A Friend’s Take on Singapore Property Cooling Measures

I thought this is too true and unforgivable if I don’t share this. This is an opinion by a good friend who prefers to be anonymous. And like how he ends it, you do your numbers.

Good Morning,

If you have the time, here’s something to think about over the weekend. This was first written in 2010. I have updated some details and numbers. Nevertheless, the principles are still relevant. Here’s my take on the these measures.

These new measure are targeted at the Speculators & Speculative Investors (“Specuinvestor”) i.e. those who are in the game for the short term, generally not very financially savvy and most of all, not very cash-rich but wants to make a quick buck. What happens is that they tend to over-leverage and have a “punting’ mentality. It will not really affect those with deeper pockets. Another 10% to 20% cash downpayment……… so what? These people will be thinking “Hey, it is just like paying down my loan resulting in lower monthly payments, lower interest payments and higher principle payments ………….…….. no skin off my nose”.

A quote from then Knight Frank’s Residential Head Peter Ow “Genuine first-time home buyers should not be affected. ‘Deep-pocketed investors with a longer-time investment horizon will also not be affected”

Some buyers may not be speculators but tend to really stretch themselves to invest in a second or subsequent property. If the property market were to tumble or interest rates shoot up, they could be in deep shit. Basically, it is the weaker investors that will be most affected. It would likely also affect those HDB upgraders and downgraders alike as it would now take a substantially more cash up-front to invest . To illustrate this – For a 2nd residential property investment, a S$1M property purchase before these new measures, the cash outlay was approx. S$250K, give and take some. It is now approx. S$450K or more.

You know what, after what happened since the curbs were imposed, unless buyers/investors are well heeled and have cash to spare, I think people will have to do a long re-think. This in turn will separate the grain from the chaff.

As with previous measures, give it some time, a few months or so, things will blow over and I think it will return to normal again. The DOW and the DAX have hit record highs in recent days. Our government’s position has always been to control the “slow rise” of property prices, in relation to the inflation, not leading to a “bubble’ or the other extreme, the collapse of the construction sector. Save for the TDSR, I think the government may even tweak or altogether remove the ABSD and/or SSD in time to come, depending on the economy and the market. Artificially holding down prices too long can also lead to huge price increases in an environment if even modest economic growth because prices tend to ramp up faster on pent up demand.

Recently, the FED has “reduced” QE3 to USD75 billion per month. This is still a very significant number. The ECB and the Japanese are also printing money like there is no tomorrow. Is there inflation you may ask. You bet there will be and it is only going to get worse (see attached).

Another very logical quote from Peter Ow, “One may also ask to what extent Singapore’s property prices can really be subdued given high liquidity and a lack of alternative investment options to appeal to the average investor. And then there’s the government’s stated objective of increasing Singapore’s population vis-a-vis our limited land resources”.

Think about it. ……… another 1 million people to be added to the population in the next 9 years. We are only talking about 6.3 million, never mind 6.9 million. Do we have 30,000 new homes every year? By the way, according to our government, an average family size in Singapore is calculated based on 3.3 person per family.

Basic economics – Literally all products and/or services rely on Supply & Demand. You do your numbers.

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