market. If you can hold onto it for a number of years, prices will eventually go up in the long run.

Well, remember those who bought at the peak of the market in the mid-1990s? It took them almost 20 years to break-even. Do you have holding power for 15 to 20 years? I don’t. That’s why I am not buying now.

JLL predicts that residential property prices will bottom by year-end or early next year. Well, we have only seven months to go. Let’s wait and see.

By guest contributor Property Soul, a successful property investor, blogger, and author of the No B.S. Guide to Property Investment.

Posted courtesy of www.Propwise.sg, a Singapore property blog dedicated to helping you understand the real estate market and make better decisions. Click here to get your free Property Beginner’s and Buyer’s Guide.

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