Sep 122012
 

All this recent talk about the upcoming Thomson Line MRT has brought an issue into sharp focus. Specifically, there is a lot of buzz about how this new mass rapid transit line will affect property prices around the planned station. This should come as no surprise, of course, as the only thing that can set Singaporeans’ collective tongues wagging more than property prices is food. Well, that and politics, in the recent years.

There are the usual predictions of value going up due to the proximity to new stations, as well as some caveats about construction dust and noise affecting prices and rents before completion of the stations. Some have estimated that prices could go up as much as 20 to 30 percent, just on the fact that there is an MRT station within 500m alone! These seemingly optimistic figures are supposedly based on past experience with properties close to new MRT stations.

But speculation aside, the thought that came to us is: do we really pay that much for the sake of convenience? Let’s take a deeper look at these quoted figures before we actually start writing out cheques with strings of zeroes in them. Where did they come from? How accurate are they? Are they backed up by solid facts?

Firstly, let’s take a look at the value of what is being “bought” versus what is being spent. The main value proposition here is convenience – the convenience of proximity. Being near an MRT station means quick and easy access to an island-wide network of fast public transport. There is definite value there, but let’s look at the opportunity cost. If these 20 to 30 percent premiums are to be believed, this value could be costing you anywhere from $100,000 to $300,000 for public housing, and up to $500,000 for a condominium. And unless you have that much pocket change, you’d most likely have to increase your loan quantum by that amount, so factor in an interest payment increase as well to your opportunity cost. That’s how much you’d be paying for a shorter walk.

Let’s also take a look at the source of these “expert” predictions. None of these figures come with any sources, data, projections or derivations. The only reference to a past event (opening of Lorong Chuan MRT station, on 28 May 2009) was made by Knight Frank head of research. He stated that average prices of homes there “rose 22 percent in the six-month period before completion compared with the six months after”. (From asiaone business article “Value of homes near Thomson Line set to rise” on 31 Aug 2012.)

Taking a closer look at that statement, it posits that, in the six months before completion, the compared rise in price was 22 percent. Compared to what? To the rise in price six months after, of course. Notice that the statement doesn’t actually say how much the rise in price was in relation to other properties, only that the rise was more before completion, compared to after.

Of course, there is also the fact that most of these experts have a vested interest in making property prices go up. The higher the transaction prices are, the bigger their commission. Just something to ponder, isn’t it? All it takes is a handful of unsavvy buyers to move the market in that direction.

Also consider the future plans of the government; the MRT network is set to expand even more in the coming years. Having a nearby MRT station will become increasingly common for a majority of Singapore properties. Hundreds of thousands of dollars (and the associated loan repayments) seem to be a high price to pay for a “feature” that will be more commonplace as time goes by.

Now, we’re not saying that such a convenience doesn’t have value. But should it be 20 to 30 percent? Why not 10 to 15 percent? Do consider carefully before agreeing to any premium. At the end of the day, buyers should be aware of all factors and weigh all the cost and benefits before choosing an option. By subscribing to a hype machine, just a handful of unsavvy buyers can create a self-fulfilling prediction of runaway prices. Unfortunately, this kind of growth is hollow and unsustainable. There’s a reason it’s called a “bubble”.

To recap, think about the source of such prediction, and its reliability. Are there other factors, such as vested interest? Consider the value of what you are paying a hefty premium for. And finally, what is the opportunity cost? A 20 to 30 percent premium on a half-million dollar property is enough to purchase a shiny new car. With which you can drive… anywhere. Instead of just walking a shorter distance to the station. And with private property prices already over the million mark, that premium seems crazier than… building your own Lamborghini out of scrap metal!

Are Singaporean property buyers really that unsavvy? Are their property priorities mixed up? Or are these “experts” just trying to feed the numbers machine? What do you think?

 

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