The Car bubble has burst?

The government must have read my blog post on 13 Jan 2013 where i spoke about the foaming car market and that car loan should not be extended against the COEs. :oP

The new measures are truly more drastic than the previous car curbs from Feb 1995 to Jan 2003 and took the market by "surprise" where the loans are now limited to 50%-60% of the car's purchase price and the loan can only be limited to a maximum tenure of 5 years.

"Singapore's central bank said the tenures of motor vehicle loans will be capped at five years, with the maximum motor vehicle loan amount pegged to 50 or 60 per cent of the vehicle's purchase price, depending on the Open Market Value. These financing restrictions, however, do not apply to commercial vehicles and motorcycles."

 I once spoke to a second hand car dealer and there are basically "two" types of car buyers. They either take little loan or max out the loan and MAS is probably trying to "protect" the second type of buyers to prevent them from over-extending themselves.

I think this new measure is timely and will probably be one that will "burst" the car bubble. Perhaps we can see some sanity returning to the car prices soon? ... let see how the COE prices will react in March and in the coming months. The COE price chart is below :) Will COE prices finally head back to the $50k mark?

Round 7 - Finally its here and the car is foaming as well.

When i first wrote about the Round 6 in Oct last year, i mentioned that more government measures is likely if price spiral out of control.

In Nov 12, when i was analyzing Q3 prices, i mentioned a bubble forming in the industrial zone and that cooling measures round 7,8,9 and 10 are on its way.

On my blog post on D Leedon on Jan 3rd, i said the government will probably need to step in again. 

Well, here you go. On Jan 11, the government introduced one of its most "comprehensive" property cooling measures, covering HDB, ECs, Industrial units and Condominiums with effect from 12th Jan.

Deputy Prime Minister and Minister for Finance Mr Tharman Shanmugaratnam said: "The reality we face is that interest rates are extraordinarily low, globally and in Singapore, and continue to add fuel to our property market. We have to take this further round of measures now, to check recent market trends and avoid a more serious correction in prices further down the road."

Will it work this time? Frankly your guess is as good as mine. 

In my post on 24 Nov 2012, i mentioned that you need another global financial crisis for prices to retreat. My view remained the same. The prices will not fall unless we see a sharp drop in the stock market due to company failures. Only a drastic fall in investors sentiments will we see a meaningful correction. Alternatively, you need a dramatic increase in borrowing costs (i.e. interest rates) but I don't see that happening soon either.

Will Round 7 will be effective in killing off the investors' demand, especially those who already owned one property? My gut feel is "Don't Count on it". The government has not plugged one loophole in preventing current one home owners from getting more "loan" out of their first property to pay the down payment for the second property but it may dampen sentiments in a "knee-jerk" reaction.

The Car is foaming as well!

Not only are we seeing bubbling record prices in property, we can witness that in COE prices where Cat A prices hit a record high of $92,100.With BMW and Mercedes trying to game the "CAT A" category and a falling quota, it is no wonder that Cat A prices are where they are right now! In my view, the government should not allowed loans to be "borrowed" against the COEs. It just doesn't make sense and a car bubble is foaming right now....if the government don't stop that, the prices will cross the $100k soon and that will exceed the value of my entire SRS portfolio as of 31 Dec 2012? It's pretty crazy.

Round 6 - Will it work this time?

Interestingly, after my post on 25 Sep 12, the government came up with the 6th round of cooling measure.

The two measures are as follows:

1. Mortgage tenures limited to 35 years.
2. Lower loan to values on loans over 30 years.

In my opinion, i think MAS (or the government) will continue to watch the market closely and do whatever it takes to cool the market in order to avoid a property bubble.

A graphical view of the cooling measures from the Morgan Stanley report.

The new measures are pretty interesting because it seeks to stop people from buying their 2nd or 3rd investment properties. It is trying to 'curb' the demand. Below is the graphical view of the "decision making tree" of the latest measure from Kim Eng.

I will not rule or further government measures should the prices continue to spiral out of control. However, the latest measure would probably weed out older investors (people aged 45 or more) and investors who are unable to afford the monthly mortgage due to a shorter tenure. It makes it difficult for "yield arbitrage" to take place through a shorter tenure and a higher down payment of 40%. 

Let's talk about how a yield arbitrage works. Let's say i bought a property for $2m and the value has increased to $3m in the last 2 years. I then tell the bank to lend me $1m at 1% and I use the $1m to buy a fully paid property to rent it out for a 4% yield. In this instance, i have a yield arbitrate of 3%.  I was contemplating such a 'trade' earlier this year but decide against it eventually.  Figures provided for hypothetical case. 

Will Round 6 finally work and forced a correction in the property market? Kim Eng seems to think so and believed the latest measures will tip the segment closer to a 10% correction by end 2013... hmm... not too far from the 13% predicted by Morgan Stanley?.

Do share with me if you have originally intended to buy a second property but this latest measure has finally put you off? Or if you are a first time buyer, is this the final measure which you are waiting for? Happy property investing.

Any further government cooling measures?

This is a continuation of my previous post. 

The chart below shows you the various government measures. It is interesting to note that the government has implemented 5 rounds of cooling measures since 2009. 

I am not sure how MS came to this conclusion but they are expecting residential price to tall by 13% by Dec 13?

In my mind, I was expecting the consolidation and correction (if any) will probably take longer and will hit the 180-200 levels only in 2014-2015.

To reach 180 levels in such a short span of time, you will need sentiments in the property market to become really bearish and i can foresee that happening only if we have another Lehman like crisis. Perhaps another "too-big-to fail" company from Europe or US going belly up and affecting the sentiments all over the world. That will be another Global Financial Crisis. (Remember don't miss this chance to buy should it happen again!)....

Happy property investing.

Govt Policies and the property market

As in most countries, the property market in Singapore is greatly affected by government policies. You can imagine this to be so since the majority of Singaporeans stay in HDBs and HDBs are governed by policies. HDBs aside, private apartments and landed housing are also governed by policies.

I remember during the run up in the late 90s, a capital gains tax was implemented to curb the hot market and that quick action probably 'killed' the market for many years. The Singapore property market was in doldrums from 2001-2005. 

The government introduced a new policy yesterday to prevent shoebox units from mushrooming into the suburbs area. Let's take a look at the various government policies that are implemented to stop the property market from forming a bubble from 2008 onwards. 

As you can see, new measures were introduced whenever it fails to cool the market. You can be assured that more will be coming if the price continues to rocket.

Let's take a look at the rise of shoe box sales and you can see that it is on the rising trend.

The reason why shoe box units are popular is because the 'capital outlay' in terms of actual quantum is not too high. As such, it is more affordable. The developers see profits to be made by having more shoebox units because they can achieve a higher selling psf for its  project. The report also has a chart to show that the majority of the buyers of shoe box unit has a HDB address. Not sure exactly the implication behind this statement but perhaps this article can shed some light.  

I guess the irony is that Capitaland CEO said the shoebox units is inhuman but the company continues have them in their project. You just can't ignore the market forces. The shoebox policy will not come as a surprise since the Minister has given his warnings a few months back.

Anyway, I have not visited a shoe box showflat befoew before but i can imagine how it can look like because there is always a 'show flat' at IKEA showing you all the space saving ideas! :)

Do you currently own a shoebox?  Do share with us where and why you bought a shoebox unit. Is it for rental or for capital gains? 

Happy Shoeboxing? :)