Property Prices Must Plunge (graph included)

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The STI stock market index has plunged about 20% from its peak, but the URA property index still seems to move up exponentially.

How can this be?

Let’s study the STI graph superimposed over the URA property index graph. Both graphs are scaled such that their time axes coincide, and their Asian financial crisis bottoms & dotcom peaks are at the same levels. STI is indicated by the dark blue line, while the pink line with blue crosses is for the URA index for condominiums (the other lines are for detached, semi-detached, terrace and apartments):

STI stock market index and URA property index

You should be able to see from the 2 graphs that the property bottom in end 1998 lagged the stocks bottom by about a quarter (i.e. 3 months). Similarly, the property peak in mid 2000 also lagged the stocks peak by about 1 to 2 quarters.

Now, fast forward to end 2007. The stock market has clearly tanked, amidst high inflation and comparatively stagnant salaries. But property is apparently still moving up, up and up! This can’t continue.

I hereby predict that property prices will plunge within the next 3 to 6 months. By at least 20%.

Want more evidence? In the last month (February), property developers were so spooked by the worsening economy that they launched only 343 units in the whole country, out of which only a miserable 170 got sold (excluding ECs). Oh yeah, maybe it’s the Chinese New Year.

References: URA news release and STI data in Yahoo! Finance.

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43 Comments

  1. Prices are still high because sellers are still asking for sky high prices, but buyers are unwilling to fall for the trap, with some buyers making offers that are laughed at by the proud sellers.
    Hence the low number of transactions.
    There may be fire sale deals when sub-sales speculators can’t get bank loans at TOP, or people who pool money to speculate on property start to have disagreements, or they start losing jobs and can’t afford to hold any longer.
    Then I’ll jump in.

  2. Many are still holding up with expectations that property prices will appreciate come the launch of the Integrated Resorts. The dipping economy should be an indication for the speculative sellers (HDB Dwellers and Pvt Owners) that things will not be as rosy as what they think. Prices are already way off fundamentals. Those that do not learn from market forces will only have to learn through getting their fingers burnt. I’ll wait till then to buy. Stocking cash now is the best option (inflations the killer though).

  3. advertisements on

    Just look at the classified ads today (Saturday) – so many sub sale sellers but still so wishful asking prices.
    I just checked the URA list of caveats – since 2008, there have not been many transactions. Sub sales are like only a handful.
    The speculators will get burnt!
    Agents will waste hundreds of dollars on useless advertisements.
    Maybe I’m gonna call some of them and make some offers – 30% off their asking price. Let them laugh at me and see who’s laughing in the end.

  4. larger graphics on

    Possible to post larger graphics? The current one is too small to make out the details such as dates. Great article. Thank you.

  5. I think you are overfitting the curves too closely from 99 to 03 and using the URA price index and STI at different scales (e.g., STI from 1000 to 4000, but URA PI only from 100 to 180). While we can see that both moves in the same direction, it is very hard to extrapolate on the two variables, percentage of decline and the timing of it.

    If we say that STI is around 1000 in mid 98 and it went up to 3800ish (?) at its peak, it is an increase of 280% and assuming 180 is the peak for the URA Price Index, it is an increase of 80%. Therefore, using basic proportions, a 25%ish drop in shares price will now only mean less than 8% drop in property prices.

  6. Regardless of how its being scaling, the market should move in tandem. Should the STI continue to head southwards, speculators will need to cash out unless they are prepared to wait it out. Once rental yields and market value dips, then they are really stuck with a long term liability (good luck to those those that bought 99 year old 1000psf and above high end properties).

  7. If a chart like that can predict property up & down, then very easy to get rich & make money.
    There is lot of different between 2000 & now.
    Population already big difference, our target now is 6M & yearly 80000 of immigrants & PR, plus another 80k of foreign talents, do we have this in yr 2000?
    We are undergoing transformation now, what is 2000?
    Inflation is different too, loan rate, rental yield…..
    Demand & supply is totally unbalanced in 2000, there is excess of 18k of HDB at that time. Some units still keep until now. This is a big lesson HDB must learn, never over-build, waste of taxpayer money, we will challenge them if they make same mistake again.

  8. so now its not a good time to buy a house rite? i know im defint being stupid to buy it now, heard many people sayin prices will go down soon.

  9. Appreciate if any Property Gurus to share some thoughts on property outcome in next 6 mths to one year?

    I just met an agent and was told within next 6mths will be the best time to get a FH landed property. Despite all the noises, landed property in Singapore still command a premium price and will continue to increase !!!

    Any views on that ? Thanks.

  10. I’m no guru, but I think ppty prices will fall further (if they have been falling already). And don’t trust agents. It’s always in their interest to transact. They’ll say anything to make you buy / sell. Don’t believe me? Randomly call up 10 agents- all will tell you it’s a good time to buy NOW.

  11. Thanks for the headsup info. No hurry…can afford to wait for further Lao Sai price if property continue to slip downwards.

    Cheers

  12. wait and wait on

    Those that are in need for a residential property, buy now. Those looking for investment property can adopt the wait and see attitude. It’s highly unlikely for prices to crash for the next 2-3 years. Prices may not climb but will at least hold. One reason is there is a constant influx of foreigners coming to our country to work. Rental is easy and good money. Sellers who cannot sell at high price can rent out a 2 year lease today and forget about selling for the next 2 years. And with the new rulings for HDB being able to rent out after just only 3-5 years, sellers can simply also rent out the HDB and stay with parents/friends/relative during down time and wait for the boom the sell.

    You see it is a 2 sided affair. Both buyers and sellers can hold. This time round, i think sellers have the upper hand. And i agree that the past is different from today. Last time HDB can only rent out after 10-15 years, now it’s faster. Rental is a big decisive factor. As long as it can cover the monthly loan mortagage, sellers can hold for 10 years they don’t care.

  13. wait and wait on

    Maybe one indicator when prices will start to fall is when companies start retrenching people. Foreigners go back to their countries, locals hang on dearly to their jobs with fear, demand starts to drop, prices will follow.

    With the casino opening up in 2-3 years time, big scale retrenchment is highly unlikely. No retrenchment means people still have to work here. Have to work here means must have a house to stay. Therefore either must rent or buy. Conclusion, prices will NOT drop significantly. If you can wait > 5 years then wait, else buy.

  14. wait and wait on

    One more point to note is that the many advertisements for sub sale units are advertised by agents at the agent’s cost. The agents try to pursuade the sellers to let them try to sell. But at the sellers end it’s like, “I will only sell at this price. You want to try, go ahead. Anything below this price I will not sell. When my installment kicks in I will just rent it out”.

    Low transaction numbers means sellers are not willing to sell, not because they cannot sell.

  15. wait and wait on

    Final note. Hotel rates and occupancy rates are a good indicator. Right now they are having a super boom time. If hotels are always fully booked and charging record rates, what makes you think property prices and rental will drop? Very unlikely.

    When hotels are struggling to fill its rooms and slashing prices drastically, it’s time to go in and buy.

  16. “wait and wait”, you made some excellent points. I think it all depends on the economy. If US enters a prolonged downturn, which is getting more likely as we speak, all the worst case scenarios you described will become a reality.
    So, for investor-sellers sitting on profits, my advice is not to be too greedy and sell now – even at a lower price than the peak – and keep your comfortable profits in your pocket first.
    You never know what’s gonna come. Things are getting more and more unpredictable.

  17. I am one who sold amid the uncertainty to book in my profit. Yes, it s grid lock between sellers and buyers now with the latter being able to hold out because they are sitting on profits and have good rental yields. But to me what’s 100% certain is that supply (both for purchase and for rental) are increasing and will continue to increase. That you cannot stop from coming on the market. What I am uncertain about is demand. Yes I know the IR, population increase etc will created demand for housing – but i dont think anyone can say for certain to what degree as it depends also on a confluence of external factors at that point. If I am wrong, prices will consolidate with supply & demand off setting over the next 24 months. Plenty of time to jump back in again. If I am right, prices here are set for a move back to Q1 2007 levels – which in some cases is 50% from their peak in Q3/Q4 2007 ie to give up the run up during this period.

  18. Hi All,

    With the new plans announced for west, Jurong Lake District, what do you forsee for the prices? I’m looking for an investment property, but everyone is telling me to wait.

  19. Wait and Wait,

    Excellent views there and solid understanding as well. What’s your view on Singapore landed properties? Is it time to go in, I heard many contradicting views wait and wait…for the worst should be coming. My big Question is When ??? Like u mentioned 5 years ? or even within 1 year?

    Cheers

  20. wait and wait on

    David, the best investment experts always says that nobody can predict when is the highest and lowest points in a market. Price increments for landed properties is still lagging behind condos. If you need to buy one to stay it’s prefectly alright. There’s no right or wrong decision when buying to stay. Because buying a dream home that you look forward to coming home everyday to spend time and build your family cannot be tagged with a price tag. Buy wat you can easily afford comfortably. If buy for investment, just be sure you can hold for long term even if there are years that you cannot rent out. Hope it helps. ūüôā

  21. wait and wait on

    David, you are most welcome! Anyway just curious you decide to buy now or not? Ha. For me, to choose between a $2 mil condo or a $2 mil landed terrace house, without hestitation I will definitely choose to buy the terrace house. Cheers too!

  22. Wait and Wait,

    Terrible sorry for the delay reply, I can afford to wait and see at this junction. Currently putting up in a Terrace. Looking at upgrading to a Semi-D or Bungalow when the time is ripe and property market turn for the dive curve perhaps in a couple of mths or a year or 2.

    Totally I agree with you. A condo vs a landed property. I choose the latter still. Maybe I am more of a person who enjoy sipping afternoon tea by my garden.

    Cheers and excellent advise from you. Thanks.

  23. I do not think price will drop further and it is great time to buy now. Reason
    being rental yield is excellent and many of my friends are going in now to buy and rent out.
    With the incoming of Many Indians and PRC to Singapore, the price of rental as well as property price will stay or rise. Those that are affected are those speculators. The landed property distance from CBD area benefitted from those expats relocating to places such as CCK and Jurong. Price has increased to 15%-20% for properties in these areas. Strongly believe now is best time to buy and wait for prices to rise next year. Analyst are normally not correct, especialy when they say down it then went up.

  24. Charles, I agree with you. I have been monitoring the property market for the past six months and the “expert’ in June 07 predicted for 15% price drop by March 08, and another 25% drop by June 08.

    Nevertheless, price went up approx 10-12% instead for private property at Chou Chu Kang area for landed property such as Villa Verde. The prices for HDB resale also hold strong. The newly launched HDB price at Sengkang by HDB also stating S$370K for 5 rm hdb flat.

    In line with Government’s plan to glow singapore population with influx of foreigner (now4.3 million) to 6 million, there is huge potential for property market to rise further. Singapore is also promoting as an Education hub, and many foreign students are coming here to study and rent flats/property. Inaddition, if you talk to construction firm, there are too many projects for them to handle for the next few years and they could afford to reject contracts with low margins!

  25. Andy,

    Buying property is long term commitment and it is
    worth to buy landed property in singapore
    as it will definitely appreciate over time.

    The price at sail is still going strong despite
    all negative news on potential USA recession.

    It might not be long before gov changes regulation
    allowing foreigners owning landed property in Singapore.
    It will be difficult to relax on freehold but
    it should not have any issue to release 99 yr leasehold to foreigner since gov already granted
    foreigner to own freehold at Sentosa area.

    99 yr landed property will benefit is regulation changes. It is just a matter of time.

    Can consider to buy now if you are thinking of
    long term investment.

  26. Andy,

    There will be tremendous gains if there is change
    of regulation for 99 year leasehold landed property. The foreigners are used to staying at houses in their hometown and not Condos.

    The bank previously only lend money for property
    with lease less not less than 60 yrs lease balance. It has changed their regulation and lends money to those with min 35 yrs lease balance
    last year (if not in since 2006). Hence, the potential for this type of property is good.

    In fact, the price differential between 99 year
    old leasehold against freehold is too big a gap now. Thumb of rule for the price difference is between 20-25%. If 99 year leasehold gap is bigger than the indicated percentage, then it is good bargain. It is of two different market segments for 99 years leashold
    property as well as for freehold property.

    It pays less (factoring in mortage loan interest) and less affordable for 99 year than freehold.

    In fact, there are quite good landed property with 99 years leasehold selling cheaper than freehold condos. Good to have 3 storeys terrace with gardens to run about as compared to single apartment Condo.

    The bank interest is of all time low now and
    it is great time to lock in now. The interest savings easily offset any price reduction if it happens.

    Cheers!

  27. Hi, I need some advice here. I just bought a property the vutton for psf 1242. I’m due to exercise the option tmr but i’m wary about how the mkt is going to look going forward. I think if it goes down 20%, I will lose 100k. But if I pull out my option now, I lose 22k…It’s very tough decision and any advice would be appreciated.

  28. Engineer or Finance on

    tO sc. My advise to you is to sell it now.I am expecting the property will be bad in singapore especially 2009. Well you have to remember this rule. You can make 22k, you must also be able to lose 22k. Sell now : )

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  32. The stock market have influence in everything including property prices as well. This is a good indication but there are a lot more factors pending to the property prices.

    Property investment could be rewarding if you have the money to hold.

  33. With the influx of 60-100K PA of FTs & new citizens (not including the new rich investors from China and India) the property mkt will definitely rise further.

    Unless the gov maintains the population at current level 5+mil (where about 1/3 (1.6 mil) are foreigners) http://www.singstat.gov.sg/, the correction property mkt correction is not going to happen anytime soon.

  34. Hi Buy,

    I bought a landed Property in mid 2008 and lucky enough, it has appreciated over the years. Had also invested in Commercial Shophouse in early 2010 , and I believe it will continue to give some good rental yield in terms of Capital outlay as well as capital appreciation over the years.

    As I predicted, HDB flat will hold price high as demand is high, condo price will hold or rise moderately , landed pty will also continue to rise since China and India produce many Rich Bosses. Singapore is the place to invest because SGD is strong and our political stability is one of the best in Asia.

    And many richer Singaporean want bigger space and after staying at Condo, will want to upgrade and find their home at Landed Property.

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