Quote:
Originally Posted by Unregistered
We are in the super cycle of real estate boom, because
1) US interest rates will stay low until 2013, and possibly longer. MAS monetary regime means that SGD interest rates will stay low too, and infact, today, the SOR is negative. In short, liquidity will stay abundant
2) Rental yields are still at least 3% at current level and above the funding cost (around 1%). It is one of very few property market in the world that has +ve carry
3) The supply is still relative small to the pent demand built up over the past 5 years. All Singaporeans who bought a HDB prior to 2007 property boom is now sitting on a very large equity on their home, easily 200-300k. They are sitting at the side to pound the market.
4) Singaporean couples who missed out the property boat for past 5 years due to lack of new flats are enormous. Around 20k of couples get married yearly and current BTO flats are building at the speed of 20k per year, so the backlog of flats still will remain until at least 2015.
5) Given current market turnmoil, even US may technically default, the europe PIGGS may soon facing fiscal trouble, the only AAA asset is SGD, and the best way to park the money for foreigner is Singapore property (no capital gain, total freedom of exiting the money, no restrictions)
6) In past 5 years, around 120k of PR are granted every year. Even the numbers are cut by half i.e. around 60k, around 20k of rentals/purchase still needed assuming 1unit:3occupants ratio |
I note your point on liquidity, and agree that the low interest rate environment is probably going to be around for a time.
However excess liquidity only serves to muddy the waters in the short and at best medium term. Sustainable prices still need to be tied into local salaries.
If you are relying on external investor liquidity to prop up prices, then history has shown us that such capital is too flighty ie if the Sgd is expected to weaken against their home currency, they may decide to sell; if their home stock market crashes, and they get a margin call, they may sell; if the positive carry of buying and renting out you mentioned above reverses (eg if interest rates increase and/or rental decrease), they may sell etc.
If you are looking to invest, you are looking at two things : potential for positive carry and capital appreciation. Tough to imagine much capital appreciation when prices are at all time highs, over 100% above 2007 levels, with 53k private and ec units coming on stream next three years (where average private sales per year is about 7k in a normal year), and where prices are already out of whack by all fundamental measures. Positive carry? Well, in all likelihood, we will see this disappear as interest rates go up in time, and rental rates come down as the 53k units come TOP.
Wha does the smart money think? Well CDL, the largest developer in Singapore, warned investors during their results announcement yesterday that they expect a slowdown in the residential market going toward due to global uncertainty and to measures by the government to moderate housing prices.
What about banks? Well, Citi has said that they expect a large correction in 2013 due to supply overhang. BOAML issued a report predicting 10% fall in prices in 2012 and 15% in 2013.