The wait for your property

I was rather fortunate. Just last June I made a deposit with a heavy heart. I know I need a home after my wedding. But its impossible to find a place that is affordable and readily available. The HDB launches then are impossible. Our combined income was outside the ceiling. The resale HDBs were scary. COV was averaging at 40K and it aint going to be a location I am happy with.

It took a heavy heart to come to terms that my home would likely to be my biggest investment. Something I would be working hard to pay off.  This would leave little for other luxuries. As I made the deposit, I can only hope for the best. So far, I have not regretted on my decision.

The thing that I was pleasantly surprise was that I would be getting my keys in Dec. Now how about that. A wait of just 1.5 years. Something bearable.

Now if you wondering why I am sharing all these above, its becos of my conversation with a senior colleague. To give you the whole picture, I shall throw some background info. He is single, in his late 40s and is wary about investments.

He said that the PAP Govt (Notice he din said its the SG Govt, but branded it PAP) has noticed that the voters are unhappy. Largely becos of the high cost of owning a property. Well he was partially right. The voters are unhappy for high property cost, but are also upset of the job losses, influx of foreigners, etc etc etc. AS SUCH our PAP govt will control the price of the properties. They even hinted (no reference provided) that in 2014 the prices will drop drastically.

This is something I do not quite agreed. Yes, I aint no soothsayer. I definitely cant predict my stocks portfolio in 2 weeks much less the next 2 years. But I do know that its very hard to bring down the property prices.

Just 2-3 years back when we have the Depression. The one they said would rival the Great Depression of 1930s. Well what happen to our property prices? Interestingly I did not notice a substantial decline.

Private condos that were in the launch phrase did became softer. A small discount was given to entice buyers to come in. And though the showrooms were quieter, the units were largely sold out.

Property developers who were anticipating the crash, immediately withheld all their plans. No new housing were build thus increasing the demand with a even smaller supply. (HDB too reduce their supply, thanks to a smart arse)

Those who owned homes has withhold from selling. The majority could afford to wait out. And with banks giving out a pretty low interest rate then, they are more than happy to. 

Those whom owned properties for rental too were enjoying the low rental rates. They may be the tricky bunch as some may have tenants whom pack up and leave. (forgoing a month of security deposit) However I am sure even with vacant units, those whom could afford to rent them out are able to hold on to them for months and not years.

So what is this trying to tell us? Property is a big investment and most investors are fundamentally able to cope with a short term loss. Despite an economic decline, the price of property may slip a few % but generally would stay strong.

Now let me use another way to explain this. A majority of our savings are tied up in our home. This is our prime investment where it takes years to pay off the banks. If a substantial drop (lets say 20%) is to occur, plenty of us would be cursing that we are paying more than what our home is worth.

Banks will be wary of this as well. Any bad debts would mean that the unit they be repossessing is worth less than the loan. A good amount of paper value would be wiped out if that is to happen.

Soooo do I think that the property price would drop? Well NO. I have seen the past data when I was looking for a home during the crisis. I saw a dip and not witness a drop.

Personally I think our Govt hands are tied. The only thing they could do is to stabilize the pricing and build affordable HDBs for young couples.

PS. I doubt the Govt would cut the price of new HDB by half, unless they are keen to piss off all the surrounding neighbors and developers. If a new 5 room unit cost 200K, all surrounding older unit, would have their prices drop. And these are the ppl whom has paid 500K for their unit years ago. Imagine the paper loss.