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Property Prices Must Plunge (graph included)

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  #1 (permalink)  
Old 21-03-2008, 09:45 PM
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Default Property Prices Must Plunge (graph included)

The STI stock market index has plunged about 20% from its peak, but the URA property index still seems to move up exponentially.

How can this be?

Let's study the STI graph superimposed over the URA property index graph. Both graphs are scaled such that their time axes coincide, and their Asian financial crisis bottoms & dotcom peaks are at the same levels. STI is indicated by the dark blue line, while the pink line with blue crosses is for the URA index for condominiums (the other lines are for detached, semi-detached, terrace and apartments):

You should be able to see from the 2 graphs that the property bottom in end 1998 lagged the stocks bottom by about a quarter (i.e. 3 months). Similarly, the property peak in mid 2000 also lagged the stocks peak by about 1 to 2 quarters.

Now, fast forward to end 2007. The stock market has clearly tanked, amidst high inflation and comparatively stagnant salaries. But property is apparently still moving up, up and up! This can't continue.

I hereby predict that property prices will plunge within the next 3 to 6 months. By at least 20%.

Want more evidence? In the last month (February), property developers were so spooked by the worsening economy that they launched only 343 units in the whole country, out of which only a miserable 170 got sold (excluding ECs). Oh yeah, maybe it's the Chinese New Year.

References: URA news release and STI data in Yahoo! Finance.

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  #2 (permalink)  
Old 21-03-2008, 11:34 PM
no buyers---
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Default 1133

Prices are still high because sellers are still asking for sky high prices, but buyers are unwilling to fall for the trap, with some buyers making offers that are laughed at by the proud sellers.
Hence the low number of transactions.
There may be fire sale deals when sub-sales speculators can't get bank loans at TOP, or people who pool money to speculate on property start to have disagreements, or they start losing jobs and can't afford to hold any longer.
Then I'll jump in.

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  #3 (permalink)  
Old 22-03-2008, 08:56 AM
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Default 1137

Many are still holding up with expectations that property prices will appreciate come the launch of the Integrated Resorts. The dipping economy should be an indication for the speculative sellers (HDB Dwellers and Pvt Owners) that things will not be as rosy as what they think. Prices are already way off fundamentals. Those that do not learn from market forces will only have to learn through getting their fingers burnt. I'll wait till then to buy. Stocking cash now is the best option (inflations the killer though).

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  #4 (permalink)  
Old 22-03-2008, 11:52 AM
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Default 1139

Just look at the classified ads today (Saturday) - so many sub sale sellers but still so wishful asking prices.
I just checked the URA list of caveats - since 2008, there have not been many transactions. Sub sales are like only a handful.
The speculators will get burnt!
Agents will waste hundreds of dollars on useless advertisements.
Maybe I'm gonna call some of them and make some offers - 30% off their asking price. Let them laugh at me and see who's laughing in the end.
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  #5 (permalink)  
Old 22-03-2008, 04:50 PM
larger graphics---
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Default 1141

Possible to post larger graphics? The current one is too small to make out the details such as dates. Great article. Thank you.
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  #6 (permalink)  
Old 22-03-2008, 05:46 PM
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Default 1142

Hi there, I've uploaded a larger image of the graphs here:
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  #7 (permalink)  
Old 22-03-2008, 11:53 PM
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Default 1143

I think you are overfitting the curves too closely from 99 to 03 and using the URA price index and STI at different scales (e.g., STI from 1000 to 4000, but URA PI only from 100 to 180). While we can see that both moves in the same direction, it is very hard to extrapolate on the two variables, percentage of decline and the timing of it.

If we say that STI is around 1000 in mid 98 and it went up to 3800ish (?) at its peak, it is an increase of 280% and assuming 180 is the peak for the URA Price Index, it is an increase of 80%. Therefore, using basic proportions, a 25%ish drop in shares price will now only mean less than 8% drop in property prices.
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  #8 (permalink)  
Old 23-03-2008, 01:29 AM
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Default 1144

Regardless of how its being scaling, the market should move in tandem. Should the STI continue to head southwards, speculators will need to cash out unless they are prepared to wait it out. Once rental yields and market value dips, then they are really stuck with a long term liability (good luck to those those that bought 99 year old 1000psf and above high end properties).
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  #9 (permalink)  
Old 24-03-2008, 03:03 PM
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Default 1153

If a chart like that can predict property up & down, then very easy to get rich & make money.
There is lot of different between 2000 & now.
Population already big difference, our target now is 6M & yearly 80000 of immigrants & PR, plus another 80k of foreign talents, do we have this in yr 2000?
We are undergoing transformation now, what is 2000?
Inflation is different too, loan rate, rental yield.....
Demand & supply is totally unbalanced in 2000, there is excess of 18k of HDB at that time. Some units still keep until now. This is a big lesson HDB must learn, never over-build, waste of taxpayer money, we will challenge them if they make same mistake again.
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  #10 (permalink)  
Old 24-03-2008, 06:30 PM
lose money---
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Default 1155

i'd say the chart tells us it's very easy to lose money!
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