There is no more Safehaven

by Colin Tan

A recent tender for a residential site in Pasir Ris site drew unexpectedly strong interest, with a news report saying 13 developers slugged it out in a close fight. The top bid was a mere 1.6 per cent above the next highest one.

The report was wrong in one respect. While there were 13 bids, there were altogether 20 developers involved – some in joint bids.

Analysts who are surprised by the keen interest in view of the worries about the global economy must be even more surprised that 20 property companies or 54 per cent more were involved in the tender. Should they be?

If the participating developers showed any caution, it was reflected in the bids submitted. The top offer of S$141 million – or S$361 psf per plot ratio – was about 10 per cent lower than the S$402 psf fetched by an adjacent site sold in May.

You may ask the bidders why but maybe the question should be: Do they have a choice?

As a group, developers have had three good years of sales since 2007 and are on track for a fourth. Even the slowest developer to react to the market rebound would have at least one good year under its belt. If they are not re-investing in new projects, what should they be doing?

Earlier tenders that attracted only a few bids may have led some analysts to mis-read the market. To my mind, they are missing the woods for the trees. Whether it was only a total of three bids or that the highest bid was 10 per cent lower, the important point to note is that all the sites offered for sale this year got sold and that more housing units are being added to the supply pipeline.

Over the past few days, property investors here must be befuddled by global economic events.

When there were first signs that the United States economy would slip back into recession, the US dollar fell against most currencies. However, when the euro zone debt crisis deepened, the greenback appreciated sharply. This caused a small but sudden spike in the Singapore Interbank Offered Rate to which most housing loans are pegged to.

So, this is how our local rates can ostensibly rise even when the US Federal Reserve promises to keep US rates low till mid-2013.

Talking about safe havens, gold’s latest bull market began in late 2008 because investors longed for something tangible. This was because the value of stocks, bonds and even currencies was shaken by the financial crisis. People wondered whether any corporation or government was strong enough to stand behind a certificate.

As a physical possession, gold was one of the few investments that needed no such guarantee. Sounds familiar? Property is also something that most people would consider as tangible.

However, since its August peak, gold has fallen more than 15 per cent to around US$1,600 an ounce today. The recent collapse suggests that the 2011 gold rush was a speculative bubble that may have popped. What about property?

Recently, I told some investors that it is more difficult to read the local housing market today. Singapore, being an open economy, is constantly buffeted by external events and our potential outcomes are more varied than others. Today, besides knowing real estate, you have to be an economist, finance expert and even a political scientist.

Yes, you will have to read and analyse more political events these days as many economic outcomes are now not determined solely by market dynamics but by the actions of policy makers. And guess what? Not all, but many, decisions by policy makers are not governed by what is good for the economy but by politics – local, regional or otherwise.

As such, you cannot completely depend on individual experts or take in wholesale what they say. They do not know better because they cannot read minds. You have to be a lot more discerning because events can also unfold quickly or so unexpectedly that – to be fair – even the experts are caught off guard.

You are all alone now.

Colin Tan is Chesterton Suntec Internationl’s head of research & consultancy.