How the market has performed so far and its effects on Singapore real estate

How the market has performed so far and its effects on Singapore real estate

Desperate measures for desperate times

In July 2007, I warned that “we are near a crisis of an epic proportion”.

At the time of writing this article, the debates a
re still raging in Parliament as to how the custodians can better refine the act of drawing on the country’s past reserves. The grim fact is that, for the first time in Singapore’s history, the ruling government of the world’s most compulsive ‘personal account’ savers has decided that the current recession, which is only at its onset, is bad enough to justify the ‘last resort’.

When a supermodel of corporate prudence thinks that the situation is bad, it must be darn bad. The fact that the Singapore government has to resort to such a desperate measure at the first instance, with such swiftness and boldness, speaks volume of the magnitude of the crisis that is about to hit town. It also means that whatever that is visible now is only the tip of the iceberg.

A bear who names himself ‘OX’

As it is, the year that just went past us was best to be forgotten, if you are a property seller – big or small immaterial.

New home units can’t sell – in fact, 2008 was the worst year in two decades for the primary home sale market. Neither did the secondary sale market perform any better when compared with recent years’ records. Even the usually reliable HDB resale flat segment is showing some weariness of late and demand for resale flats has receded since the final quarter (Q4) of 2008. However, on the whole, the HDB resale flat segment holds the largest promises for 2009, due to the increase in state subsidises for low- to middle-income households.

Asset deflation is on

Barely a month into 2009, property prices and rents have either already fallen or begun their downward slide across the board, with high-end luxury home segment taking the reluctant leadership. In fact, it was the luxury home segment that led the market bull-run in 2007, breaking records month after month with impunities.

The ‘late blooming’ industrial segment was the last to fall prey to the recession. It still rose at impressive rate in the first half of 2008 but stepped on the banana skin in the final quarter (Q4) of last year. In the final analysis, no one is spared in the worst economic downward spiral ever to hit Singapore.

Though the recession is still far from being full-blown, we have seen traces of the panic experienced during the 2003 SARS epidemic – restaurants were empty, taxi queues lined the streets, and people conserved their cash. Nowadays, people become more religious, or at least, prayed more times a day. But back in 2003, the economy in the richer nations was booming and their thirst for Asian imports was insatiable. In fact, the US and the European Union (EU) were the ‘white knights’ who sucked in most of the Asian exports and in the process pulling every Asian economy out of the recession quickly.

But, not this time. The erstwhile ‘white knights’ are turning pale through massive haemorrhage in their respective domestic economy. Major corporations in the richer nations are critically ill and are in dire need of massive injection of liquidity from their respective governments, which have also lost the plot themselves.

The awakening or the awaiting Dragon?

The much touted theory that China and India would pull the rest of the developing countries in Asia out of the recession seems to have lost its currency. The emerging economic powerhouses are faltering without the high demand from the US and EU. The talk about Asia being ‘de-coupled’ from the US economy is fundamentally flawed as most Asian exporters are neither far-sighted, nor motivated enough to sell to their own domestic market.

Asia looks set to go down as a consequence of the global financial vicious cycle. With the US fast becoming a ‘cashless’ society and the nation of big spenders staring at a lifetime of debts, no Asian exporters can expect to export their way out of this recession, until and unless the richer nations can put their acts together sooner rather than later.

In short, we all are in deep trouble, at least for the whole of 2009. There seems no way to escape a deep and painful recession with no Uncle Sam, The Last Samurai, or the Awakening Dragon to rescue us. Every nation on this Planet Earth will be suffering in equal misery.

Consequent change in buying behaviours

In a crisis of such magnitude, people’s value, needs, and priorities will change as their immediate financial future becomes hazy. People are now more concerned about their basic livelihood – forget about pay rise, forget about promotion – just try to keep the job.

People are more frugal, prudent and restrained – no more cooking courses in exotic locations. Many more will switch to cheaper substitutes in everything they consume, even the daily essentials such as the newspapers.

Maybe they will also cancel their daily newspaper subscription and switch to online news. The monthly subscription of one set of newspaper in Singapore e.g. The Straits Times, Business Times, or Zao Bao, is between S$23.00 and S$25.00; and a typical household may subscribe to two sets (plus news magazines such as Times or The Economist) and that would cost up to more than S$50.00 a month.

In bad times such as now, I am sure many of them will cancel the subscriptions and switch to free internet news and online newspapers.

Likewise, when it comes to buying of a home for themselves, the search process may be permanently changed – now that the Internet offers so much more quality leads on property listings 24/7 absolutely free of charge.

Such behavioural change in prospective home buyers may turn out to be the most critical difference being made to a real estate agent’s marketing plan and costs.

Fewer risk-takers and speculators

Most importantly, people are less likely to take any kind of investment risks in this precarious economic climate. They don’t even trust the banks anymore.

This more or less explains why even the mass market new condos are not moving, despite the goodies being dangled by the developers to entice them to come to the show flats.

Speculators who are stuck with new home units which they bought under the Deferred Payment Scheme (DPS) are now at their wit’s end as the completion dates of many new condominiums draw closer. Some of those who have tried in vain to offload their units may entertain the thought of walking away from the sale contract. But, the developers have already sounded the ‘war cries’ – “if you walk away, we will sue”.

A time-bomb is ticking in this segment. Things may get ugly in the ‘knock-out’ round.

On the other hand, potential condo buyers ‘outside the ring’ are not prepared to join the fray at the current price point and uncertain environment. Many of them understand the tremendous opportunities awaiting them. The equation is becoming clearer each day, the more the ‘fire sales’, the cheaper will be the sale price.

The waiting game is on.

Acclimatise to the new realities

As it is, January 2009 was a month of more glooms with more wage earners receiving the pink slips – certainly not red packets for Chinese New Year. Ironically, those who still have to slog are fearful of having free time at the office.

Are the very people who fear losing their jobs really in danger of losing them? Well, the numbers from the government do not add up very well.

Given such an economic backdrop, would prospective home buyers react to the conventional advertisements that worked so well for you during the 2007 Bull Run? Would they still make hasty decisions at the slight prodding of the real estate agents like they did during the Bull Run? Are there still chances of agents getting their director to buy a listing and then flip it two days later for $250,000 in profit? Is it a question over price or are people delaying, or worse, shelving their home ownership plans altogether?

I have the following answers to the questions:

NO – more people will switch to free online property portal.

NO – buyers will no longer make hasty decisions as they are more careful with their spending nowadays.

NO – the bear market is here to stay; and you will need to take longer time to market a listing and put in more efforts to persuade buyers to buy it.

Lastly, on the question of price, I believe the market is still trying to find the right balance and the price equilibrium. A house is still everybody’s ultimate priority – crisis or no crisis. People are just disoriented right now and their irrational behaviours are symptoms of the fears for the unknown they feel inside.

Our customers need time to adjust their own value system so as to be able to make sense of what is going on around them as well as at the property market; and they need time to acclimatise to the new realities that things will never be the same again.

The lost herd will return. They will find their way eventually.

Prepared by Sam Gian – Independent Real Estate Sales Trainer