Property upswing: Beware the exuberance

Source : Straits Times – 28 Jul 2009

THE real estate sector is stirring, though not lustily yet. There is every reason to support the rationale that the upswing this time is better moderate than precipitous. The lesson learnt of the irrational exuberance in the second half of 2007 was that asset price inflation that began to eviscerate purchasing power in Singaporeans’ foremost ownership ambition was socially fraught. The trap can be avoided. Now that the second-quarter GDP rebound and intermittent stock market rallies will provide real estate momentum, it is not too early to counsel caution.

But one should still be thankful. The property turnaround is tracking closely the people’s confidence, which has withstood better than thought the effects of the recession. There are also the multiplier gains for businesses providing appliances, furniture, electronic gadgets, home decor and renovation works. Although the Urban Redevelopment Authority’s monitoring showed that prices of private property declined again in the second quarter, what was noteworthy was that the slower rate of quarterly dip (4.7 per cent against 14.1 per cent) mirrored the improved buyer sentiment evident since February. In the HDB market, confidence has been more pronounced as prices and values stayed up through the worst of the economic slump.

Real estate companies have a responsibility to steer the recovery along a steady path that will bring them sustained earnings while keeping condominiums and flats affordable. The temptation to raise prices too sharply and quickly to catch the crest of the wave (it is not rolling fast yet) must be resisted. Precipitate repricing when the market is still tentative will set the recovery back – then it will be a case of all fall down. Property consultancies for their part should stay true to their ethical principles to not talk up the market and drive fear into people waiting to time their purchases correctly. So far, the actions of these two market catalysts have been mainly responsible. Long may this continue.

And buyers? They should never give in to the unwarranted fear of ‘missing’ their entree in a rising market. The evidence shows that HDB upgraders, en-bloc sellers and middle-aged types with savings have been the dominant buyers. Young couples with neither the CPF cache nor dependable careers can be expected to dive into the private market soon. They should stay well clear. The HDB is created for them as a step-up ladder. This cautionary tale may require review when rich foreigners and funds start buying sight unseen, as in 2007. Even then, prices can get out of whack only to the eventual dismay of developers – to say nothing of bona fide home owners.