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Sunday, 22 February 2009

Property prices, how much lower can it get?

I read with interest an article published today on Sunday Times, 22nd February 2009, Keen to cash in on mortgage sales? Quoting from the article,

'... potential buyers are "coming in floods", asking to be on her company's list or calling about properties on offer. ... but it is very difficult for us to strike a deal because the buyers are putting in very low offers. They want to go only for a killing...'

looks like the current economic crisis have lured out these buyers, waiting to pounce on distressed fire sales. Though prices had came down recently from the peak, I do wonder whether these prices are reasonably cheap, even under a fire sale?

A picture tells a thousand words

A picture tells a thousand words, so 4 pictures should tell an even better story:

*2008's GDP growth and GDP are taken from advance estimates.

src: The data for Singapore GDP comes from; STI index from; HDB resale price index from; private property price index from

I compile 4 graphs into one above, trying my best to align them in the same time line I could. The graphs are, from top down, Singapore GDP and growth, STI index, HDB resale price index and private property price index.

Indicated on the graphs are 4 red lines, each indicating the 4 significant events affecting Singapore's economy, namely Asia Financial Crisis, Dot Com bubble burst, September 11th terrorist attack in the US and SARS crisis.

From the graphs, I found the following:
  1. Property prices (both private & HDB) are much higher now than during each of the 4 crisis.
  2. GDP growth is badly hit during each of the 4 crisis and Singapore entered into recession (-ve growth) during 2 of the them, Asia financial crisis and SARS.
  3. V-shaped GDP growth recovery seems to mark the bottom of the property prices, around beginning of 1999 and during the period from 1Q02 to 1Q05.
  4. No conclusion to be drawn for relationship between property prices peak and GDP growth.

Reasons to wait further

If it is true that the current economic crisis is worst since 1930s great depression and even worse than Asia Financial Crisis (this time the crisis affects not only Asia but US and Europe as well), then I don't really see how the prices at current level are justified in any way.

In simple reasoning, the fire started in US, then spread to Europe. They contributed most of the demand for goods and services produced or outsourced to emerging economies, particularly in Asia. With US and Europe in trouble, the vast factories in emerging economies producing goods for export became idle or redundant. The MNC branches in these economies either scale down their operations (restructuring leading to retrenchments) or simply closed down.

For Singapore, I believe (no data to support my opinion, just reasoning) most of the housing rental demands are driven my foreign talents, expatriates or just simple foreign workers including permanent residents. It does not make sense for them to buy properties if they meant to leave Singapore eventually. Thus it becomes lucrative to purchase properties, especially private condominiums and renting them out. During the last few years, the rentals had been shooting for the moon and I remember seeing on TV some expats complaining about the rents are getting more and more unreasonably high.

Similar to any other economies, when companies restructure, it is a natural consequence that many laid off are foreign labour. Their departure will meant downward pressure on rents. Property prices will follow suit when the severely reduced rents no longer make holding these assets at high mortage payments sustainable.


Graphically and logically, property prices have a long way to go before the price is deemed reasonable. Property is a game of patience and tolerance. The owners of crazy sky high buys will try to hold as long as they could while the fire sale type buyers would have the capacity to wait too, they are not desperate to get a roof over they heads, I presume.



Blogger 8percentpa said...

Good analysis, I agree prices may have to come down further and buyers need to exercise patience.

On the ground, prices for some developments are about 20-30% higher than 2003 lows. Some are only at 10% higher. Esp for the older developments.

I guess with some many new developments, the average prices simply got pulled up dramatically.

11 March 2009 at 09:42  
Blogger Market Uncle said...


Given the bleak economic outlook, I'm rather surprised so many new projects got released over the past few weekends (judging from the ads).

11 March 2009 at 21:19  
Blogger aliah said...

I read that "Residential real estate prices and rental rates have been falling off in Singapore of the last few months...Property developers in Singapore said that they are pessimistic about the outlook for the real estate market in 2012..

17 July 2012 at 12:25  

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