Tan Kin Lian's Blog: Wait for property market correction

Sunday, August 15, 2010

Wait for property market correction

One big, costly mistake that a consumer can make is to overpay for a property, out of panic, and to watch it fall. Look at what happened in the USA.

The property prices in Singapore are too high, due to low interest rate and temporary shortage. This applies to all types of properties, including HDB flats. It is better for consumers to wait for the price to fall to a more affordable level, rather than pay a high price that will burden you for the next 30 years.

Read my FAQ, "invest in property" in www.tankinlian.com/ask.aspx

8 comments:

Createwealth8888 said...: A home for living is unlike stock for investing. In stock investing, one can wait but when couples need home to set up their family. It may be too hard for them to wait too long.; August 15, 2010 11:39 AM
C H Yak said...: With over 20 years experience in the construction industry, I must attest to this. Be wary of the EC to be launched soon too and also HDB DBSS flats.

I feel these would be priced to catch up with other categories of private condo already launched or to be launched which are inflating the property bubble...Govt announced good GDP ... don't be tricked into it.

My reservation is that you will be buying a lower category of condos and flats but at the high price of 1996 for a higher category of properties ... but the Govt curb prices in 1997 ... but now due to low interest rates, and the Govt is joining the speculation fray, I am skeptical and must advise "CAUTIOUS" in your move.

There is now a hike of $200 psf for all categories from 1996 high prices.

Read other posting of "Bust of Property Bubble" in this blog for my comments ... even if you really want to take up this price challenge ... read about this "investment trap" ... I will soon write a posting in my blog ...

http://de-leviathan.blogspot.com/; August 15, 2010 2:15 PM
C H Yak said...: The "investment" trap is also the "employment" trap.

With a high mortgage to service, the enslaving model means you have also fallen into the "employment trap" and uncertainty of the volatile business envirnment.

Employers will demand that you work at lower salary. When times are bad, they will asked the Govt to cut CPF. Remember the "faster" and "cheaper" slogan? The worst culprits are the MNCs and some GLC companies.

In the worst case, you will be retrenched, and even without "retrenchment benefits". The MOM is still silent on statutory protection for those earning above $4500 per month.

Based on salary of $4500 per month what category of property can you try to invest? say your wife earns the same $4500 per mth. Mr Tan recommends : 5 years x $4500 x 12 x 2 = $540,000 property...probably a HDB 5 Rm flat.

Based on current land prices, the EC will be priced at about $650 to $750 psf. The median price for private suburban condo is about $824 psf.

The smallest of EC say about 1000 sf will cost $650,000 ~ 750,000.

So be wary of the EC to be launched soon and also HDB DBSS flats. IT is simple Maths...no big theory.; August 15, 2010 3:15 PM
michael13 said...: There is indeed a significant increased risk of a property bubble forming due to unprecedented low interest rates (which is expected to continue for some time to come) environment. A market cycle is applicable not only to stocks but also to property investments. During the six-year (from 1998 to 2003) property slump, many local SME businesses and individuals suffered in silence because they were caught in a wrong cycle of their property investments. The cash flow problems required them to cash out and to sell below the valuation. A sizable number of HDB flat owners were at their retirement age and their CPF savings were depleting. The concept of 'Asset Rich' and 'Cash Poor' suddenly became very real. That troubled them a lot because they simply could not eat and just survive on a long-proclaimed policy 'the proud ownership of HDB flats', never mind of its size, 3, 4 or 5-room type. The balloon way of air-pumping our 'GDP' recently has made many Singaporeans nervous of its sustainability. Pray that we can continue to 'Live Our Dreams and Fly Our Flags' in the next 45 years. May God bless Singapore and all Singaporeans always!!; August 15, 2010 3:35 PM
SD said...: The HDB flats I reckon applies to resale flats. The prices should not drop a lot if you manage to get a flat directly from HDB. I think they rather leave the flat unsold rather than selling it lower to the ppl.; August 16, 2010 10:13 AM
Jamesneo said...: Hi Mr Yak, i am not sure if Mr Tan recommended the high side of 5 because he thinks the artificial supply shortage and immigration might keep the price not as low as the mean reached in other countries of 3-3.5 the mean. If using the long term average of 3.5 times in the US, 3.5 x 9000 x 12= 378000 is the fair price that one should pay for one's house.

If one really borrow 540k-750k to buy one's house an illiquid investment and it become such a large part of your assets, it is a catastrophic investment strategy which many people in countries like US, Ireland, UK and soon to be Canada and Australia has/will come to regret:
http://www.greaterfool.ca/2010/; August 16, 2010 10:41 AM
michael13 said...: Hi Hiei, yes, I refer to HDB resale flats. I witnessed quite a number of Singaporeans entered the booming resale market for upgrading purposes in 1995/1996. Only to regret later when the HDB resale market took a downturn after the regional currency crisis hit us in late 1997. One of the severe affected estates was Bishan town. Many Hong Kongers pushed up the prices beyond the reach of the locals. They also made a mass exodus from Singapore after making a handsome gains with their property purchases.; August 16, 2010 12:45 PM
C H Yak said...: Hi James

I think you are more conservative and prudent than Mr Tan. I believe he is projecting more on the "aggressive" side.As a check to illustrate unsustainable pricing, I like to use his "5 years".; August 16, 2010 1:31 PM