Singapore Properties, Newton Road, District 11, D11We wrote about the pre-cooling measure queues earlier in Part 1. If only that were the singular sign of how unsavvy some buyers can be in the property market! The recently-launched Q Bay Residences stands as another unfortunate example of how susceptible we can be to hype and hyperbole, even when it comes to big-ticket items such as property. As we all know, a property launch still means that it will be a good three years or so before buyers can actually get a Temporary Occupation Permit (TOP), in other words, the keys to their brand-new home. In this current climate, three years is a long time, and much can happen before then.

Now let’s think for a moment about the need to close the deal quickly, in the case of Q Bay Residences. One good reason would be to snap up the choice units; high floor, nearer the lift landing, or right at the corner, pool-facing, excellent view (potentially), closer to certain amenities, or even simply away from the car park entrance or rubbish point. All of these are in demand by one group of people or another, and they are all limited in availability. Another reason is of course, the early bird discount, which can be as high as 15%, judging by the current market. This is a significant amount, we agree. But with developments like D’Leedon offering 15% discounts after the recent cooling measure announcement, we don’t think that early bird discounts will be going away any time soon. In other words, a bird need not be that early to still get a discount.

This is especially so since Minister for National Development Khaw Boon Wan’s post on his blog dated 18 January 2013 (before the weekend rush) indicates that almost 200,000 new residential units will be completed by year 2016. A peak of 23,700 new private residential units will be completed in year 2015. In light of this announcement, can we be so sure that, by the time Q Bay Residences is completed and ready for occupation (TOP date), the prices will be significantly higher?

We question if any of those who rushed to buy Q Bay Residences stopped to think about the risks involved. Would any of them have bet good money that property prices will maintain a steady climb in the next three to five years? Did they compare the results of both risk outcomes? Are the outcomes equitable? We have a feeling the answer is “no” on all accounts.

Let’s do a quick comparison right now. First, we compare the likelihood of prices going up versus prices going down. With the cooling measures in place, and a slew of housing units in the pipeline, we don’t think it is likely that property prices can climb much higher, if at all. Don’t forget, there is also the heavy hand of the Singapore government, which has shown itself ever ready to interrupt skyrocketing prices. On the other hand, if we look back at historical data, we can see that the bottom floor for prices is really quite far below. In other words, there is a long way to fall, and a good chance that it will happen.

Next, let’s compare the upside and downside of these two risk scenarios. Should prices rise in the next few years, it would mean that those who did not buy Q Bay Residences now might have to settle for a different, lower-quality or smaller abode. However, with the amount of new housing in the pipeline, there should be quite a bit of flexibility to choose. What if prices correct downwards? Well, those buyers that stretched their finances to fit their Q Bay purchase will be in quite a pickle. A 30% correction would easily place them in negative equity. And that’s just the start of their problems. In that kind of economic climate, salaries take a cut, if there is even a job still. Interest rates will rise, at least during the initial stages of , placing even greater strain on monthly expenses. Should they wish to unwind, they might not even be able to find buyers, as banks will tighten loan requirements.

If you think all this is too much doom and gloom, just go back to the 1984/85 and 1997 market crashes, where over-leveraged individuals suddenly found themselves facing bankruptcy. Some of them even ended up facing a 20-storey drop to the pavement below.

With all these considerations, we don’t believe that rushing to buy now is the wisest course of action. Yet over 310 units out of the 630 or so at Q Bay Residences were booked. It points to a market that is still immature, unsavvy and easily manipulated by hype. As Axl Rose of Guns ‘N Roses sang in their famous ballad, “All we need is just a little patience”. Agree or disagree? Let us know with a comment below, or via our Facebook, Twitter, and Google+ pages. Remember to like or follow us for updates and articles on BLUTA-log.

 

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