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Singapore properties will surely make money in the long run. There is no need to time the market.

Monday, November 10, 2014

JK sent me a link to his latest blog post and has graciously allowed me to extract a portion of it to share with readers here. See what JK has to say:

I have some doubts on the claim that Singapore properties are sure to make money in the long run and we should not time the market. 

(AK says: This reminds me of what a friend told me that there is never a bad time to buy a home...)

I witnessed my siblings purchasing properties in Singapore when there was an economic revival. It was year 2007 (when COSCO was at S$8 a share, remember?). Then, crisis struck in year 2008.
I think timing of the market is important. I know you guys are searching for the below market value property, but how much bargain is that under such good economic environment? I take Caspian as an example, if owner bought in year 2009 at S$600K, and they are able to sell it last year at S$1.2 million and now the selling price dropped to S$1 million, is this a good buy now? Take note, Lake Point condo also dropped heavily to S$300K before it shot back to S$900K, and with current market of S$800K, is that a good buy?

Bought a condo at a sky high price?

My advice is, unless you have a lot of cash, you can afford to have multiple properties, that's different. If I have only enough to shoot for one, my advice is, keep your money, build up your war chest because there will be a better time to buy.

I am sorry to say that the real estate price is following "closely" 6 months after the stock market performance for the entire history except for year 2009. In year 2009, the real estate price following exactly the same as stock market. Both index rebounded together in March 2009 , starting with Caspian new launch, then Mi Casa, etc. then, Interlace come in September 2009.

So, does that mean these two prices index will be decouple ? It will not.

Look at Dow Jones right now, it is at history high . Look at STI, it does not even challenge the new height just yet. We are all in good party mood. Will the stock  market come down? It has to come down.

If you don't like market crash, perhaps a meaningful correction of 30% is needed. If so, why can't you use the time now to prepare all the cash tightly and wait for the time and shoot once BIG TIME. Guess what, there are many people waiting out there as well, that is why when the price dip for 10%, 20%, people start to enter and support the price and the price stable or stagnant. But then, as I said, timing is still relatively important. Why did we not buy in year 2009?


It is because we didn't have enough cash at that time? (That is why I emphasize to build up the war chest) Or you fear that it will go down further? (If you fear the property price will go down further in year 2009 BUT NOT in year 2014, I think we have a problem here) Or you fear that you are next to be retrenched when you see DBS was slashing so many jobs away in year 2008 , 2009?

I know we must have positive mindset. I fully agree. But, for big investment with a fees of ABSD, I don't think it is attractive at all at this moment. Anyway, I am building my cash pile now slowly and I am all ready to shoot a big one when time is right. I sincerely wish all the investors winning big time!

Read JK's full blog post: here.

Discounting is the new trend.

I agree with JK. I have always said that entry prices are important. We don't want to overpay for any investment.

More than 2 years ago, I also cautioned that the government is engineering property prices to be significantly lower. At the time, I had some readers telling me that it won't happen because it is not in Singapore's interests as so many people have their wealth tied in properties.

Well, I always say don't underestimate the political and social motivations that power our government.

"I would caution that there are reasons for why the cooling measures are here. Whether the reasons are good or not would depend on where we stand. However, it is obvious to me that the government is sending a clear message that they want property prices in Singapore to lower in the next couple of years, not that they need to do much more to achieve this."
From: Leverage up and buy investment properties now?

Remember, we should never ask a barber if we need a hair cut, especially not the ones who are bald.

Related posts:
1. Affordability and value for money.
2. Never lose money in real estate?
3. Buying an apartment: Some considerations.


pf said...

What if u still didn't managed to time properly? When u think ppty is low then b4 u knew it, its even lower. Like sembcorp.

SMK said...

I agree entry especially for property is important. I am fully with ak on this point. If you are buying a home, the entry price you buy the home is not a 1 time entry for only the warchest you have at that point in time but also all your subsequent installments possibly til your retirement as well.

unless you are doing property speculation. Then you flip and hope another will buy at a higher price.

property by itself generates 0 value. Price of property is primarily a function of utility and location.

And property prices without intervention follows the business climate not the other way rouund.

Gary said...

Good article! =)

AK71 said...

Hi pf,

My philosophy is consistent whether it is property or equity.

As long as we got in at a fair price or an undervalued price, that is good enough.

Of course, prices could decline further but if our entry prices are not way above the mean, we should do OK in the long run. :)

AK71 said...


People very often think of their homes as investments. I have lost count of the number of times I have corrected this misconception and suffered hostile looks in the process. -.-"

Whether it is properties or equities, when people make decisions using their hearts and not their minds, often, problems follow.

With properties, decisions are more easily swayed by the heart, unfortunately. :(

AK71 said...

Hi Gary,

Thank you very much. Credit goes to JK, of course. :)

Vincent said...

Please ask those who had bought properties before the Asia Financial Crisis whether Singapore properties will always rise. I think historical lessons are always forgotten quickly as we all indulge into the current party frenzy mood. I find it almost a bit unreal as all the money printings, all time low interest rate fuel speculations on all assets classes. I guess when the party end, everything will turn very ugly.

There are new groups of fools born out of every generation. These people need a hard lesson on market cycle fluctuation to understand that nothing is absolute when comes to investment in anything.

Having said that, I guess not many can sit still after watching their friends/families/relatives become rich after investing in properties. Everyone wants a piece of the action but until the music stops, the party will go on.

AK71 said...

Hi Vincent,

Thanks for the well written comment. :)

This reminds me of a blog post:

Revisiting AK's simple strategy with Charlie Munger.

"It takes character to sit there with all that cash and do nothing. I didn’t get to where I am by going after mediocre opportunities." Charlie Munger

Cory said...

Fortune Telling tends to band specific group of people into a common future like years of birth, zodiac etc I think one of the reason probably is economic cycles.

My 15HWW said...

Hi AK,

If the entry price for stocks can be considered important, the entry price for a property, especially an investment one, is absolutely crucial.

Unless one is some big-time magnate, it's rare to make a stock transaction worth a few hundred thousand dollars, not to mention $1 million.

By taking nibbles or mouthfuls, you can buy more of the company even when the price drops by 20% (provided the company is sound).

But when buying a property, one is locking in the price at the moment of transaction. A 20% drop in the valuation after a year will wipe out the downpayment.

And seriously, can you afford to buy another property to average down?

AK71 said...

Hi 15HWW,

Buy another property to average down? That is possible but for most people, that is improbable.

I have a feeling that things are approaching a tipping point and, in fact, for the luxury market, things are already unravelling. The mid and mass market properties will follow but things would likely be less dramatic.

Buyers who paid higher or much higher prices in the last few years must be prepared for the worst case scenario. What is the worst case scenario? In the GFC, I saw private property prices falling as much as 35%. -.-"

qook said...

AK, how about those that do not own property yet but require shelter? Due to my family needing to downgrade, I may have to move out on my own soon. I was thinking of buying a shoebox in geylang , since the mortgage can come from my cpf. I know the market is still near the peak and could correct, but if I were to rent for a few years the price drop in a small shoebox might be relatively similar, so I thought perhaps I could try that. Any thoughts ?

AK71 said...

Hi qook,

Well, if it is a home, it would depend on how pragmatic you are. :)

If we could get by with just a room, then, it is relatively inexpensive to rent a HDB common room in Ang Mo Kio or Toa Payoh. $700 a month, perhaps?

If we expect prices to soften in the next 12 to 24 months and that sellers should become more desperate, then, putting aside $700x24 = $16,800 as a budget for rental is not a bad idea.

Actually, we should expect rental market to soften further too. So, it could be a good idea to sign a 1 year rental contract instead of 2 years.

If you are looking at a 517 sq ft studio apartment in Geylang, an area which I don't like very much, you could be looking at $1,300 to $1,500 psf or a quantum of $672K to $775K.

Expecting a 15% decline in price in the next 24 months, we are looking at a decline of almost $101K to $116K. That is quite a bit of money. Food for thought? ;)

I don't like the Geylang apartments because they are mostly East-West facing and the buildings are mostly low rises up to 8 storeys in height. Could be good enough as investment properties but I wouldn't want to stay there. ;p

qook said...

Thanks AK, actually the prices in Geyland have already come off quite a bit. The ones I looked at are around the 500k level now. Also I am a very light sleeper and need a lot of sleep to function, so renting a common room like you suggested may not quite work out for me. With those parameters, would the economics make more sense for my situation? I probably have about 8-9 more months to go before I physically have to find a place to stay, so maybe the prices might soften a little bit more by then.

AK71 said...

Hi qook,

8 to 9 months later, prices would have come down by another 5%. Good timing. :)

$500K? Hmmm... Well, as long as you are not buying an apartment that is less than 452 sq ft in size, it should be good enough for a single person or even a couple.

Of course, there are other things to consider apart from size of the apartment. The facing is important to me. Security too. :)

They were really building like crazy in Geylang. Some lorongs by now are shoebox apartments kingdoms. So, to learn that the prices have come down is not surprising. That is what oversupply does.

AK71 said...

Speaking at the Real Estate Developers' Association of Singapore's (REDAS) 55th anniversary dinner on Wednesday evening (Nov 26), the association's president Mr Chia Boon Kuah added that the looming supply of 68,000 completed new residential units in the next few years is likely to cause home vacancy rates to head towards 10 per cent.

Official figures have put the private home vacancy rate at 7.1 per cent in the third quarter of this year.

"Developers are concerned. Genuine home buyers from the Singapore market have adopted a wait-and-see attitude. The situation poses significant challenges to the property sector, and there could be wider impact. It is in no one's interests to witness unintended outcomes," Mr Chia said.

Mr Chia also noted that private home prices have declined in the last four consecutive quarters, while transaction volume has also dropped from 18,000 in 2013 to less than 9,000 expected this year.


AK71 said...

There has been a sharp jump in the number of residential properties put up for sale by mortgagees. According to property consultancy Colliers International, the total number so far this year is 123, a seven-fold jump from just 17 in 2013.

Non-landed units accounted for 65.4 per cent of private homes in the mortgagee listings. These included condominiums in prime areas such as Marina Bay and Sentosa Cove, as well as those in districts 9 and 10.

Colliers said the higher numbers are due mainly to the "stricter regulatory and financing environment" in Singapore. It also noted that for the first time, shoebox apartments have been placed on mortgagee listings. Nine such units were put up for mortgagee sale, compared to none in the previous four years.


AK71 said...

Don't overpay for our home or investment properties. Stay grounded in our expectations and be realistic about our abilities.

People who overstretched their finances and who were too optimistic will be the first to suffer.

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