Wednesday, September 3, 2014

What I think of the property sector till end of year

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!

Andy Ong