Wednesday, 23 January 2013

Don't have a naked position in the property market!

After Round 7 was introduced, i received even better offers from the agent of D'Leedon. The developer is offering up to 10% and 15% "Chinese New Year" discount on the units. No more funny "tiered" discounts which i first mentioned in my blog post on 3 Jan 2013.

A 3 bedroom unit on #22-17 (1227 square foot) is now going for $1,786,190. The developer has definitely become very 'sincere' overnight in cutting prices to move units.

I had a blog post in September where i mentioned not to sell your flat if you can and that a close relative of mine has sold his flat in anticipation of a drop in price. Well, as an update, this relative of mine couldn't take it any more as he see the prices moving away and finally bought a studio unit (635 square foot) for $1.288m at D'Leedon on 29 December 2012 only to see developer cutting prices two weeks later when Round 7 was enforced. 

I think the simple takeaway is this: Don't have a naked position in the property market.

There is a Chinese saying "衣食住行", meaning that a roof over your head (a place to stay) besides clothing and food is a basic necessity. I guess once you loses your roof, you probably will lose your head as well and start thinking and behaving irrationally. 

I had a reunion dinner with my ex-colleagues two Fridays ago where one of them thanked me for advising her not to sell her executive condo in 2010. She had wanted to cash out because she thought the prices was high and wanted to rent a place near a good primary school for her eldest son. She is also expecting a price correction. I remembered telling her back then, "don't do it because you only have one property and you can never catch the top and the bottom". With the benefit of hindsight, if she has sold in 2010, she will probably be paying rental for 2 years and suffer the heartache of seeing the prices of her executive condo setting new records in 2012.  

After thanking me, she went on to say, "well, i have just sold my condo at record price in December, what would you advise me to do next?" She has just sold her executive condo in Chua Chu Kang area where she has stayed for the last 13 years. I think she will probably get back around $1.2m in proceeds and that it has been fully paid for. 

She then asked me "Should i....

(1) Rent a place and wait for prices to drop or
(2) Buy 2 new properties with the cash received or 
(3) Buy one property now and buy another one a few years later.

What would you advise her? I will leave that for your thoughts. Feel free to comment, especially if you are thinking of taking a "naked" positing in the property market as well.  :) 

Sunday, 13 January 2013

Round 7 - Finally its here and the car is foaming as well.

When i first wrote about the Round 6 in Oct last year, i mentioned that more government measures is likely if price spiral out of control.

In Nov 12, when i was analyzing Q3 prices, i mentioned a bubble forming in the industrial zone and that cooling measures round 7,8,9 and 10 are on its way.

On my blog post on D Leedon on Jan 3rd, i said the government will probably need to step in again. 

Well, here you go. On Jan 11, the government introduced one of its most "comprehensive" property cooling measures, covering HDB, ECs, Industrial units and Condominiums with effect from 12th Jan.

Deputy Prime Minister and Minister for Finance Mr Tharman Shanmugaratnam said: "The reality we face is that interest rates are extraordinarily low, globally and in Singapore, and continue to add fuel to our property market. We have to take this further round of measures now, to check recent market trends and avoid a more serious correction in prices further down the road."
Will it work this time? Frankly your guess is as good as mine. 

In my post on 24 Nov 2012, i mentioned that you need another global financial crisis for prices to retreat. My view remained the same. The prices will not fall unless we see a sharp drop in the stock market due to company failures. Only a drastic fall in investors sentiments will we see a meaningful correction. Alternatively, you need a dramatic increase in borrowing costs (i.e. interest rates) but I don't see that happening soon either.

Will Round 7 will be effective in killing off the investors' demand, especially those who already owned one property? My gut feel is "Don't Count on it". The government has not plugged one loophole in preventing current one home owners from getting more "loan" out of their first property to pay the down payment for the second property but it may dampen sentiments in a "knee-jerk" reaction.

The Car is foaming as well!

Not only are we seeing bubbling record prices in property, we can witness that in COE prices where Cat A prices hit a record high of $92,100.With BMW and Mercedes trying to game the "CAT A" category and a falling quota, it is no wonder that Cat A prices are where they are right now! In my view, the government should not allowed loans to be "borrowed" against the COEs. It just doesn't make sense and a car bubble is foaming right now....if the government don't stop that, the prices will cross the $100k soon and that will exceed the value of my entire SRS portfolio as of 31 Dec 2012? It's pretty crazy.

Thursday, 3 January 2013

D' Leedon

I went to view the D'Leedon showflat at Farrer road on Sunday. It was the site of the previous HUDC enbloc. As you know, Singapore property prices ended 2012 with a big bang and at record prices. The news article is here.

I thought this was one of the few condo that are still exhibiting "good value" under current market conditions. If you ask me to buy ECO (district 16) at $1,300 to $1,400 psf or the Sky Habitat (district 20) at $1,500 to $1,600 psf or Foreseque Residence at $1,100 to $1,200 psf (district 23), i would rather buy a unit of D Leedon at around $1,400 psf (after 8% discount), which is in District 10 and within 1km of good primary school like Nanyang Primary.

However, to get to $1,398 psf, the units on sale are typically bigger (around 1,400 square foot) and on the lower floors (below 12th floors) out of a height of 36 floors. And you will need to check off the criteria that will allow you to receive around 6%-8% discount off the listing price. Personally i don't like the gimmicks of "tiered discounts". If you ask me to buy something now, I would probably get an investment unit at D'Leedon if the smaller ones (around 1,000-1,200 square foot) are selling below $1,400 psf on the higher floors. hahaha.... A small unit on level 25 with a size of 635 square foot was sold for $1.3m that weekend. That translate into a psf of more than $2,000. 

If you are wondering why SC Global wants to privatize itself, that is because its still has many high end condos not sold yet and it is going to run foul of its deadline and have to pay for extension charges. The news is here. As such, many developers will want to avoid this predicament and try to move units by lowering its prices and that is probably one reason why the developer of D'Leedon is giving out discounts now to 'move the units' as it is a huge development with more than 1,600 units and as of Nov, still 60% unsold based on (see graph below). 

I will probably give it a miss and play the waiting game with developers who are facing the pressure to slash prices. If the prices continue to edge upwards, the government will probably need to step in again.  

Happy investing.  
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