Ep #38: Old Wives Tales About The Residential Property Market (Part I)


I must first apologize it can be old
husbands tales it can be young wives tales it can be young husbands tales as
well I am not feminist I think some of you may have mistaken the title the title says let’s share some of our favorite real estate old wives tales but
I see a lot of questions about what you should do in the next five years and
whether prices will go up or prices will go down so I would try to deal with
some of these questions along the way there’s a lot of data today please enjoy
yourself we are here to be entertained okay and if you find anything really
ridiculous please feel free to laugh I will start there’s a lot of
misconceptions about the residential property market and the misconceptions
have sort of gotten overblown in particular because we have got a lot of
social media and it is easier and easier to broadcast our views now and the
people who are broadcasting news the people who are shouting the loudest may
not be the people who really get it about the market they just happen to have
the loudest voices of course with POFMA coming in maybe things will get better
but I really doubt so POFMA is used for kaypoh people like me so I posted
this when I did a private event with propertysoul Vina couple of weeks ago and I
asked on Facebook and some friends then posted what is what they think is a myth
in the market so Singapore got limited land that’s one of the postings the
belief that government is able to keep the land and property price up forever
that’s another myth that my friend believe in and another friend say that
LKY say HDB is an asset we now know what it is I’m not sure what it is but I guess he
he means we he and his friends so let’s start from the first one and one
of you posted it up just now that Singapore is land scarce so
Singapore is land scarce means what buy property sure make right buy property cannot go wrong so I published this a few years ago 2016 so it’s been three three
plus years now none of the people from ah gong’s office has called me up to tell
me that I’m wrong yet I say that Singapore has enough land at the moment to
accommodate 10 million people so if at that moment 2016 we already have
sufficient land for 10 million people do you still need to get even more land look
at the top line this is master plan 1958 582 square kilometers master plan 1980 618 square
kilometers how many of you PSLE maths got problem 618 square kilometer – 582
square kilometer is how many square kilometers extra really PSLE got
problem for your maths then master plan 2003 693 square kilometers 1980 to 2003
period of 23 years and a lot of the yellow parts are still not counted
within the 693 yet but this has been planned this is now slowly being filled
it is now a lake but the shape of the lake has been changing in the past few
years so 693 square kilometers then 710 square kilometers in this 2008 master
plan so this is just 11 years ago then five years ago 719 square
kilometers draft master plan 2019 but statistics department from
2018 723 square kilometers how much did we grow those
whose PSLE mathematics got C any answer how much did we grow in the last
sixty years from right before independence now save you the trouble two square
kilometers per year for 60 years a total of 120 square kilometers that is 21.5
million square feet every year for 60 years or a total for those whose PSLE
mathematics got an A you would be able to calculate that we had growth by a total of
1.2 billion square feet as a country the plot ratios grow you’re not just growing
at the surface right so when you gain weight and you grow fat
is it just the weight and is it just your belly that is growing your skin
surface area also grow so when we grow our skin surface area which is our
land mass and then we multiply by a higher and higher plot ratio we can take
a lot a lot of humans okay so this was from my article three years ago
that’s why it still says a hundred square kilometers now it’s 120 square
kilometers and there are a lot of new areas that we are building what is the
latest hot area GSW Greater Southern Waterfont right but two years ago what did
you hear was the new area another three-letter word it used to be that
four-letter words were bad words ABSD TDSR PSLE these are four-letter words that we
think is really rude but these days you get a lot of three-letter words
as well so before GSW what was the three-letter word you remember JID Jurong innovation district then during the hype of the high speed rail HSR
there was the JLD called the Jurong Lake District how many other districts do you
not remember if you’re gonna rewind every single national day rally every
national day rally actually is like a property agent convention we are going to develop this it will money we would sure make money here Rochor Ophir Beach Road Paya Lebar
Regional Center Woodlands Regional Financial Center North Coast Innovation
Corridor Science Park 1 Science Park 2 Changi Business Park
Tengah Bidadari come on get along with it don’t just keep your mind on the
very last GSW because the PSLE test would test you on the previous year’s National Day rally which is another three-letter word MBR they will test you on the previous year’s speeches as well we
have got so many new areas that we are launching in ten years time Paya Lebar
Airbase that’s another new four-letter word but we will be repeating that in the future PLAB which is under planning now in total we can take another five hundred thousand housing
units and singapore and that can bring our population growth way beyond the
6.9 million if I am warning you about oversupply that there is too much
properties available so prices and rentals may not go up your first
reaction is always if you open the doors they will come in when you are old
and wrinkled at the high school ball you are sitting in one corner waitin
for people to invite you to dance you open up your arms wide wide nobody wants to
invite you to dance it is not always it is not a certainty that when you open your
doors people will come in what are they coming in for manufacturing down 8%
services down this is retail sales down 1.8% this is in the middle of Great
Singapore Sale Experience Singapore 2019 trade down 8.6
percent unfortunately inflation is still up so when you open your doors why would a foreigner come in just because your door is open people are coming in must
be to steal things right if you do not have jobs how would you be
able to bring the foreigners in to occupy the properties that you are
building who are you leasing out to so fewer job vacancies that unemployed persons now we have got more person chasing fewer jobs
ask the driver the next time you take Grab and Gojek have a conversation
with them find out why they are driving Grab and Gojek population grew 1.2 percent just released last week
find out which segments of the population actually grew if it is
Singapore citizen population that grew due to the production of extra babies
those babies don’t need home so where did the population growth come from student population growth do we need a lot of housing units to house students domitories
hostels we need them mainly in employment pass
that’s 11 percent s pass holders work permit holders a fraction of them
need housing if you are s pass holder but working in a certain industry work permit holders in certain industries you are not allowed to rent private residential
units or HDB flats so work permit holders many of them are
staying in workers dormitories then this category of foreigners called FDW
they by law have to stay with us so again no housing needs required then 17%
dependence of citizens dependents of PRs and dependents on work pass holders
dependent pass holders since you are a dependent on somebody else if that
person already has housing the dependents stay with that person
so where is our population growth coming from that is making you so enthusiastic
that when you open doors people will come and they will fill up your
apartments 5.7 million new number due to more foreign workers and the foreign
workers are in the construction sector and in the services sector do these
people spend two thousand dollars to rent a shoebox apartment from you so
this is an extremely busy chart and number for year 2019 for public
housing this is just my own estimate but the rest of the numbers are referenceable
to the government various departments DOS URA HDB and my
company our population growth this year is 33,000 non-residents and 31.9 thousand Singaporeans plus PRs out of the 31,900 Singaporeans plus PRs about 22,000 are babies so no need extra housing unit right unless you’re going to
make your baby grow up early by asking your baby to live outside first on his
own in a shoebox not in a shoebox apartment so the other
33,000 if they are mainly work permit holders in construction and services
sectors just reflect on how many units of housing they need and in the past two
years it was a negative 27,000 and a negative 2.1 thousand so back
to my question this means that if we open our doors wide wide people will come in my question to you is where are the jobs without the
jobs they won’t come in and with manufacturing down 8
percent trade down 8.6% and you should look at the since Donald Trump and China
started fighting what this negative numbers look like in the past few months
you will see next few months not not going to be open the door anybody will come in okay what’s the next one I wanted to sidetrack a little bit before I move on
to the next myth office at 11.5% vacancy is a recession level vacancy the
last two recessions we were at around 12% today office is at 11.5% in the last two
weeks what was the news about one of the largest office tenant in Singapore correct it’s a company called We 8 locations in Singapore when they
disappear it might it would definitely bring this across the 12% mark
we are not having a recession yet but our 10 million vacant square feet which
is equivalent to 10 VivoCity that are kang kang yet there are many bullish analysts out there saying office will do well and this is simply a reflection of not
enough jobs if we are hiring steadily offices wouldn’t be that vacant then
retail well we know retail has got a lot of vacancies industrial 56 million square
feet of vacant industrial space completed vacant factories business parks
warehouses that are vacant and with the trade numbers
and the import export numbers dropping with this number be any better factory
space is at all-time high vacancy as well
56 million square feet and can you imagine 56 VivoCities that are distributed
around Singapore and the entire VivoCity is vacant that’s what it means okay
let’s move on to myth number three real estate is a hedge against inflation
firstly you must believe that inflation is the bogeyman is inflation such a big
threat that we need to hedge against it if Mr Brown was here he would be
making lots of faces about inflation but is not what contributes to inflation
this is the broad number inflation has many items but these are broad
categories you look through these categories and you think for yourself in the next
20 years which category will contribute to inflation food clothing and footwear
will clothing and footwear contribute to inflation $300 limited edition
Adidas shoes don’t count in the inflation basket right housing and
utilities will that contribute to inflation okay this one question mark still later I will
show you some other numbers will healthcare contribute to inflation healthcare will contribute like crazy unless we construct hospitals polyclinics
clinics old age care facilities like there’s no tomorrow but in master plan 2019 cannot smell okay then communication likely to
be not really going to be contributing much to inflation recreation and culture
maybe not education probably so if you really want a hedge inflation if you
really think that inflation is such a scary thing in your life open the
cupboard is dark at night and inflation pops up at you are scared by it then invest in healthcare invest in education will investing in residential properties
really makes sense inflation in the blue line MAS
call inflation HDB resale index this type of trajectory in the last thirty years
when our economy is growing when the economy is growing together and
population growth is strong the trajectory goes along the same path and
you claim that real estate hedges inflation what if I say that inflation
hedges real estate they happened to be growing on the same path so in the year
around the year 2002 professor Sing Tien Foo who is now the head of the
institute of real estate studies in NUS published a paper looking at whether
there is inflation hedging capabilities of property versus non
property investments his conclusion industrial properties fare very well who
is invested in industrial properties you would have hedged inflation well based on
the period of time that is investigating secondly industrial properties and shop
houses his conclusion can hedge what about residential residential
properties is found to be a good hedge during low inflation periods
residential property is a good hedge during low inflation meaning during low
inflation when inflation is one percent a year residential properties go up one
percent a year and they are aligned but during a period of low inflation why are
you afraid of inflation and then strangely some other professors from
overseas they are supportive of the hypothesis then property returns move
one-to-one correspondence to inflation rates what does that sentence means if one to one correspondence to inflation rates every morning we all brush teeth and our
teeth brushing makes the sun rise it corresponds one to one every morning all
of us are brushing teeth right a few of you dirty ones don’t admit here okay don’t let your friends know but how can you say that just because it is one
to one that by investing in one you are hedging yourself against the other so
all of our teeth brushing really makes the sun rise is it correlation
and causation are two separate things they happen to move in tandem with each other now you
think forward then will real estate will residential real
estate really hedge inflation if inflation is mainly going to come from
healthcare costs education costs and in the next 20 years our very large bulk of
baby boomers who are now growing older by the day and you see that as they
approach 75 to 80 years old we are losing them very quickly in numbers these
people will be firstly these people are 90 percent homeowners and when they grow older and they start to pass away ninety percent of them have a home to sell and
when these people are passing away and selling their homes or their children
are selling their homes for them in the next 10 to 15 years
it is this bottom bunch of people who are going to be buyers how many buyers do you have versus how many sellers are in the market so what
is the opportunity for real estate to be inflating in the next 20 years unless
you really create massive number of jobs to bring in massive number of foreign workers otherwise this is tough

5 thoughts on “Ep #38: Old Wives Tales About The Residential Property Market (Part I)

  1. This is a really good presentation. Ku is an engaging speaker and talks a lot of sense in this clip. I never noticed that NDR's usually come with new launches until he pointed it out.

  2. I don't quite buy the part that new population growth comes from babies and babies don't need new house. Annually, there are 27k marriages and these newly-formed household are driving local demand. My parents' house is reduced from 5-person household to 2-person as 3 grown-up kids successively buy their house. From your chart in 20:39, the age 25-29 (or children of baby boomers) represents a large segment. This group are going into marriageable age and will drive up the demand. So babies that were born 25 years ago determined the household formation rate and the demand now.

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