Is this a Singapore Property BUBBLE?
Are we seeing a property bubble? Or is it just a correction? Today we share the factors to consider in this property cycle, to understand if it's a bubble that's about to burst.
Bubble or Correction?
As statistics lag behind what is happening in real time, much talk is out there about recession in financial markets. For the property market today, we prefer to understand that the market is correcting & stabilising rather than collapsing or facing a crash.
The market is well protected with government setting threshold where there are things like TDSR to protect buyers. Market cooling measures and max loan amounts are useful tools utilised to protect the market in Singapore too.
Categories of Property
It's important to understand that there are different kinds of properties in the market. They can be classified in 4 broad categories, looking at the situation based on current and Covid timeframes.
1. The worst category: The property is not earning money during Covid and hard to sell during the Covid period. The situation will get worse post-Covid.
2. Next level - Below Average: Prices are not increasing anymore with the peak being behind you. It's also likely to see the prices dropping more drastically in the coming days.
3. Average property: Prices are high throughout the Covid period but has recently stopped increasing.
4. Top tier property -> Prices are increasing but very slowly.
The learning point here is that getting the right property helps one be immune to crashes or collapse risk, provided one has holding power. When looking at new launches in the market, a good new launch will allow someone with holding power to earn in the long run. Thus, it's important to understand which category your property or the new launch you are looking at is falling into!
Prices are starting to show signs of dropping. Thus, it's critical to know where to find the 'correct' properties. With the right unit, recession risk is very much limited.
Correction based on value
Correction in the market is where overvalued properties start to go back to the 'correct' prices. We see certain places that are overvalued based on the 'Real' value. It's important to understand the difference between valuation and this real value.
We see bigger units clocking high prices/psf in the last two years. There will likely be a correction here for these units.
Another factor to consider are the BTO delays. Delays go from months to years, with some even seeing compensation for the long delays. Other than causing an increase in resale prices, this delay pushes up rental sector. On top of that, a lot of condo downgraders are going into the HDB resale market, pushing the prices up first.
There will be a correction in the HDB market, with the increased supply from the government being pushed into the market. Secondly, if you are buying above 'real' value of the property, be prepared that prices are going to drop with this incoming correction.
By understanding the categories of properties, you can better recession-proof your property transactions. The top tier categories of property units will allow you to gain over the long term, as long as you have holding power. Lastly, this recession-proof also works through rental yield of good property, covering 70-100% of mortgage.
Watch Aaron go through the various factors as he talks about the property correction/bubble impending!