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Many people have mistaken me for a property agent or an investment trainer. I am neither; hence you can be certain that I will not be touting Forex or Entrepreneurship seminars. I run a real estate research and investment firm, and we research extensively to find good investment opportunities within the Singapore market. We also extend our services to those who require our research.
As part of what I do, I have been constantly asked this question, “Is now a good time to enter the Singapore property market?” With the slew of government initiatives to cool the property market, is now really the time to go in? The last time I tackled this question, it was in July 2009. It has been almost five months and I think it is timely to review this question, given that the market conditions are different.
In my previous blogs, I constantly mentioned that finding value-for-money properties requires more than just looking at location and there are a myriad of factors to consider. I have frequently emphasized the point of doing our research before investing. In this entry, I will focus on the aspect of market timing.
I have come across some prospective clients who are currently sitting on the sidelines as they expect property prices to drop. Some are even hoping that property prices will drop to levels experienced in 2004 and 2005. I do not think that this is realistic and believe that property prices will unlikely drop to levels experienced prior to the 2007 property boom. From finance literature, we know that properties are a hedge against inflation and prices are expected to increase over time. But is there a way for us to know for sure that prices will not revert to the previous low?
The figure below shows the URA Private Property Price Index (PPPI) from 1975 Qtr 1 to 2009 Qtr 3. It is the weighted average of the median property prices for that quarter as compared to the base quarter of 1998 Q4.
Figure 1: URA Private Property Price Index (PPPI) from 1975Q1 to 2009Q3
Source: URA and Ascendant Assets Pte Ltd
If you follow the dotted line, you will observe that the bottom of the recent property market correction is higher than the market bottom before it (during the early 2000s). Unless there are shocks to the financial system that cause a deflation, we can expect property prices across the board at the current bottom to be higher than the one before it.
Of course, the URA PPPI alone is not enough to help us time our entry into the property market, and this is just one of the many indicators that I use. I am also not recommending that you blindly buy a property in anticipation of a pick-up in market activity. However, if you already have the intention of buying in the near future, you may be better off looking for one now instead of waiting for prices to dip to pre-2007 levels.
Happy investing!
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