Monday, February 23, 2015
Happy Lunar New Year! May the Lord my God bless you in this coming year.
Hi Guys, it has been a long while since I last posted. I have been so busy traveling for my new project! In fact, I have been doing at least a trip per week. My mileage has been through the roof. I apologize for the lack of updates but I feel that if I have nothing to opine then I should not say anything. Of course, I am writing this as I want to share with you what I think of the markets.
First a quick recap. As I had shared with you over the last couple of years, the Singapore's property market is more than adequately supplied and demand has waned due to restrictions of immigration policy. The government stepped in with several rounds of cooling measures and the latest measures really capped prices as lending has been effectively curbed. All these factors have caused both prices and rental rates to drop. Prices in most districts have fallen by 20 plus per cent as I had predicted 2 years ago. The only reason why prices have not fallen more is because liquidity is still flush and holding costs are still low given the low interest rate environment. However, do not hold your breath for a recovery. In fact, we just might be headed for the perfect storm.
I have put off my earlier opinion of significant interest rate increases from the second half of this year to next year. This is because I did not see oil prices plunging by this extent in so short a period of time. Many do not seem to appreciate the impact of plunging oil prices. For the last few years, the Middle Eastern countries have had money gushing from the ground as Brent crude prices went from US$ 20 to as high as US$120. This transfer of wealth effectively eroded the oil importing nations GDP growth by at least a few percentage points. With oil at this level, inflation will be effectively curbed, taking the pressure from an already dovish Federal Reserve to raise rates. However, we are just kicking the can down the road as rates will have to go up to pay for the excesses of the last few years.
On the local front, the government will be announcing a super sweet budget as they are keen to placate the population in time for the next general elections. They are also banking on the SG 50 celebrations to create the feel good factor to ensure they stay in power. However, we also have a very pragmatic government who will reign in such goodies in following years ie from 2016 onwards. Many of you may not be aware but according to the Ministry of National Development, there are close to 200000 units of housing both public and private being completed from now till 2018. Thats 200,000 units of new housing for a total population of over 5 million. There will be massive indigestion, and if you do not want to be the last in the musical chairs.
What's my analysis? The perfect storm will be occurring in 2016, somewhere in the 3rd quarter and what we are seeing now is just the pre cursor. What you do now will set yourself up for heaven or hell in your latter years. Which segment will be hit you might ask? All is my answer. Many analysts thinks that landed and the higher end condos can weather the storm but I beg to differ. In the boom years, everyone who have done well and bought big homes are in the oil and gas, banking or real estate sectors. Well, for those who bought cheap or hung on from their ancestors estates and thus there is no leverage, there is no cause for worry. However, I am seeing more mortgagee auction sales of landed properties as those in these sectors reconsider their financial positions. The oil and gas sector issued hundreds of millions of unrated bonds to private banking high net worth clients. All of such individuals will be a little shaken after the Kaisa incident.
However, for the rest of the world, please focus on yields. I am glad I practice what I preach and divested my residential portfolio. Right now, I am focused on my commercial portfolio and holding on to real yield assets that can withstand at least a 200 basis points increase in interest rates.You might want to consider the same. Sorry to be a harbinger of good news or bad news, depending on how you take it. I feel that this is the shape of things to come.
at 3:18 PM
Wednesday, September 3, 2014
Hi Guys, since I posted my last blog entry, I have been getting a lot of emails requesting for advice that relates to a personal basis. However, I need to reiterate that I stopped answering personal questions since end last year (which is my commitment to you). Apologies but I really need to focus on my core businesses. I am updating my blog as an exception due to the fact that I hope to share with you my personal feel, so I hope you can infer from my entries to make the right investment decision.
One of my colleagues just asked me if he should be renting or buying now. My answer is if you can crash with your parents now, you are a lucky person. I will not be buying or renting now, however if I have no choice, I will delay my rental decision. Why? Over the next year or so, we will be seeing massive supply of residential unit coming on into the market. They were purchased at market highs pre the cooling measures days. Those were the days of 'irrational exuberance', to borrow a term from the former Fed chairman, Alan Greenspan. I don't blame them as we are in an era of negative real interest rates, that means the bank is actually subsidising you to invest as the value of your dollar cannot keep up with inflation.
But guess what, the demand for rental has come down drastically as the government has tightened the eligibility of foreign talent into Singapore. We have witnessed lower rental rates on an absolute basis as well as on a yield basis. Imagine with the added supply to the current stock, and you can expect a lot of competition for rentals. Some investors have already given up as we see mortgagee sales going up but I feel this is the tip of the ice berg. The hardest hit sector is where foreign money have been going in. Sentosa is a case in point, we have seen condos and landed houses there dip by more than 20%. A big unit transacted there at $1100 plus psf! This is a far cry from the heydays.
The high end sector in Singapore mainland has not been that affected but we will be seeing some impact soon. Developers are lowering prices to move their stock, from very prime Orchard vicinity sites like the Hilltops to mass market units like the Sky Habitat. They have moved some units after cutting prices. Developers are hesitant to be launching new projects and have delayed such launches indefinitely. All the signs do not bode well for this sector.
I have sold all my residential sites save one, a small condo.
Well, this is what I shared with my colleague, no condo, no HDB. Chill for the time being and watch the forces of demand and supply play out. I still do not see a crash but even if you need a roof over your head, you should be able to get a more cost effective one in the next couple of years.
God Bless and take care!
at 3:21 PM
Thursday, August 21, 2014
Its has been 8 long months! I have decided not to write any more entries but I strongly feel I need to forewarn you again. In the second half of 2013, I turned decidedly bearish and for good reasons. I looked carefully at the demand and supply situation and further considered many many other factors. They include the very ample liquidity, world economy, and a host of other considerations.
My conclusion? A very decided sell on the residential front. For those who heeded my advice, very good for you. I predicted a 20% drop by the end of the year. And so far the market is on the way there, in fact, the premium segment has already breached the 20 percent mark. I am not being sarcastic here but the worse is yet to come. I am starting to see more and more mortgagee sales coming off the auction blocks and this is just the start.Interest rates have not moved up that significantly yet!
I still do not see a crash coming especially when next year will most probably be an election year. The government of course has the option of removing the cooling measures and stabilise the market. However, with the global economy a little shaky and the very ample liquidity gushing in a little less aggressively then before, I prefer to play it safe for the time being. I have sold off my whole residential portfolio save my residence, well you decide what you want to do.
I have been very busy on the business front. The hotel, education and real estate businesses are all doing very well. I applaud my team for their dedication and I am extremely blessed to have such a talented team on our side. Till the next entry, God Bless and take care.
at 6:44 PM