Sunday, November 7, 2010

Property Bubble?

It's quite worrying when almost everyone I know starts buying property for investments. Table 1 shows the pipeline of project due, extracted from URA.

Table 1

We are expecting 2,000 odd units to be completed by end of 2010. Supply will still be low in the region of 6,000 completed units in 2011. However, in 2012 there will almost be a 50% increase to 9,000 odd units, followed by a YOY 100% increase of completed units in 2013.

This is almost a 300% increase as compared to 2011!

In 2014, 15,000 units are expected to complete, which adds to the glut of supply. Should interest rate rise to 3.5% then, the influx of supply will lead to further rental depression due to high cost of funding. Investors will be selling cheap when their rental yield cannot cover the interest rate they are paying to banks.

The average net rental yield is about 3% now. I believe we will be seeing a downtrend of rental yield from 2011 onwards together with a apike in local interest rates.

Perhaps one should buy a HDB now and wait for fire sale in 2015.

I might be wrong though.


Anonymous said...

I think 'supply over demand' only leads to a slowdown. But what makes the bubble burst is often the result of a crisis/recession.

Don't buy HDB units now. You may be able to pick up 'real' fire sale between 2011 and 2015.

erwin said...

I recall your previous post in 2009 where you said there would be a property downturn so you were waiting. I had also replied.

I think you underestimated the effect of low interest rates in a world awash in liquidity.

I bought in 2009 and took advantage advantage of 1.3% P.A. interest rates.

I doubt that housing prices will crash though the rate of price increases has to slow eventually, rather, inflation will catch up, in which case, it's best to hold real assets such as property, gold, commodities, etc.