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Property
Predicting the sun will rise in the east
By Ku Swee Yong
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21 June
There has been a proliferation of new property research and new faces commenting on the local real estate market. While it is healthy for the industry to welcome new blood, the research has not always contributed to a better understanding of the market. Some of the research notes are meaningless, while others are outright off-the-mark and misleading.
It is tough for new blood to prove their research worthy of public consumption. I first started to publish publicly in 2006 and one of my early pieces was pooh-poohed by both industry veterans and the general public. It was a forecast made in late 2006 stating that home prices in Singapore would surpass S$4,500 psf. Between the announcement of the forecast and the transaction that vindicated the call — a period of about nine months — I received comments that I was “talking up the market” and being “overzealous”, as well as others questioning my “background”.
No one can be correct in their views 100 per cent of the time. A good analyst needs to score a hit rate of more than 50 per cent, produce well-researched work and not simply rely on empirical evidence or market chatter to project trends and draw conclusions.
It is bad enough that there are too many policy changes in the property sector within a very short period of time, causing anxiety and confusion. With the power of computing, it is really easy to have data crunched and analysis published quickly and spread with the help of social media. The public might be able to discern hot air in advertorials, but misguided analytical reports packaged as expert views in the mainstream media can be trickier to distinguish.
Good property analysts have to be in close touch with the ground in terms of leasing, sales, enquiries and so on. They must also be clear about the definitions of the numbers they are looking at.
A very common error in research papers involves taking the total population of 5.3 million divided by the total Housing and Development Board and private housing stock of about 1.2 million to show an average household size of 4.4. They have not included the number of serviced apartments, hostels and worker dormitories in the housing stock. Part of the 1.5 million non-residents in our midst include students and blue-collar workers. If the household size number were extrapolated, it will be skewed even further off the mark.
Some recent reports note that Grade A office rentals in the Marina Bay area are about 20 per cent higher than those in Raffles Place, and they reach the conclusion that Marina Bay is therefore a more desirable location.
Just looking at the rental numbers and drawing that conclusion is skewed. Even within the not-so-clearly-defined Grade A category, Raffles Place has a mix of old and new buildings, such as Ocean Financial Centre and UOB Plaza. The tenant mix is more varied and some tenants may have renewed their leases several times over the past decade.
Marina Bay’s spanking new buildings boast tenants who are Fortune 500 companies, global banks, trading houses and services firms. The earliest tenants moved into the Marina Bay area in 2008-09 with high rentals that were struck during the crunch years of 2007-08. In my opinion, it would be awfully strange and very newsworthy if Marina Bay’s office rentals were not higher than those of Raffles Place’s.
Viewed another way, the fact that average rentals for Grade A offices in Raffles Place are a mere 20 per cent below Marina Bay’s says a whole lot about the strength and the tenacity of the demand in Raffles Place — as well as the prestige.
The rental numbers and the conclusion presented to the media and the articles written in the press have been pretty persuasive about Marina Bay. But reflecting on the data, it seems to me that the conclusion is as obvious as the sun setting in the west this evening.
Another recent research statement of questionable value was one involving rental transactions in Reflections at Keppel Bay. Rental deals plunged 65 per cent from 197 in the January-to-April period last year to 69 in the corresponding period this year, the research showed, but the headline “Rents for Keppel Bay condo take a hit” that summed up the weakness in the rental market is flawed.
Reflections was officially listed as completed in the fourth quarter of 2011. At the time of completion of the 1,129 apartments, most of them were available for lease. Many of the buyers collected the keys to their units in December 2011 and January 2012 and, within a few weeks, they had installed curtains and lights to make their units tenant-ready. But due to the massive number of units, some investors collected the keys to their units as late as April 2012.
Most of the units at Reflections were sold to private investors, but some 100-over units owned by the developer were made available for lease early last year. It is no surprise, therefore, that during the January-to-April 2012 period, 197 tenancy agreements were stitched up. Most of these leases would last for two years. And by the end of 2012, I hazard a guess that 70 to 80 per cent of the 1,129 apartments in Reflections would have been leased out, occupied by owners or just left empty by investors.
So, the total stock available for lease would have dropped. The fact that there were only 69 rental transactions signed in January-to-April this year is therefore no surprise.
There is nothing wrong with the mathematics showing a 65 per cent drop in rental transactions, but there is also nothing to be alarmed about. Such research is no different from someone waking up and saying “Wow, the sun rises in the east!”
Recently, District 8 was in the news for registering the largest drop in resale prices and District 19 made headlines as the hottest landed property district. Again, if readers reflected on these, they would hardly be surprised because District 8 — around Little India — is one of the smallest districts in Singapore and therefore it has relatively few transactions to begin with. So, for any given period of time compared to another period, the number of transactions and prices could vary widely. The data pool is too small for meaningful comparisons.
As for District 19 being such a hotspot for landed homes, readers should keep in mind that it is one of the largest districts in Singapore stretching from Paya Lebar to Punggol. And it probably has the highest number of landed houses. So again, it is no surprise that District 19 holds the top spot for the biggest number of landed homes transacted.
Property research cannot be just a desk job and it has to include walking the ground and smelling the earth. Even researchers and market commentators of good repute may hold views that are influenced by the shareholders of the companies they work for or the landlords and developers they represent. It is up to those who read these opinion pieces to keep a critical mind and question the motivation behind the research.
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