Thursday, March 14, 2013

Property Woes & Gains

Beware Of Tempering With The Property Market Once Too Often

The Government has recently tweaked policies through the budget to stem wide range of issues including vehicles financing, foreign workers, social assistances and possibly, housing with a view to make it more affordable.

I urged caution to further attempts to temper with the property market, especially private properties. In any event, engineering a soft landing of property prices, that is, say a drop of 20%-30%, is not quite possible. Property prices rise because of confidence in the market; similarly uncertainty albeit unconfidence, will cause a plunge in prices. Price is a function of emotion (confidence/unconfidence); any effects from mathematical formulae are incidental.

In such scenario, everyone suffers. It's just who suffer more or most. 

The top end suffers but they can take the punches. The lower end suffers but their exposure has been, and still is minimal to nil. The worst hit will be the middle-income group which incidentally form the large percentage of home owners.

Let me illustrate with the following example:

A working professional couple who have worked for ten years typically will have one/two school going-age kid(s), a flat, a car, a maid and a saving of S$100,000 to spare.

With the latest MAS directive on car loans, if they intend to buy a new car to replace the existing one, say costing $120,000, they will need to pay $60,000 upfront. Assuming their flat at time of purchase was $400,000 and they borrowed $300,000 over 30 years (estimated total amount payable equals $570,000 on a 3%pa interest). If any pricking of the property market by MAS resulted in a 30% drop in value, there is a likelihood of them having to top-up their loan.

With a stroke of pen, these 'asset rich, cash poor' class will be hardest hit as they have minimum savings to buttress  the changed environment. A whole host of problems, distress and pains will result.

Is this what the Government and/or the people want; beware of what you pray for as it may crystallize. Confidence is not something you cannot restore with a switch.  

There is a delicate balance between meeting expectations and reality. I can understand that those who have not bought property or intending to buy one will be happy to see a drop. The real issue are those middle-income bracket who have committed to a property; they can, and will, be the catalyst of change, for the better or worse.

Public housing should be kept affordable vis-a-vis income levels and make available only to Singaporean citizens. If need be, more restraints to re-selling should be imposed to decimate wild price fluctuation. A stable public housing program will go a long way to anchor family set-up and procreation, minus the stress and frustration.

There will be a two-tiered market; the Public sector and entry-level housing and the Private sector where 'let the buyer beware & be aware'.

Insofar as those who can afford and chooses to buy private properties, by all means go ahead. But, do not expect Governmental protection.