Thinking Aloud

Property market to rise or fall 30%? Sure, I've heard that one before

I might have taken forecasts at face value before; now I take them with a large pinch of salt


As a home owner who is of age to sell my home and downgrade, I should be delighted by recent news that points to an uptick in the property market. The value of my home should rise - nay, double - according to a Morgan Stanley report, by 2030 when I am about due to retire.

I should start counting my retirement chickens today.

But I've been a journalist and casual observer of the property market long enough to maintain a dose of scepticism whenever headline-grabbing forecasts - bullish or bearish - appear.

Is the property market here bottoming out? Will it rise 2 per cent this year and 8 per cent next year to double by 2030, as Morgan Stanley predicts?

Even Morgan Stanley's research peers disagree.

According to a Business Times (BT) report, DBS expects prices to fall 2 per cent this year, before rising 3 per cent next year and another 3 per cent in 2019. OCBC Investment Research expects 2017 prices to be between 0 to minus 5 per cent and to bottom out next year. "Most property consultants are also predicting a price decline of 0-2 per cent this year," said the report.

Where once I might have taken forecasts at face value, these days I take them with a large pinch of salt.


Analysts' forecasts have a way of being wrong. To be sure, analysts can't predict policy changes, such as cooling measures or tightening of immigration, that will play havoc with their projections. Nor can anyone predict external market or political events that have a major impact on property prices.

Most of all, property prices are driven by sentiment and the instincts of the herd, and so are subject to emotional factors. They are also highly reactive, creating self-fulfilling prophecies as buyers buy on bullish forecasts, setting prices higher, which in turn leads to more positive forecasts. Dour predictions can similarly chill a market.

The mix of event risk and sentiment makes property price predictions notoriously inaccurate.

In December 2011, Morgan Stanley issued a report predicting that prices of residential property would fall 20 per cent by end 2012.

At that time, Standard Chartered made an even more dire forecast that prices would fall 30 per cent in 12 months. This was just after the Government announced what one research house termed "bazooka" measures to cool the market, including an additional 10 per cent stamp duty on foreign purchasers of private residential property.

Goldman Sachs predicted home prices would slide 15 per cent over the next 18 months; CIMB Research said a 15 per cent to 20 per cent fall in a year was conceivable.

With major analyst houses predicting falls, and with a new slew of cooling measures, you would think the market would crash in 2012.

Instead, not only did prices not fall by 15 or 30 per cent at the end of 2013: They went up.

The URA private property residential price index rose from 147.4 in 2011 to 151.5 in 2012, and further to 153.2 in 2013. It was a modest rise to be sure. But it was nowhere close to the prediction of a sharp fall made before 2013 began.

It isn't just the doom and gloom forecasts for 2012 that were off track.

The year 2007 was a bullish one for property in Singapore. By the end of 2007, many analysts said the bull run would continue, albeit at lower rates of growth.

A BT report on Dec 5, 2007, quoted developers and analysts predicting that 2008 would be a year for mass market homes, seeing 10-20 per cent hikes and high-end home growth to be in the range of 0-10 per cent .

Did that happen? Well, the URA private home price index in 2007 was 122.1. In 2008, a year later, it fell to 116.4. Far from rising as predicted in 2008, prices had fallen across the board by 4.7 per cent.

The analysts got one bit right - mass market homes were more resilient, with prices for homes outside the central region seeing a smaller slide than homes in the higher-end core central region.

This little tour of past attention- grabbing forecasts is just a way of reminding readers (and myself) not to get overly elated or deflated by such predictions. We should take them into account for our major life decisions such as buying or selling a property. But we shouldn't let ourselves be over-led by them.

So what might a more level-headed look at the property market entail? I would say, let's not forget fundamentals.

The property market here has undergone structural changes in the last decade. Slower immigration and tightening of loans (to keep repayments to 60 per cent or less of borrowers' incomes) are more or less permanent fixtures. Both will cool demand.

Stamp duties on foreign buyers and on speculators who sell their homes within a few years will also cool property ardour. The Government is committed to ensuring prices don't get too far out of whack of income growth, and will tweak the exact numbers of stamp duty quantums periodically to guide the market along.

The above factors should all be translated into a cooling market - which is indeed what Singapore has seen, with prices on a gentle decline since the peak of 2013, falling about 10 per cent from that peak. (But to put things in perspective, that peak was a whopping 60 per cent higher than prices in 2009. The URA index for Q2 2009 was 95.3; by Q3 2013, it was 154.6. The index then fell for 15 straight quarters to 136.6 in Q2 2017.)

Property prices appear to be stabilising as changing demographics and cooling measures kick in. The days of punting on property for capital gains of 30 to 50 per cent a year are probably over.

Young millennials should not buy into their parents' beliefs that living in one home and owning a second property to rent out is the ultimate dream source of retirement income.

For earlier generations, that investment strategy might have made sense as the economy boomed, the population exploded, and property prices soared. Many wealthy cash-rich individuals or corporations are also in search of yield, looking to snap up prices of properties in countries like Singapore - open to foreigners, with low political risk, steady rentals and zero capital gains tax.

Older generations had a few property cycles to profit from.

Millennials today, however, will be buying into a market that is already highly priced. They can't expect prices to keep going up in high single digits or double digits each year if our population growth slows down.

Forecasts of prices doubling in 13 years may sound reassuring, but are very rosy. Who knows what the property market will be like in three years, let alone 13?

Prudent property hunters should not take such forecasts too seriously. Expectations of steady home price gains do not take sufficient account of possible major shocks - such as a war in Asia, a calamitous financial meltdown like in 1998 or 2008, a terror attack that shakes confidence or political change in Singapore or its vicinity.

To be sure, home hunters waiting on the wings, who know all these, won't really care because they want to buy a home to live in, not to invest in. Then the question is whether this is the right time to buy or wait and risk prices rising fast.

They look at high land bid prices and some sold-out new projects and start to worry if prices are on the brink of running away again.

It is true that the the current property market is extremely confusing.

As a CNBC article in June put it: "Home prices are still falling, rents are tumbling, there's a substantial pipeline of new units in the works and vacancies are near a record high.

"At the same time, developers are ponying up record prices in hotly contested land sales and this year, en bloc deals - where a developer buys an existing building with plans to demolish and redevelop - have already exceeded 2016's level."

There's a clear disconnect between what buyers and renters are doing (being cautious) and what developers are doing (being bullish).

What's happening?

The short answer is that foreign developers are driving up land bid prices here with their aggressive bids. My colleague Lee Xin En, in her article, "The foreign factor in higher land prices", cited research from real estate firms showing that in many recent tenders, it's the foreign developers - such as those from China, Hong Kong and Malaysia - who are submitting winning bids.

How bullish are they? Well, some of the winning bids' premiums are 20 to 40 per cent over the median bids. Foreign developers eager to get a foothold into the local market are willing to pay more to land bank. They may even be willing to suffer lower profit margins to price units competitively to sell them out fast at launch.

But buyers should not let a few high-profile land bids or sales launches fool them into thinking the market is poised for another bull run, if it is merely bottoming out. Nor should they be unduly rattled by high-profile forecasts that grab headlines.

In timing your property purchase, as in most major decisions in life, keeping a cool head and ignoring attention- grabbing headlines can be helpful.

A version of this article appeared in the print edition of The Sunday Times on September 17, 2017, with the headline 'Property market to rise or fall 30%? Sure, I've heard that one before'. Subscribe