Wednesday, August 6, 2008

Property Investment in Singapore. (2)

In my previous posting, I shared why Singaporeans like properties so much, especially those who feel they can afford it. I'm not here to argue that properties are not good investments. What I want to point out is my observation that Singaporeans get property out of "Gut Feeling" that property prices will go up and "Fear" that they will lose out the opportunity.

They are overestimating the returns and underestimating the risk. They feel that rental income is almost guaranteed in Singapore when foreign talents are everywhere. They feel that prices will never go down because land is scarce is Singapore. They feel that rental income is sufficient to pay off their mortgage loans and yet getting a profit after some years. Sounds like a perfect investment and nothing should go wrong.

I just like to point out some of the risk in Singapore Properties.

1) Property Prices correlation to government policies
* Singapore is small and any government decision can affect prices very quickly. Some of the policies that push prices steeply over the years are the decision to build the Integrated Resort and usage of foreign talents to beef up the Singapore population . If they decided to impose certain taxes, foreign talents don't come in as fast or if IR don't do well as expected; those who had already gain may sell and as more developers completed their projects, there will be excess supply.

2) Property Prices correlation to the Singapore Economy
* This applies to every country but Singapore are probably more vulnerable because a lot of our properties are purchased and rented by foreigners. Around 23% of the Singapore population are foreigners. I'm not sure what will be the effect if 20% of these foreigners decided to leave Singapore. There are just 500+k foreigners in 1995 during the last property boom. Today, it stand at over 1 million.

3) Over optimism of Singaporeans.
Singaporeans have not really go through a recession and our government is still painting a very very nice picture of the future. This generation is untested towards a prolonged economic downturn. Salaries of those middle and high income group went up considerably and they believe things will continue to be as it is. Some of them over-geared in their borrowings and stretched their budget to the limits. To them its sure win investment because property prices can only go up.

4) The prices could already be at the high end.
The news of Park Central@AMK prompted to me to write this. I somehow feel that $650k for a 5 room flat is a bit on the high end. Well, its obvious that most people don't think like me judging that the flats there is already 4 times oversubscribed.

Disclaimer: I'm not trying to say that property is not a good investment. I only like to share the risk involved in getting a property. Work out your sums and priorities with your Financial Planner before going into this big investment. Take it as a long term investment and not betting that it will give you a quick profit because wrong timing can means you must have the financial resources to sustain it.


Anonymous said...

how about risk in investing in shares, equities, ILPS???

investing in financial instruments, land comes with risk......

investing is a good way to build wealth, only it is plan properly and with realistic expectations....


Anonymous said...

A property can be a lisbility or an asset. It is a liability when what you put in is more than what you get from it. It is an asset when you get more from it every month against what you put into it.


Falcon said...

What Adrian has said in this posting makes a lot of sense. The thing that is sustaining this present high value in prices are the foreigners coming in to make a killing. Our govt is very successful in giving a very positive advertisement to them. Just like the "Stop at Two" campaign many years back that is causing the steep fall in replacement levels of our locals.
The thing to note is that these foreigners who quit their countries to settle here will be even quicker to quit this country and settle elsewhere, since it is always a bigger decision to lose the citizenship of your original country than your second. As the saying goes, after the first time, it comes easy. So once the hype of the IR goes flat, and it will, because even real hardcore casinos all over the world, in Las Vegas, in Macau etc are already sliding downwards with bankruptcies reported in Las Vegas and difficulties in Macau.
China, after the distractions of the Olympics, will also want to jump onto the bandwagon to tap on its growing millionaires and HK being its own, will probably benefit from these.
Having said these, Singaporeans should not be too worried that they cannot own a house because when the balloon is finally busted, HDB will resume building 15,000 dollars flats, simply because the voters of the day require it. The govt in power then will have to ensure this.