On 28 January 2008, I made a 6-month market projection. My opinion was as follows:

• We are at historic crossroads
• World order will shift, the rich may fall and the poor poorer
• We are near a crisis of an epic proportion
• We have no experience but the simplicity is familiar
• What we need is an Open Mind

Three months after, Dr Tony Tan, Deputy Chairman of GIC, warned that the world might face the worst recession in 30 years. And that is equivalent to saying there will be a crisis of epic proportion.

How to deal with the impending recession:

To begin with, let me say that we must be psychologically prepared that the population in the entire planet is going to be poorer than before. Some of the rich upper class will go down straight from the rich list to the bankruptcy list, starting with some top guns in many of the world’s leading investment banks, hedge funds, insurance company and many other private financial institutions who just a year ago were living the high life.

At the time of writing this article I did not know if the US$700 billion rescue package will be approved by the House of Representatives. But even if it does, the world will still have to go through some months of painful readjustments and recuperation as new realities set in.

The crux of the matters is that over the past six years or so, the housing inflation had also inflated the values of many companies, such as banks and major institutions, and emboldened many property investors, Singapore’s included. In short, the economy bubble was inflated out of proportion over the past years and it is still in the process of being put down to its correct size. In the process, spending will be curtailed, making the global economy look like an obese new recruit on his first day of Basic Military Training (BMT), trying to fit into a tight uniform. The moral of the story is: the fat boy needs to cut down the excess body fat very quickly by eating less and exercising more.

An old saying goes like this: “when US sneezes, Asia will have pneumonia”. But in today’s context, when the US has a tremor, Asia will have a tsunami. And as we are speaking, the sign of tsunami is ominous – the tide is receding and being sucked back into the sea, far away from the beach. There will be some moments of stillness in the air before the high waves strike. This time round, none of the economic sectors anywhere in the world could be spared from the fallout. In short, we are in for a rough ride from now.

We have to be prepared for widespread poverty, even in the world leading economy such as the United States and some parts of Europe.

What does that mean to the property market in Singapore?

In the first place, I would like to stress that not all ‘down trend’ markets are bad markets in terms of transaction. Though prices may fall by 5% to 10% in the next six months, the transaction volume is a different matter altogether. As far as property transactions (including sales and rentals) are concerned, there are many signs that point to an active year ahead of us – as investors and home owners alike are adjusting to their new circumstances. 

      • More Sub-sales on the card

The record 18,000 sales of new home units achieved in 2007 and the ‘not-too-bad’ 11,147 sales of new home units in 2006 will combine to release thousands of completed new condos into the property market, starting from the early part of 2009 onwards.

More than 15,000 condo units are slated to be completed from the first quarter of 2009 onwards, with more than 8,000 units in the prime districts such as districts 9, 10 and 11; and another 4,400 units in the East Coast areas of districts 15 and 16. The rest of the thousands of new condo units will be scattered around the outlaying areas.

With banks tightening credit control, some of the property buyers who had purchased the properties on Deferred Payment Scheme might not be able to secure the financing and will have to dispose of the property in the sub-sale market.

Meaning of sub-sale:

As long as the property sellers do not have the property title in their hands and need to notify the developers to issue a fresh Sale and Purchase (S&P) Agreement to the subsequent purchaser, the sale is considered a sub-sale.

When the property seller has the title in hand and is able to sign the Transfer Document and release the Title to the buyer upon legal completion, the sale is called Resale.

      • More down-grading from condos to HDB flats

There may be more instances of condo owners wanting to downgrade to public flats due to the massive increase in costs of living in a condominium. With the new price hike in electrical tariffs from 1 October 2008 where average households will pay 21% more in utility bills, more ‘middle income’ households with a gross household income of between $5,000 and $10,000 with more than two ‘financially dependent’ children may have to adjust their lifestyle and spending habits – if they are living in a condominium.

This means that the HDB resale flat segment may experience a ‘mini-boom’ as it will become a ‘buffer zone’ in times of great ‘economic adjustment’. I expect younger 5-room flats to experience an increase in activities since the ‘middle income’ may not be comfortable to relocate into an old heartland area. Newer HDB precincts may offer a lifestyle concept that appeals more to the middle income group. In other words, I expect the newer HDB precinct to become the growth area in the next nine months to one-and-a-half year. [See case study in HDB price trend later]

      • Cheaper prices lower risks

In fact, from the list of 40 Best Selling Condos in Singapore in page 12 – 13 it is not difficult to detect the increased buying activities of mass market condominiums in the outlaying areas in the first half of the year, despite the fact that the US subprime mortgage crisis has already making regular headlines in the local newspapers.

The Best Selling Condo list has been dominated by transactions in Districts 5, 15, 16, 22 and 23 where the unit floor rate (i.e. per square feet price) are hovering from $700 to $1,200 for District 15 condos, and as low as between $400 and $600 for condos in Districts 22 and 23.
While the new home segment may take a hit in sales volume due to developer’s pricing strategy, the sub-sale market is more responsive to the basic market forces of ‘demand and supply’. As such, it is not surprising to see sub-sellers pricing their units on hand for ‘cut-throat’ prices that are lower than the developer’s listed prices.

      • Agent’s Market in the Great Singapore Sub-Sale

This is in fact a piece of good news for new agents who were elbowed into the sideline during the bull-run of 2007 because they lacked the critical skills to out-fox their more experienced colleagues. But with the thousands of new condo units available for sale, there are many ‘low hanging fruits’ ripe for anyone’s picking.

      • Back to basic for every agent

For the thousands of experienced agents, everything is back to square one, which is the basic real estate marketing 101. When no buyers will jostle to throw the offer cheque at the listing agents, the agents will have to go back to the prospective buyers to elicit offers. And, on the other hand, to get the property sold quickly, the listing agents will need to convince the property sellers to align their asking prices with the market condition – simply by showing them the latest facts and figures. It’s all what the agents have been taught at the classroom when they first entered the trade.

So, when everybody is starting from a clean slate again, the agents who stick to the basics will flourish. In such an agent’s market, there will be no more short-cuts like during the 2007 bull-run. When an agent misses one step, or resorts to short-cuts, no offers will be forthcoming.