The property cooling measure continues to take effect on private properties. It was reported that:
- 4.2% of secondary market transactions in 2014 suffered losses. In 2013 it was just 1.96%. In 2012, it was 1.5%. In 2011 it was 1.8%.
- The biggest losses were mainly in districts 4, 9 and 10.
- There was an apartment at Idyllic Residences which was sold at $565 psf in August 2014. The purchase price was $904 psf representing a whopping 38% lost!
My comments:
Obviously this is a buyer’s market. I have a number of clients who have huge amount of cash just waiting to jump back to the property market. They must be so happy. Yet, those who had overcommitted to properties have everything to worry about - declining property prices and increasing interest rates.
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Many people already can see the coming property downturn back in 2011/2012. It’s whether can control your emotions or not.
The bottom of this property cycle probably in 2017. To see a overall property crash, you need to have at least 5%-6% overall unemployment rate. This was achieved during last major property crash in 2003. Average property prices dropped 40%-50% from the peak in 1996. Some condos had to be force sold off at only 30% of original buying price.
In order to have 6% unemployment rate, you need a major recession that lasts 1 year or more. This will result in major job losses and restructuring of industries, MNCs all across S’pore.
Oversupply will be just icing on top of the property downturn cake. The main ingredient is high unemployment rate, as people are unable to pay mortgage and banks/HDB confiscate, force sell at mortgagee auctions etc.
Buyers will also be rare, as everybody see the prices keep on dropping, their own investments in stocks & other properties also collapsed, scared for their own job security, salary/bonus cut, their own companies undergoing restructuring & downsizing. Even those multi-millionaire or billionaire who can afford to buy will be sucked into the deflationary spiral, as they keep waiting for prices to fall even more.
All these were the scenario back in 2000-2003. High chance of it happening again in the next 2-3 years.
As long as unemployment rate is lower than 4%, there won’t be drastic property crash, at most 20% drop overall.
Oh BTW, the magic 5%-6% is also useful for S’pore stocks. When the dividend yield of STI hits 5%-6%, you can go all in & buy up S’pore stocks. This dividend yield level was reached at the bottom in 2003 and also in March 2009.
Those who are sold at a loss are mainly specular and not owners. I don’t think the price has drop less than 10%. Unless you are buying yo stay I doubt it is wise to invest in property because yield is less 4% for residential property.
It is possible that government will relax it’s rules for property investment because election is next year