Take it with a pinch of salt


Given the current market conditions, how can analysts be so sure?

Analysts this week from a renowned rating agency assured us that local banks’ real estate exposure – while hefty – is not posing any risks as prices are rising in tandem with economic growth.

I may be wrong but are they not from the same elite group of rating firms which failed miserably to warn investors of the United States sub-prime crisis?

How confident are they? Did they commission a study?

I hope they did not just rely on quarterly market reports and face-to-face interviews with property consultants. As they say, talk is cheap. Which expert would give real advice if they are not paid for it?

As for market updates, they contain mainly general data intended for marketing purposes. While not inaccurate, they do not go into in-depth analysis which may show up a different picture and outcome.

Ditto for paid research subscription. They provide more detailed information but are still lacking in analyses of the type you can lay a wager on. It is still general in nature.

You will be surprised to know how many professionals from other industries use such reports as “irrefutable evidence”.

Property consultants will be the first to admit that these reports are written with marketing in mind, not for use in court or otherwise.

My point?

I am treating the analysts’ assurance with more than a pinch of salt because I do not know how anyone can be so certain while they are still so many unknowns floating in the market.

Under present conditions, I can stitch up data at the general level to present you any outcome you desire.

The market is giving out so many mixed signals right now. For sure, it is not clearly one way or the other.

Even the chief executives of the banks themselves warn of property bubbles.

It was reported that while DBS Group chief executive Piyush Gupta believes asset bubbles have already formed in Asia, he did not think a price correction would precipitate a crisis.

But really, could anyone have said otherwise if they thought differently?

Severe pronouncements such as a crash are reserved for the Marc Fabers or Dr Dooms of this world.

In Singapore, the relevant authorities have enacted and will consider more measures to prevent a bubble from forming i.e. no bubble yet.

There are no concrete evidences that the market will crash but neither is there conclusive data to show that it will not. We work on the balance of probabilities but it is better to be safe than sorry.

On another note, the story of the $36 million Sentosa Cove property purchase and the trend of China nationals paying over the top prices for local properties continue to fascinate the market.

As valuers will find it impossible to match these transacted prices, it is no wonder then that these purchases were paid fully in cash.

Some commentators have compared prime Singapore properties to luxury products like Prada and Louis Vuitton.

There is one big difference. They cannot take it home to China with them.

Others say that behind all the creature comforts are also the hard calculations made for a good investment.

Let us not kid ourselves. Such purchases are for owner occupation or for other reasons. Definitely not for capital appreciation or monetary yields.

What is the upside for a $36 million property? Another $36 milllion?

Paying it all in cash is also not what an investment manager would recommend.

What is it about Singapore property that is so attractive to China buyers? Political stability? Good schools? No, just that it is half-priced.

Same reason why Singaporeans continue to buy property in Malaysia even though they have been bitten many times over. It is cheap.

By Colin Tan, Head of Research and Consultancy at Chesterton Suntec International

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s