I read this somewhere and I think is nice:
For those of you who bought investment properties
between 2007/08 peak through Dec 2010, you will have approximately
6 months to offload your real estate assests.
Why?
1. With a lower loan-to-valuation of 60% for any 2nd property
purchase, you can forget about selling your property to another
buyer-investor for a while. On the surface, a buyer-investor would
have to top up additional 10% of the value in cash if residential
prices have stayed flat. However, if the valuation of the unit has
fallen from the original purchase price (even by just 10-20% - a
highly likely scenario with the banks taking a far more cautious
stance in dishing out mortgage loans), buyers would have to top up
the difference between the declines on top of the lower loan to
valuation differences. The effective loan to purchase price ratio
could be as low as 50%. Now which right-minded property investor
wants to put down 50% cash on a property in a declining market? Few
and far between and only fools I am sure.
2. First-time home buyer demand is far lower than the supply
availability. There is only a finite number of genuine first-time
buyers to go around, estimated to be less than 20k comprising of
expat-PR and new/young families. On the supply side however, there
is an estimated 16k units due for TOP this year and another 16-17k
units schedule to complete next year. These are on top of the 10k
completed vacant units in the current supply pool. So the unit
which you bought between 07-10 could be in for a major price
correction (crash is a more appropriate word actually) in the
coming 4-5 years of buyer's market.
3. You can forget about getting profitable rental income for a
while. Rental prices. Same rationale as 1 & 2 above. Falling
prices + ample supply = lethal combo for rental income.
Your only option other than stuck with a non-performing ill-liquid
asset for the next 4-5 years of your life is to quickly offload it
to the limited pool of pent-up demand, i.e. a genuine first-time
buyer waiting for the past several years to get into the
market.
Hope this helps.
My projection:
1. Property prices across all segments (mass through high-end) will
drop by 10% over the course of the next 6 months due to a
combination of several factors: lower LTV, lower valuation by
banks, buyers sitting on the sideline, and seller offloading
existing units.
2. From Q3 2011 on, Sibor is expected to move up (by 500bps almost
every quarter till it hits around 6-7%). This coupled with ample
supply coming through and demand dwindling, we are now likely to
witness
unprecedented declines for all private property segments starting
from Q3 2011. Falling valuation, high interest rate, and lower loan
quantum could put significant downward pressure on all projects
sold during the irrational years of 07-10. Therefore, I see mass
through luxury residential prices to decline by a further 35% from
Q2 2011, bringing about a total decline of 45-60% from
peak.
What are the implications for the various
parties?
For existing owner-investors, you should seriously consider what I
stated above and exit while you still have your shirts on.
For first-time buyers or upgraders, you should not rush in if you
have a choice. This is going to be a buyer's market in about 6
months from now. Probably the best time to buy is between the next
12-18 months.
For wannabe investors, buy only if you don't mind a non-performing
piece of asset for the next 4-5 years.
Sibor is positively correlated (or more
accurately tied to) the US interest rate. With low growth, high
unemployment, high debt, and inflation, the US Feds preferences
starting Q3 of this year will likely move away from low rate
stability to one of hawish rate raising. The reversal of the
multiple serial rate cuts of 250-500 bps witnessed previously will
happen soon enough. This will definitely impact Sibor for
sure.
