Property

Government came out with numbers of cooling measure, one after the other.  Yet people are still thinking of buying property.  Whatever cooling measure government implemented, property prices still keep going up.  Investor gurus keep warning that the property price in Shanghai, Beijing, Singapore……are too high, but yet till today the price has not come down.  So these people do not want to miss the boat. 

Bank interest is so low that people think of ways to grow their money, to fight inflation/depreciation.  Property is one of the investment products that people are looking at.  Those people staying in HDB and can afford, they will purchase a condo, stay there and rent out their HDB unit.  Well, it makes sense.  Some, upgrade to condo.  But the question is here.  How much are you paying, in terms of the unit price and monthly installment? 

Last year, I saw one condo which is located in a non-mature estate with 99 years lease, calling for $2.2 ~ $2.5 million.  The area is about the size of a HDB 5-room unit.  To be frank, I won’t consider buying that, a 99 years lease with a price of $2.2 million.  Crazy.

A friend of mine bought a condo at a price of $1.2 million.  Few years later, he sold it at a price of $1.4 million.  Wow, a profit of 0.2 million, not bad right?  What do you think after deducting those bank interest rate, taxes……….how much profit has he made?

Since I started my blog mentioned about 3-rooms flat, I shall take that as an example.  Residential property has done up over the past 8 years.  Let’s rewind back what was the price of a 3-rooms unit before the crisis in 1997.  Average price for one 3-room unit reached a high of $265 thousands.  Then we saw the Asia crisis - stock came down, oil came down………and of course, property.  Y2003, 3-rooms flats dropped to an average low of $165 thousand.  A drop or some people called it as a correction of more than 30%.

Nowadays, bank interest is pretty low.  Some are paying their loan interest rate at 1.2%, 1.3%......Our general saving interest rate is at 0.05%  Do you think bank interest will stay at this low level for life?  Have we considered what will happen when the interest rate increases?  Some people said yes both Europe and the US are having problems but then look at the stock market like the DOW, S&P………..breaking record high and property prices keep going up, in regardless of what cooling measure the government implement. 

All this streams down to QE and low interest rate.  Past 2 years inflation was about 5%, bank saving interest, 0.05%, so people find places to park and grow their money.  QE1, QE 2 and now QE3.  Property was one of the areas that the money flowed to.  We are going to see the tapering soon.  When time comes by, we are going to see an increase of interest rate.  Some countries have started to increase their interest rate.  The recent one, Indonesia.  In Singapore, if you guys check around, some banks have increases their interest rate too.  They also came out with a few numbers of new products with a better interest rate return of around 1%.  You can see that everyone is preparing for that.  So, property buyers, have you all prepared for that?  Have you guys prepare when loan interest rate goes up to say 2.5%, how much more money you need top up on top of what you are paying right now.  Worst comes to worst, the property prices drop lets by say, 20% and bank ask you to offset the difference. 

Some people said that Singapore has limited land space, no matter what, the price will still go up and it will be higher than what they are purchasing right now.  Agreed but again, if I can buy it at a lower price like say 20% lower, why not?  Thirdly I ask myself how much more can the property price go and how much can the property price drop when crisis hit.  What is the ratio between the 2?  Then I look at the whole economic market.  The cycle of property, stock……….to conclude is it the right time to purchase now.   Why government keeps implementing cooling measure one after the other.  Think about it. 

Watch out when loan interest rate hit 3%.  And watch closely on some cities residential property movement like the Shanghai, Beijing, Hong Kong…….