My parents often tell me not to trust what I read on the internet. I agree with them. But the papers sometimes give us even greater misinformation than the internet. Newspapers get their revenue from ads and not so much from your subscription! The biggest contributors to their ads often have a say on what gets published! If the property developers often advertise their new launches on the papers, the financial institutions advertise their new fangled products, the papers will be very restrained in making negative comments on topics concerning the products their clients are selling!
On 12 Sep, Thur, the Business Times ran a full section on the property market. Some articles were good, like the article "On the Fringe of the City" and "Buying Landed Is Like Buying Art". Others, such as "Private Home Markets on Sustainable Path", "Outlook Firm for Malaysian Market", "Iskandar Malaysia Comes to Life" were written by the research team of major property firms or journalists who fail to provide quantitative data but merely quote from analysts in the property firms. It is difficult for an analyst to be objective when his salary is paid by the amount of sales his team makes.
"The Expense of London's Boom" is an article about the UK property bubble. I bet that it has scared off a lot of people from buying UK properties. I'm glad the articles came out because I'm in the process of securing more properties there.
I've quickly devised a proprietary model that predicts which cities have the biggest value, which ones are merely a HOLD, neither BUY nor SELL, and which ones are clearly in a bubble territory. I used factors like price to income ratio, nominal GDP growth (because the faster the income grows, the tenants can pay higher rents and buyers can pay higher prices), demand and supply dynamics.
US cities like Phoenix Arizona, Houston Texas, Orlando Florida, New York emerged as runaway winners. Surprisingly, cities like Ho Chi Minh City, Seoul, Brisbane, Adelaide, Petaling Jaya, KL, Toronto, London and Manila came up tops as well.
Tokyo, Jakarta, Bangkok, Guangzhou, Shanghai, Hong Kong, Perth, Yangon, Beijing, Shenzhen and yes your favourite Singapore are in the HOLD category, which means that there may be room to rise further but they are dangerously in the bubble category.
Cities like Makati, Taipei, JB, Suarabya, Hangzhou are in the SELL category. Many of these cities have a deadly combination of high prices relative to median income, oversupply and moderating GDP growth.
US cities are in the sweetest spot. They are at the most affordable in decades and the government is encouraging people to buy more. Building activity is still falling as the consolidation of builders continue.
Ahhhh... now for London. If you think London's 13x price to income ratio is high, and the gross yield of 4 to 5% is low, why then are you bullish on Singapore? It's price to income is 21x, and gross yield is 3 - 4%? You see, London's price to income may not be as low as NYC's 9x, but it has a severe shortage of properties. For the next decade, London's population will probably grow between 80 - 100k per annum. it needs about 30 - 35k of net new homes built per year, but last year, it achieved only 18 - 20k. The next three years will see between 20 - 25k built. London is the only city with the price to income ratio above double digits. The other cities are well below, but their GDP growths are also below that of London's. London has at least 30% of price growth some form of concern is warranted. But let me explain to you, even if you curb property prices in London, the fundamental problem is the lack of supply and if ownership is curbed, rents will rise as renters are forced to continue to instead of buy.
If you believe that London and US cities are too far away, then do consider Manila, KL, Ho Chi Minh and Australian cities. I am extremely risk averse when it comes to investing and if I do not understand the language or believe there is a lack of transparency, I'd always settle for developed countries because the ownership structure and landlord rights are strong. However, Australia has a capital gains tax which I detest, and also a restriction of foreigners to buying only uncompleted properties.
My advice to anyone investing in properties: figuring out demand and supply is extremely important. Price rise without yields is like investing in art and banking on The Greater Fool Theory. Taxes can eat away your returns too so try to avoid countries that have high capital gains and income taxes.
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