Singapore Housing – My View (Retake)

After publishing the article (below) on the 14th, the following day, Friday 15 October 2010, the banks pull a stunner by lowering the SIBOR rate (Singapore Inter-Bank Offered Rate).

This puts a complete spin on my analysis on housing prices going into a short-term spike before correcting. Now, with rates lowered, the Buyers have more time to mull over their purchases and put even more pressure on Sellers. The Sellers now have a bigger disadvantage than initially anticipated especially amongst those who were contemplating new purchases with the current low rates – they will get desperate to sell to bank-roll their new investments. Speculators who have already purchased their new projects will sell quicker than those under no such pressure. The correction in housing prices will start with these under-pressure Sellers who cave-in to consolidate their finances even if it means selling at a lower-than-offered price as long as they don’t lose out.

The signs have been there this weekend as I went shopping for resale landed properties. Across the property market, there are still a few stubborn sellers who believe they can still scalp the market for a huge profit even as the bids get lower and lower. Some of the more savvy players have already started to make compromises on their sales and are beginning to introduce the word “Negotiable” in their ads when once these same ads were stubbornly and strictly for “the highest bidder” only – what a difference a day makes. All of a sudden, the highest bidders are pulling out their bids and rebidding at lower prices. This sudden turn-about has caught a lot of Sellers on the wrong foot. Those who haven’t realized it yet will yield to pressure later and these are the ones who end up bringing the market down.

The Buyers, with the help of the drop in rates, have more time (around a quarter) to mull over their purchases and put more pressure on the Sellers. The measures introduced by Mah Bow Tan has effectively sifted out the small-time players and put paid to the over-leveraged speculators. The Buyers now are the cash rich investors who are more likely to be savvy and experienced home owners with real leverage on their side and now, time to mull and pressure. Amongst the Sellers will be those over-leveraged speculators who will come under pressure to consolidate their investments as their debts catch up with them. And it will …

The government’s move to increase monetary policy is a confirmation of a fight against inflation. This sort of measure meant to stave off hyper-inflation usually takes a long time and will slowly and surely bleed those who live on credit. It has happened many times in the past and it looks to be happening again soon. Such is the “nature” of our economy. Thus, the speculators who are now Sellers are largely made up of highly or over-leveraged borrowers who will, in time, come under tremendous pressure as the fight against inflation ensues. A not so dissimilar thing happened in 1996/1997 but that period was made worse by the fact that the demand for properties then was pathetic when compared to today’s demand.

The saving grace for the property market is in its current demand. The “insurance” that prices won’t capitulate like it did in 1998 to 2000 is that the banks are over-exposed to the property market and will do anything to keep it from capitulating. If these over-leveraged speculators start coming under pressure from their own debts, the banks will save their collateral first and protect the property market next. Rather than let the line of credit go bankrupt, they will renegotiate payment terms to keep that line of credit alive while the creditor continues to bleed out … with a longer term debt. The banks will not allow the in-flow of cash turn into a depreciating house. They saw what it did to America and we’re smarter today. Defaults will be out of the question and will never be an option.

In the meantime, the demand for property will grow and rentals will pick up again. Prices across the board should ease down a bit and stabilize without capitulating as the savvy Buyers snap up bargains from under-pressured Sellers and savvy Sellers stay stubborn to their offered price.

I personally don’t think that new developments are the way to go now as the resale market will start to look like better and safer bets. Patience is key for the savvy Buyer. Plus with the new SIBOR rates in place now, we the Buyers, have time on our side.

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thanks for the post

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