Monday, April 18, 2011

Property Trends Cyclical, To Buy or Not to Buy?

Hi guys, I’m back from Europe and it has been an interesting trip. I was up in London before taking a break in Italy. London was dreadful if you ask me but I really enjoyed the Italian food and shopping. We drove most of the way and the weather was absolutely beautiful.

I looked at London properties and I was rather surprised that prices are holding up very well despite the dreadful economy. I was waiting for prices to fall a little before buying last year but it seems that Asian buyers are grabbing all they can. The situation is similar in Singapore.

People have long forgotten about the very recent financial crisis. Property cooling measures have been largely ignored given still strong take up rate in March. I was driving past Spottiswoode Park and the condos there are asking for $1800 to 2000 psf.

How do you make sense of things? Well it all boils down to the below :

Property developers have holding power – Developers have enjoyed record profits and their land bank is dwindling. Given their strong balance sheets and financing capabilities, they will be very hesitant to let go of anything cheap because they don’t have to. Simon Cheong in an recent interview actually said that he is more worried about the lack of quality sites thus he is in no hurry to sell his units. His situation reflects the situation developers are in.

Interest rates – As long as real interest rates remain in negative territory, real estate investments remain very attractive as holding costs are cheap. There is plenty of liquidity out there looking for a home right now. This maybe the crux, as long as interest rates remain where it is, prices will hold.

Anxiety in market place – People are envious of the money being made by their friends and they also want a piece of the action! The Straits Times recently had an article where Chinese men without a home are finding it hard to get hitched. We live in a cruel realistic world where financial security matters. So for those with no exposure to real estate, they feel insecure.
Where does that leave everyone? To buy or not to buy? Its important to stick to the basics. Do not just depend on possible capital appreciation. Look at yields as well?

God Bless!

Your Friend,
Andy Ong