Is the Singapore Property Market in a Bubble?

For those who knows me well, they would know that my favourite investment is the Stock Market, my second favourite is the Real Estate Market.

However, investment is all about making money, and when the investment is overhyped. We need to be aware because that also means our chances of making money from it is LOWER.

Private Residential Property Price Index

Looking at the price trend of the Singapore Residential Property Index, one clear observation is that it is on the UPTREND. That is great news because it means over a longer period of time, the property investment should be profitable.

However, if you zoom into specific time period, you will notice that there are periods whereby, the index dipped down quite sharply and recovered after 10 years.

For example, at 1996Q3, the index was at 127, it only recovered by 2008Q3. So properties prices would have returned almost zero returns over the 12 years, when you adjust for inflation.

However, the key observation for me is not that it took so long to recover, it was how it coincide with the stock market performance.

I superimpose the two charts and you can see that in the last two stock market crashes in 2000 and 2008, the property index also took a big hit.

**There were other corrections in the property index but those are due to government cooling measures.

Does This Mean The Property Market Will Definitely Collapse?

Of course not, however the chances are much higher than before.

Since my analysis is that the stock market will suffer a correction this year, I believe the real estate prices will also follow suit.

Another datapoint for me is the supply pipeline of future residential properties. With more and more units coming to completion, it also points to possibly lower prices in the future, unless demand surges.

On the Ground Survey

Another data is how the new condominium launches are performing. In the last few months, we saw overwhelming number of purchases. Condominiums are selling out like hot cakes.

A real estate agent even told me that the “lower-grade” condominium which used to be shunned by investors, are selling well in 2020. Buyers appearing “out of nowhere”

As an investor, when I see such “hot sentiment”, I like to stay away. Because in the world of investing, good prices are only found when others are not looking.

Since everyone is buying properties hand over fist, there is a lower chance of me getting a good price.

Conclusion

I believe the current sentiment for real estate in Singapore is high, and coupled with the worsening global economy, I would rather wait out to make my next property investment.

I believe when the market collapse, and economy worsen, many investors will not be able to fulfil their mortgage obligations. Perhaps I will see the replay of 2008/9 when scores of houses are put on bank auction every week as investors default on their mortgage.

That would be a good time for me to invest.