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PropertyCentral.sg Weekly Issue #1

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PropertyCentral.sg Weekly Issue #1

Contents
Page 2 - Property Market Correction - What Factors Should Investors Look Out For? Page 8 - Resale Property Transactions (8th August to 17th August) Page 12 - Weekly Top 3 Deals

PropertyCentral.sg Weekly Issue #1

Property Market Correction - What Factors Should Investors Look Out For?
Written by: Mr Getty Goh, Director of Ascendant Assets

My company, Ascendant Assets Pte Ltd, frequently hold talks and seminars that teach aspiring property investors how to understand the Singapore property market as well as to look for value-for-money deals. In those talks, one common question that is posed to me is what investors should look out for to tell if the market is starting to weaken. To answer that question, my research team did an analysis sometime back to compare the correlation between the median condominium and apartment prices and the following factors:

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PropertyCentral.sg Weekly Issue #1

1. Foreign Direct Investment (FDI). 2. Number of foreigners in Singapore. 3. Number of Singapore residents. 4. Number of marriages in Singapore. 5. 3-Months SIBOR (Singapore Interbank Oer Rate). This post would only be elaborating on 3 of the 5 factors mentioned.

Correlation is broadly dened as a statistical measure of how two factors behave in relation to each other and it ranges from +1 to -1. A perfect positive correlation (correlation co-ecient of +1) implies that as one factor (i.e. FDI) moves either up or down, the other factor (i.e. private property prices) will follow in the same direction. If the correlation coecient is 0, the movement of the factors are said to have no correlation and movements are completely random with respect to each other. Statistically, factors that have a correlation index of more than 0.5 can be deemed to be highly correlated.

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The eects of foreign investments FDI in Singapore measures the amount of investment by foreign investors in their Singapore aliated companies where they own at least 10 per cent of paid up capital. It is important to note that FDI does not represent the amount of money that goes into the real estate market. However, an increase in FDI could lead to complementary business and real estate activities that in turn would have an impact on the real estate market (i.e. the opening of a local oce that could lead to an increase in the number of foreigner stas who need to rent). Nonetheless, in the absence of other more relevant data, FDI is mainly used as a proxy to give us an idea of the amount of foreign investments that is coming into Singapore over the years. Figure 1 shows how the FDI as well as median property prices changed from 1999 to 2008. By comparing FDI against median $psf for apartments and condominiums, we found that the correlation coecient was 0.87 and 0.91 respectively.

Figure 1: Correlation between FDI and median $psf for apartments/ condominiums from 1999 to 2008

Source: Department of Statistics, URA and Ascendant Assets Pte Ltd

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PropertyCentral.sg Weekly Issue #1

The eects of domestic demand To analyse the impact of domestic demand on the private residential market, the number of marriages was used as a proxy for this analysis. Based on convention, most Singaporeans would start looking for properties when they settle down and get married. Even if many do not buy a private property as their rst home, the impact of domestic demand could spill over to the private residential market if they were to buy a at from the resale market, and the owner, who sold his at to the newly married couple, in turn upgrades and buys a private property. If this happens often enough, we should be able to see some trends between the number of new marriages and private property prices. However, from Figure 2, we can see that there is hardly any discernible trend.

Figure 2: Number of marriages and median $psf of apartments/ condominiums from 1990 to 2009

Source: Department of Statistics, URA and Ascendant Assets Pte Ltd

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Not surprisingly, the correlation between the number of marriages and median $psf for apartments and condominiums is 0.07 and 0.36 respectively. What about interest rates? Many people believe that low interest rates the cause of the current high demand properties. If that relationship were true, would expect high inverse correlation between -0.5 and -1). are for we (of

Figure 3: 3-month SIBOR (%) and median $psf of apartments/ condominiums from 1988 to 2009

An inverse correlation occurs because property prices should drop as interest rates goes up; conversely property prices should increase as interest rates drop. However from Figure 3, we can see that there does not appear to be a discernible trend. In addition, the correlation between the 3-month SIBOR and median $psf for apartments and condominium is just -0.35 and -0.31.

Source: Department of Statistics, URA and Ascendant Assets Pte Ltd

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From this, we can tell that there is a weak correlation and infer that interest rates (that uctuate within an acceptable range) would unlikely be a showstopper for someone who is thinking of buying a property. If you think about your own property buying experience, how much signicance do you place on interest rates such that it aects your buying decision? As long as interest rates do not go excessively high, I would reckon that things such as aordability and location would probably matter more.

Rounding it up To conclude, what would I look at to tell if a property market correction is coming? One of the key things I would look at is foreign direct investment, while I would probably not focus too much on things like number of marriages and SIBOR rates. In other words, the mass exodus of foreign investment and/or foreign interest would likely bring about a drop in property prices. Of course, there are many other factors that should be considered and what I have covered is just the tip of the iceberg. Unfortunately, an in-depth discussion is beyond the scope of this blog. Nonetheless, I hope that through this article, you will realize that there is a lot more to the property market than what you might think. And hopefully this will kick start your journey in property investing.

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Property Transactions for the 8th August - 17th August

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PropertyCentral.sg Weekly Issue #1

Property Transactions for the 8th August - 17th August

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PropertyCentral.sg Weekly Issue #1

Property Transactions for the 8th August - 17th August

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Property Transactions for the 8th August - 17th August

This data only covers non-landed residential resale property transactions with caveats lodged with the Singapore Land Authority. Caveats are usually lodged at least 2-3 weeks after a purchaser signs an OTP, thus the delayed nature of the data.

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Weekly Top 3 Deals

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