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Thread: Sitting out the property frenzy

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    Default Sitting out the property frenzy

    July 15, 2007

    Sitting out the property frenzy

    Even if opportunity stares me in the face - as it did - I'm one of those not fated to make money from the property market

    Sumiko Tan

    AT LUNCH with some business contacts the other day, the topic turned to how hot the property market is, and someone wondered aloud if Singaporeans hadn't been swept by a wave of irrational exuberance.

    The term, as you might know, was first mentioned in a 1996 speech by Alan Greenspan.

    The then chairman of the Federal Reserve Board used it in passing to describe the behaviour of stock market investors, but what a potent soundbite it turned out to be.

    Immediately after his speech, stock markets around the world fell.

    Greenspan's phrase is now used to describe a feverish state of speculative fervour, and that would be an accurate way to describe the property market in Singapore today.

    Hardly a day goes by without some media report on how yet another record price has been reached, or how owners of yet another development are putting it up for sale in the hope of becoming instant millionaires, and how developers are willing to pay more and more for land.

    Certainly the property fever has made a lot of people richer and happier. At that lunch, for example, one person was said to have invested so shrewdly over the last few years that he was now sitting pretty on homes worth many millions of dollars.

    Another person at the table had just sold a condo which netted him a cool $500,000 profit in six months.

    Over the next few days, I was to learn of a colleague who made $200,000 from flipping a condo, another who was $500,000 richer and an ex-colleague who made $390,000.

    But the most amazing story of all was how two people I know of stand to gain $7 million each - $7 million! - for their apartments (we're not even talking about houses) if the collective deal in their estate goes through.

    All that was standing in their way was just one more household agreeing to the sale. Apparently, some owners were holding out for $11 million - $11 million! - per unit.

    Even my neck of the woods hasn't been spared the en bloc fever. Two low-rise developments have been bought by a developer. A banner at the gate proudly proclaims 'yet another successful collective deal'.

    I'm bracing myself for months of construction work and the appearance of a multi-storey concrete monster across the road.

    It's enough to make you weep - if you're not in the game, like me.

    I'VE long realised that I'm one of those who will have to slog long and hard for my money.

    I have neither the instinct nor stomach to take risks or to gamble, and neither do I have the luck.

    Opportunity could stare me in the face - and it actually did when my company launched a condominium in Thomson earlier this year and staff were given early-bird previews - but I am fated not to seize it.

    I suffer from pessimism. In fact, you could even call it irrational pessimism.

    But I believe that this attitude saves me heartache. If bad things really do happen as I predict them to, then I won't be shocked as I'd all along expected them to. And if things turn out better than I'd thought they would, well, what a nice bonus then.

    And so when faced with the prospect of investing in an apartment unit, my mind was filled with a hundred reasons why I shouldn't.

    I've never dabbled in property before and did I really want to start because so many others were in it? The downpayment was no small sum and did I want to part with money just like that? I hate being in debt.

    What if there was a setback to the economy? A decline in consumer demand, say, an oil crisis or natural disaster? What if there was a terrorist attack tomorrow? How would I settle the loan payments? And isn't there already an oversupply of units? What if there were no buyers and I'd have to enter the messy market of renting out the unit? Do I need the stress? Why not be happy with what I have?

    I chose the latter.

    I wouldn't say I regret it. But I do admit that whenever I hear about braver souls who now have a fatter bank account to show for it, I do feel a little blue and turn a little green.

    THE thing about the property market is that it's so hard to predict which direction prices will go.

    In the 2005 edition of his 2000 best-selling book Irrational Exuberance, economist Robert J. Shiller dissects the hows and whys of real estate booms. His conclusion? While forces of supply and demand do determine prices, myriad social and emotional factors come into play, too.

    He says: 'In both the stock market and the housing market, people have only the fuzziest idea what these investments are really worth, what their prices ought to be.

    'They may be able to judge whether one stock is overpriced relative to another, or whether one house is overpriced relative to another, but they just do not know how to judge the overall level of prices.

    'Much more salient in their minds is the rate of increase of the prices, something that they talk and hear about a lot in a time of rapid price change, and that has subtle effects on their demand for speculative assets.'

    Or as a property executive in Singapore put it more bluntly recently, the market is simply driven by greed and fear - 'fear of missing the boat, and greed to make more'.

    When I see how much others are profiting and how I'm not, I console myself with two thoughts - even if I had made $500,000, windfalls do eventually dwindle; they don't last forever.

    Besides, the allure of material goods - which is what I would have spent much of that windfall on - really does fade.

    I have first-hand experiences of this.

    A decade ago in the midst of another property boom, my parents made not a bad sum by selling a small piece of land. Much of it went to settling a housing loan, a little went to my sister and me, and the rest was saved.

    But the thing is, money doesn't last forever. It goes, and it goes very quickly if you're not careful.

    On the second point, I've never liked jewellery but recently developed an obsession with a small piece I saw in Ngee Ann City.

    By my standards it cost a pretty penny, but, heck, I deserved it.

    I felt really pleased with it the first week. Then the novelty wore off. Now, it's become something that's nice to have but, ultimately, quite meaningless.

    I suppose you could say I'm merely being sour grapes and you're probably right.

    But if that is what I've got to be to stay calm amid the irrational exuberance seizing the property market, oh, I'll grab it. I'll be sour grapes.

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