Sometime it is good to look back.

[Arcachon]

https://www.theonlinecitizen.com/201...t-price-crash/

Why is the government risking an asset price crash?
The Online Citizen 2015-09-05 Current Affairs, Economics

By Anthony Cheng

The government’s recent housing policy revisions have some worrying implications. A chart sent to me by a friend who was at a briefing on the real estate market by an acknowledged expert highlights the problem. Let me explain.

Popn and housing

If you look at the chart above, you will see that in the last 10 years (2005-2014) of rapid population growth, Singapore’s total population soared by 1.3million. During this time, the total number of residential units completed (HDB, EC and private) increased by 151,475.

Meanwhile, according to the National Development Ministry, in the construction pipeline are 177,710 residential units which will be completed from 2015 to 2018. (See the Ministry’s chart below.)

Housing pipeline

And according to URA’s data for the second quarter of 2015, there are already more than 25,071 vacant private residence units and 2,391 vacant EC units. Put all these numbers together and we have enough homes on the market and in the pipeline to cater for an additional 1.5 million people (which, coincidentally, takes us to that 6.9 million population target) without the government having to sell any more land until 2030.

But we’re not here to discuss the Population White Paper. As we should know by now, it’s pretty much fait accompli unless we collectively stop them on 9/11. What we need to discuss is the danger that the recent income cap revisions for ECs and BTOs will trigger an asset price crash we don’t need.

Encouraging more families to buy ECs and BTOs by raising the annual income caps to $168,000 and $144,000 respectively will surely widen the pool of buyers. Also, HDB advertises that for some families, mortgages need not be paid with cash (i.e. full CPF usage is possible). This means even more CPF money will flow in for HDB - even more of our CPF money will be locked up!

More critically, an enlarged pool of newly eligible buyers will prompt developers to tender at Government Land Sales programmes, albeit tapered from previous sales.

Question 1: Is this revision meant to move land inventory?

Bear in mind, with this enlarged pool, HDB’s infamous balloting system will cause even more grief to those already in the system and unable to get a BTO, even with the various supposedly helpful priority schemes and multiple applications.

Question 2: Why are we enlarging the EC and BTO buyer pool when, because of the cooling measures, sales of private units have already plunged 21% in the 1st half of 2015 from a year ago?

This latest revision would just force private developers to continue their price discounting. Some may be driven to the brink, and even go under. And for the people fortunate enough to be still able to make buying decisions, this discounting will induce them to wait for even more discounts, thus precipitating a “deflationary death spiral”.

Question 3: Why risk an asset price crash now?

China is slowing down, our regional economies are suffering severely devalued currencies, and our own exports and economy won’t be able to escape these negative impacts.

Here’s the conundrum: Harakiri Khaw already knows we have this supply of built-up units with more in the pipeline – enough supply for a population of 6.9 million by 2030.

With the regional and global economic prognosis forecasting dark days ahead, why risk an asset price collapse by pushing ahead with policy revisions that could well lead to increased land sales? The implications of even more land sales in an oversupply market are not in ordinary Singaporeans’ favour. There is only one beneficiary - our National Reserves.

The Ultimate Question: Are Temasek and GIC in such deep hock that they need more reserves to cover liabilities?

[Arcachon]

[Arcachon]

Let’s consider the typical scenario of a young couple 35 years old buying their first condo for own-stay for $1M with a 80% loan at $800,000. At today’s interest rate of 1.8% over 30 years, the monthly repayment works out to $2,877 comprising of interest at $1,200 (42%) and principal repayment at $1,677 (58%) in the first month. Based on standard monthly rest amortization, the interest component will go down slightly every year from the initial 42% of monthly mortgage. In the first year (see below) total interest paid will add up to $14,233.09 which is 41.2% of the total paid $34,531.06.

If we ignore the principal component and look at just the interest per se, the “true costs” or cost of accommodation that the couple is paying to stay in the private property should be just $1,200 a month, a “rent” that is so low they cannot even get a 3-room HDB flat. Assuming that they could not profit from capital appreciation for their stay in this condo over the next 7 years and end up selling it at the same price of $1M (ignore effects of inflation), they would still rake in cash proceeds as the loan has been diligently paid down to $649,939 over the years! Rounding this figure up to $650,000 and ignoring all transaction costs involved, it means they take back their initial 20% of $200,000 plus another $150,000 ($1M less $650,000 less $200,000). And therein lies one of the key motivation of property investment – it is a “forced savings plan” for the couple who would otherwise spend the money every month on other luxury items or going for a few more expensive vacations every year. With a mortgage to service, the priorities would have changed. As the adage goes in personal financial planning – always pay yourself first. In a consumerism-driven world today where every advertiser is constantly coming out with the best and latest features for that luxury continental drive, TV screen, smart phone, etc to entice you, there is certainly great virtue in paying yourself first in the form of a mortgage. And doing all that while enjoying a comfortable stay in a private property for the rental price of maybe a 2-room HDB flat.

https://www.mortgagewise.sg/why-invest-in-property/

[sginvestor]

it sounds so deceptively logical...

the author fails to mention opportunity costs...

what happens if instead, the investor had simply invested in Apple shares/Berkshire Hathaway shares/Visa shares over those 7 years?

would the investor have been better off? a simple doubling of money without hefty transaction costs including legal, agent fees and buyer's stamp duties...

[Kelonguni]

That’s true but there are greater risks involved as well. What if one had chosen Swiber instead?

That said, the author probably also needs to calculate what happens if interest rates were at 2% or 2.6%.

it sounds so deceptively logical...

the author fails to mention opportunity costs...

what happens if instead, the investor had simply invested in Apple shares/Berkshire Hathaway shares/Visa shares over those 7 years?

would the investor have been better off? a simple doubling of money without hefty transaction costs including legal, agent fees and buyer's stamp duties...

[azeoprop]

Now 12m fd promo rates already 1.84%

[star]

Local stocks market cannot make it. Those bought local stocks, 90% r losing money unless u bought local banks.

[star]

Further more i found out one thing. Which can make u sleep better without worries at night:
1) $500k property or
2) $500k in stock.
I can safely close my eyes and sleep well if i choose number 1.

[Arcachon]

Further more i found out one thing. Which can make u sleep better without worries at night:
1) $500k property or
2) $500k in stock.
I can safely close my eyes and sleep well if i choose number 1.

If property cost 1,000,000.
To buy 1st property, need 4%-15,400 = 24,600
The 2rd property, need (4%-15,400) + 12% = 24,600+120,000=144,600
The 3rd property, need (4%-15,400) + 15% = 24,600+150,000=174,600

To get 3 property at 1,000,000 need to pay 343,800

ABSD help to maintain price level even in the bad market.