Monday, August 03, 2009

Bubble Trouble?....

"If something cannot go on forever, it will stop"

"If something goes on for longer than expected, people will start explaining why it will last forever." - Lucky's Law

Today's ST front page : Asian markets are hot, hot, hot. The back page talks about the best July the stock markets had in 20 years. Singapore's STI beat everyone else in Asia except for Shanghai. Now you see why the simple advice I gave out [Link] to invest during recession does make some sense because once the slightest signs that recovery is on the way, the stock market seems to go all out to discount an all singing all dancing economy. At the current level stock markets are discounting a V-shaped recovery (when it is actually L or U?) if it goes higher it is discounting longer period of strong growth....if it gets above certain levels (STI 3000+?) it will discount the best possible economic scenario. Stock markets often get it wrong that is why it is more volatile than the real economy. However, they will humiliate nay sayers first by defying logic. In 2006-2007, I read that the SSE (Shanghai) market was a bubble when it was at 2000, nay sayers said the market was in for a crash when it was peaked at 6000. During the bubble George Soros famously shorted the Nasdaq Index when it go to 3600 declaring that it was a mania of historic proportions and he was right and wrong...before crashing to 1000, the Nasdaq Index rose to 6000 costing Soros several hundred million dollars. Stock market bubbles are fuelled by overly optimistic investors and short sellers who are forced to cover when their bets go wrong. The fact is most people make money then eventually lose in a bubble. The trick is getting out ...walking away...not looking back...taking your money and run. While there is no way to tell the peak of a bubble, one successful speculator who made off with several fortunes in each of the past bubbles (1987, 1996, 2000, 2007) told me there is some kind of symmetry in the market movement and psychology - in the current market rally, one can see that at stock index levels when it fell the fastest in Sept-Nov 2008, it is rising the fastest and he expects the market to stop rising so fast when it reaches levels where the market had consolidated last year.

We appear to be seeing 2 potential bubbles forming this time. The other one is in the property market. You can just see from the number launches over the weekend....(hmm..why are the developers selling now if prices are poised to go higher). There was an interesting remark by the CEO of Capital Land that this whole thing is not a bubble. It is actually not difficult to tell if the property market is in a bubble compared with the stock market. I'll show you how later in this posting.

HDB prices surging to all time highs. Suburban condos approaching prime condo prices[Link]. At the height of the 1996 bubble, one of my friends told me, "It is not possible for prices to go down because land in Singapore is limited". Yes, our land is limited but so are our incomes. For the good size bungalows and super-prime condos, the limit is the pocket books of rich Indonesians and our home grown billionaires. HDB is still very much the housing of ordinary residents, regardless of the number of PRs, newly minted citizens, the price is bounded by the monthly income of buyers. Given income hasn't risen much since a year ago, the rise in prices mean people are willing forgo other forms of consumption to service their housing loans. There are also a number of people waiting by the side with savings who jumped on to the bandwagon but this spurt in demand is only temporary - in the long run, after the one off rule change to allow CPF to be used for property, the rise in price of resale flats in the long run can only be sustained by increase in personal income. There can be one-off events such as allowing the use of CPF for property, increase of loan tenure, etc that cause the price to shift up but once it adjusts for these changes, the rate of increase follows the growth in personal income because that is where the source of funding that supports the property prices comes from. Unless income goes up dramatically, the price rise is not sustainable in the long run. The problem is bubble such as the ones we have seen in Singapore in the past and in US can last for several years before they are deflated by a recession or govt intervention. Here is what property prices in Singapore look like relative to incomes:

You can detect bubbles when the PPI (Property Index) goes above the real income graph. At the height of the bubble, the market is full of speculators flipping property because their income does not allow them to hold and service the loan. Minister Mah Bow Tan tried to talk down the HDB market a few days ago by saying 'whatever action necessary' to prevent excessive speculation in the property market. He also reminded Singaporeans to ask themselves if they can afford what they are buying and think about what happens when the buyer loses his job. He could have done better if he had bravely announced a new policy that new HDB flats prices will now be linked to median household income rather than the market because that is a true measure affordability immune to market bubble tendencies - affordable housing is the HDB's mandate but its pricing mechanism is not consistent with the mandate ( what else is new, our pledge also says 'to build a democratic society'....come on HDB should build affordable flats for a start!).


Anonymous said...


Ur rival and fellow gahmen critic *snigger* already posted why it is not a bubble.

Opposition folks must sing the same tune, no?

Anonymous said...

btw, somewhat related to ur previous post.

They are thinking of selling kidneys in US too.
Who says we not 1st class.

Alexandra said...

Need personal loan? Learn how you can get a laon even with bad credit

Anonymous said...

The current property prices make it impossible for first-time home buyers like me to move forward to "buy" a HDB flat. I'm in my late-20's, at a comfortable job with a decent salary, and i'm reluctant to become locked into a price spiral, where all my income will be sucked into paying off a flat that is not worth the price being paid.

Even with dual-incomes, the current cost-of-living makes me reluctant to start a family, as i'm not sure its possible to balance a HDB flat and a baby all at once.

If things do not improve, I am considering migrating, so as to enjoy a better quality of life, at a more sustainable cost-of-living.

Anonymous said...

Agree with you. Costs of living here is ever increasing. You salary just cannot keep up. Wages are depressed due to flood of foreigners. I salute those who "upgrade" to private property with smaller floor areas from HDB and becoming a slave to the huge monthly loan. Meanwhile jobs in singapore are become more insecure. And once you cross the threshold of 40 years and above the fear becomes very real. Live and enjoy life debt free. Who knows what is in store for tomorrow.

LuckySingaporean said...

anon 10:06,

I don't consider mr wang a rival. I do enjoy his blog and I did read that article. I myself earlier wrote that the HDB price rise can be due to new immigrants and newly converted PR. However, unless everyone wants to keep degrading his own standard of living paying more and more for their home....the limit of income will kick in and put a stop to the rise in property price.

I did not also say when this whole thing of price rise will stop. If the govt simply convert more and more people to PR, we will indeed be degrading our living standard further just to live in a decent home.

Anonymous said...


Rival means rival.
Dun be shy.
Plus not many people w more than 2 brain cells cares enuff and to put up a blog.

Pls be fair to Mr Mah. Tie hdb price to median household income ... how to meet his KPI (and achieve his bonus?). Unless it is for 2 generations ... or 3.

anyway, the people says he is doing great job. If he gets more than 66.6% of vote in next GE .. u post apology?


And dun any how say degrade.
Plenty of people queuing to buy 400 sq ft apartments u know. ur 3 room HDB really luxury alreadi lah.

Anonymous said...

useful analysis, lucky.

but u are asking marlboro tan to do the right thing instead of the profitable thing which of course is impossible as long as we are under complete pap rule.

Anonymous said...

'Live and enjoy life debt free'

Unfortunately, that is just not the way most people think nowadays. Now, oweing money is the fashion and debt free is out of date. Greed is good and not greedy is foolish.

I subscribe to the debt free thinking and I also live within my means.

By the way, I also agree that the biggest challenge will come when one passes the threshold of 40.

Anonymous said...

another piece blow out of proportion. you don't pay millions to these jokers not to be aware of the consequences of inflated property prices lah.

to the anon who holds a decent salary job and complained about high property prices....what you are in effect is saying...though i can afford a home in today'smarket, i want prices to fall so i can buy cheap and profit big time when come to my turn to sell

well, the days of your parents when they can make 3 to 5 times and even more of what they paid for are over lah

for the new generation home buyers, you have other advantages( no need to mention here lah), you won't see that kind of capital appreciation anymore won'tlose your pants when you buy in the current market in fact, capital appreciation maybe moderate and will most likely be in tandem with economic growth lah.

not too shabby i say

lastly, i know of a 40+ single lady teacher who managed to pay off her $1/2M, in less than 5 yrs of living in it,

if a single professional(normal teacher salary only hor and don't have joint income benefits ok) can easily paid off a half a million dollar property, many who are married will do much better lah

you need to get your financial priorities right minus frivolous spending

and lastly, she is just one of many i know who have paid off their so called expensive homes before they hit 50.

no big deal for most singaporeans lah and i mean....most!

so you can basically know where the property market is heading lah...hehe

Anonymous said...

@anon 15:30

40+ Single Lady Teacher (say avg pay of $4k) would have no kids to feed, no childcare\tuition fees to pay and 20+ years of savings.

Since she paid in less than 5 years, it means she bot the property abt 4-5 years ago, where the property prices were still relatively low (compared to now).

And the single lady teacher, believe it or not, has a salary which puts her in ard the 30% (above the median).

the fact is that most of the bo liao pple on this blog would be fairly well educated and therefore *many* pple we know would tend to be doing fairly well. ya. sinkies tend to be a fairly incestous bunch.

Anonymous said...

then you missing the point lor.

now why would i say more or elaborate more leh you can benefit from my GREAT wisdom ah??


LuckySingaporean said...

anon 15:30,

Hey what's with the school teacher paying her housing loan in 5 years? I don't get the point you're making because she could have been living on maggie mee and saving up for 15 years before she purchased her property.

People need to be married with a family unit before they can purchase HDB. With a family comes expenses. The median household income in Singapore is $4.6K. Take $2.5K for other expenses, a household has about $1.5K-$2K to service a housing loan. If the person takes a $400K loan, with interest,he will pay about $600K and over a period of 25-30 years.

Anonymous said...

Lucky, where to get the latest chart for PPI vs real income?

I think many ppl will be interested to know what is the current situation.

LuckySingaporean said...

Anon 19:47,

I'm also looking for an update version of the chart.

But my estimates put the current property pricing well above the real income line. However, it is hard to say when or whether it will come down. In a sense, there are permanent changes in our society like the addition of a large number of PRs and citizens and Singaporeans may have permanent changed their lifestyle by cutting back on other spending to support the rise in property. While it is not possible for property to keep rising at the current doesn't mean it will fall. It can just stay at these prices until income catches up.

Anonymous said...

it's lucky's blog, so gotta show some

in reality hor, the situation is not that bleak lah.

the pt here is, base on a teacher's salary(graduate), it is possible to pay off a housing loan( about 1/2m) before one hits 50(btw, it's a condo)

as for the lobang in the story, i am sure, you have amble intelligence to go beyond statistical limitations and figure that such cases are actually quite common OR getting more common

so any home that costs between 200k to 400k is...peanuts really lol

Anonymous said...

latest is that...optima sold out 3 days after public preview

average price? $810 psf for a 99 leasehold somemore.

rported said demand so strong...went for two rounds of balloting and about....600 cast

buyers were a mix of hdb upgraders and pte home owners

see prices fall. the fundamentals from the GROUND is supporting the market lah..something most ppl never factor in lah why the GROUND so strong leh? lol

Anonymous said...

Anon 20.58

You don't know but PAP know lah. From the income tax people paid and how many of them they know already.

66% mandate at every election not for nothing, u know.

Anonymous said...

Anon 20.58

You don't know but PAP know lah. From the income tax people paid and how many of them they know already.

66% mandate at every election not for nothing, u know.

Anonymous said...

btw, if some think the teacher high flyer hor...think again. not a high flyer. what's amazing, only recently, she opted for lesser work load and had her pay

pap is great!! HAHAHAHAHAHAHA

Anonymous said...

sure pap knows much more than we know..thats why property price goes up mah..HAHAHAHAHAHA

Anonymous said...

The problem with your chart is your're plotting the real PPI versus the PRIVATE property prices. 80% of Singaporeans stay in HDB. Therefore you should plot the income levels of the top 20% income earner's percentile versus private property prices. I will not be surprised if the rise in the income levels of the top 20% would be would be much higher than the country as a whole. Therefore, private property may not be that unaffordable after all for the top 20%.

Anonymous said...

ppl complain hdb 1/2m expensive...where got. joint income, no need hit income ceiling limit of 8k also can pay off easily lah

aiyoh...what top 20%??? thats why...pap is great lah! HAHAHAHA said...

The property bubble may or may not burst in my opinion.

Anonymous said...

Property bubble burst or not PAP will still win election. That one for sure.

Anonymous said...

This is a situation of willing buyer, willing seller. No one is forcing anyone to buy. People are rushing to buy because Singaporeans are very prone to herd mentality. When they see a queue they will join. Sometimes they don't even know what it's for.

Those of you who thinks there is a property buble growing, sit back and wait. There will be lots of reasonably priced pickings after the buble burst and the dust settled. Then there will be the start of the next bubble. A couple of years wait out of a lifetime for 6 figure profit is worthwhile. The higher the rise the further the fall. The fall will come, it's a matter of time one just have to be patient.

Anonymous said...

Property prices can fall but it need not fall - know the difference.

Sometimes, it is a self-fulfilling prophecy engineered by an interest group that is intended to rock the market

In fact, the people who wanted the market to fall are as greedy if not, greedier and more harmful to people's lives, as those who wanted it to boom.

The wise, in my opinion, would hope for stability and steady growth.

Whether it rise or fall unreasonably, the power that be has to decide what is good for its people.

Anonymous said...

$$Those of you who thinks there is a property buble growing, sit back and wait. There will be lots of reasonably priced pickings after the buble burst and the dust settled. Then there will be the start of the next bubble.$$

yah yah...greedy and wicked people destroyer of nations and people lifes...LOL

Anonymous said...

@Anon 08:08 & Lucky

Want to make money is based on leverage (+ options or small down payments)+ buy high sell higher.

ur style very old fashion leh.

Anonymous said...


Not say I say what but Anon 20:48 is correct u know.

ok the 200k flat (3 rm?) is getting harder to find but even 1/2 mio is affordable for grad couple. Of course only about 20% or so of pop are grads and grad couple can hardly be considered as the average clueless sinkee household.

But admit it ... in ur world teachers are lowly paid ... which is why I am repeating this ...


... but keep u the good work ... ignorance is bliss and I always believe that it is unfair that I am in the unhappy minority.

Sotongball said...

Hi Lucky,

Thank you for the insightful article. btw, where did you get the property price index vs gdp chart. It will be interesting to know how the graph look from 2006-2009.

Anonymous said...

not say i say...which occurance got more suicides hah? boom or bust?

not say i say ...some people hor...bodoh wan ha

Anonymous said...

u see..the difference is an angineer thinking and a mecahnic thinkin

angineer come practical..kosong. lll

Anonymous said...

GDP is irrelevant to SG.
I mean our per capita GDP is higher than the Brits.

Leather Diaries said...


Thanks for sharing.

Anonymous said...

Anonymous 15.30 is just a PAP dog.

He even tried to sound singlish. LAME.

Anyway the days of PAP is soon over. i think less than 5 yrs there will be internal squabble in PAP

Anonymous said...

I'm not sure whether such reasoning has any basis. I may be wrong as this seems a bit far stretched.

Sg gov policies in favoring foreign talents/workers, but caused much unhappiness among citizens.

Decreased in fixed deposits interest rate, lower than inflation, caused people to seek avenues to grow their wealth, like recent stock market rally.

Recent changes to cpf, annuity no longer guarantees amount paid in future, people are afraid, better to use it to invest in something, cpf can be used to buy houses, and real estate is a good hedge against inflation but provided the price is not too high.
Wtih GLCs/TLCs owning stakes in the three main local banks should have the means to increase/decrease SIBOR. You may wonder why SIBOR is low now.
Given that Singapore citizens stood at 3 million with birth rate at 1.29 and decreasing, without favorable foreign talents/workers policies, the three main factors - jobs, incomes and population that determine whether real estate will worth more than now 10 years or more later, will be undesirable for those owning rental properties.
At the end of the day, even though there are many reasons to dislike current gov, some people may have no choice but to vote them in due to investments in properties at too high a price and need the tenants from “grow GDP at all costs.”
Other opposition parties and Singaporeans in general know that certain foreign talents/workers policies are detrimental to their futures and jobs but once again like the estate upgrading, smart for one but dumb for all.

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