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Fall in property prices not enough to justify buying decision

I refer to the commentary “Interest in residential property remains strong” (Nov 25). Is this a good time to enter the market? In my view, the continued strong interest in the residential market is based on a misplaced view that it is the right time to enter the market.

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Wong Toon Tuan

I refer to the commentary “Interest in residential property remains strong” (Nov 25). Is this a good time to enter the market? In my view, the continued strong interest in the residential market is based on a misplaced view that it is the right time to enter the market.

Have prices dropped sufficiently to justify a buying decision? They have certainly not; prices have come down only by 10 per cent from a 60 per cent increase since 2009. Entering the market may mean suffering a big downside risk based on historical data, especially in an impending economic downturn.

Between 2009 and 2013, prices skyrocketed to unsustainable highs fuelled by a combination of factors: Robust population growth, ultra-low interest rates, severe housing undersupply and pent-up demand. This highly desirable situation is unlikely to be repeated any time in the foreseeable future.

We cannot consider Singapore land scarcity in itself as a major attraction for investors. What is needed are favourable demographics and a continuous population growth rate that is sufficiently high enough to support price growth. These requirements appear lacking, looking ahead towards 2030.

The population growth rate has fallen to 1.3 per cent a year, from an average of 3.5 per cent per year between 2005 and 2010.

An ageing population will also affect housing demand negatively.

Adopting a longer-term perspective of 10 to 15 years does not guarantee a successful investment. When buying on the wrong side of the property cycle, an investor may hold on to a negative asset for several years to come.

As we know, the property market is cyclical, and the market is in its final years of the cycle. With or without government cooling measures, further falls in prices can be expected, especially amid a struggling global economy.

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