What Are The Key Trends That Drive The Property Market Today?
Updated: Oct 7, 2022
Source: 2021 Year-End Review Of The Singapore Property Market: Key Numbers And Trends, https://stackedhomes.com/editorial/2021-year-end-review-of-the-singapore-property-market/#gs.d5adyy
Based on the URA Price Index, we are presently experiencing a upward movement for non-landed residential housing; on the other hand, prices for landed properties have been observed to be increasing. This indicates a gradual shift in buyer profile and we believe that local buyers are fueling the growth. At this juncture, I must qualify that property trends are dynamic and change from time to time. Hence, what is applicable today may not be the case tomorrow.
Conceptually, property prices are the result of various market stimuli, example such as government policies, interest rates, liquidity, etc. If the expansionary forces such as ample liquidity, increase of property demand, low interest rates, positive market outlook, etc. are stronger than the contractionary forces (government intervention, increase of property supply, uncertain market outlook etc), prices will shoot up. The reverse will happen if the expansionary forces are weaker than the contractionary forces.
Going forward, I believe that there are two key trends that will define the Singapore property market. The first is the ample liquidity in the Singapore market. In 2008, the Monetary Authority of Singapore (MAS) reported that the amount of savings and other deposits in Singapore was in excess of $100 billion. Putting things into perspective, this was twice the amount that Singapore had after the Asian Financial Crisis. The following year (2009), this amount went up to about $120 billion.
Many of my friends uses savings and other deposits as a proxy for liquidity within the real estate market as they represent monies that can be used for property deposits. They are also used as an indication of interest rates as there is an inverse relationship between liquidity and interest rates - the more liquidity the economy has, the lower the interest rates will be. With the U.S. government printing more money and the limited investment opportunities in many Western countries, it does not come as a surprise that the asset price appreciation is funded by monies flowing into Asia.
The second key trend is the Singapore government's response to the property market. From the series of anti-speculation measures, there is little doubt that the government is closely monitoring property price movement and is ever ready to take steps to cool an over exuberant market.
So, is property a good investment idea in today's market? Before I answer this question, I think it is important for property investors to be clear about what they hope to achieve. Clearly, the days for quick and significant capital appreciation are already behind us. When I was helping my client to source for a good deals in recent years, there were quite a number around. Those who proceeded ad made their purchases then will be comfortably sitting on profits of a few hundred thousand dollars. Since then, the prices have appreciated significantly and the URA Private Property Price Index for exceeded the last peek set. Thus the strategies for capital appreciation are indeed really appropriate in the current environment.
Personally I would think that a prudent investor should be entering the market right now as value-for-money deals are limited and extremely hard to find. They should not wait for the next cycle to enter the market as the price will be extremely high even though there might be a slight downturn if there is. Always remember that the price of the next cycle is always higher than the previous cycle. Do not missed the bandwagon and do exercise prudence in making the right choice. Investors who purchased now always look at the 5 years plan down the road.
Is there a right and proper way to structure a property deal? I think a key misconception with deal structuring is that there is one right way to do it, but in reality there is no fixed way. In my course of work, I have structured deals for clients as well as for my own investments, and I found that t
The most "ideal" way to structure any deal is in a way such that everyone is satisfied with the outcome. It is about finding out a "win-win" solution for all parties involved. I understand that there are current seminars in the market that teach people how to invest in properties with an investor network as the main selling point. The value proposition behind such seminars is for people to come together to find suitable property investment partners. Intuitively, such an approach may appear workable. While I am sure some of these courses do impart useful knowledge, I have reservations on the network aspect - not because they do not work, but because they over-simplify a process that is actually quite risky.
For example, what if the other person whom you co-invest with wants to get out of the deal halfway? Or worse still, what if he become bankrupt and the property is seized to repay his debt. If that happens, you may not be able to get your capital back as there could be others such as banks, that have priority over the proceeds of the sale. Even if you are able to eventually get your money back, imagine the trouble and uncertainty you have to go through. "Joint ventures are like marriages - you should be careful who you get involved with." Hence, I would be more at ease with investing large sums of money with family and close friends instead of people whom I do not know well.
Brian Loh CN
MSc. Applied Finance, University of Adelaide, Australia