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Predicting the sun will rise in the East
21 June 2013, TODAY |
There is a proliferation of new property research and new faces in the media commenting on the property market.
It is healthy for the industry to welcome new blood but tough for new blood to prove their research worthy of public consumption. I first started to publish publicly in 2006 and one of my early pieces was criticised by both senior members of the industry and the public. It was a forecast made in late 2006 stating that Singapore residential prices would surpass $4,500 psf. Between the announcement of the forecast and the transaction that vindicated my forecast, a period of about nine months, I received comments such as “talking up the market”, “over-zealous”, “who is he” and “what is his background”.
No one can be correct in their views all the time. A good analyst need to score a hit rate of more than 50 per cent, and produce well researched work that is relevant to the market and not simply rely on mere empirical evidence or market chatter to draw on trends and conclusions.
New sources of research have not always added quality to the market. Some papers are simply not meaningful, while others have outrightly missed-the-mark and are misleading. Some of these were published by our leading daily newspapers and somehow the research becomes legitimised because they have been quoted. It is bad enough that the property market has too many policy changes within a very short period of time, causing anxiety and confusion, with social media platforms and the power of computing, it is really easy to have data crunched and an analysis published quickly. The public might discern hot air in advertorials, but misguided analysis reports packaged as expert views in mainstream media can be a little trickier to distinguish.
Good property analysts have to be in close touch with the ground in terms of leasing, property sales and the number of enquiries, etc. They must also be clear about the definitions of the numbers they are looking at. A very common error in research papers takes the total population (5.3 million) divided by the total HDB and private housing stock (about 1.2 million) to show that the average household size is 4.4. But we have not included the number of service apartments, hostels and workers dormitories in the housing stock because part of the 1.5 million non-residents in our midst include students and blue-collar workers. Were the household size number extrapolated, the figure will be skewed even further off the mark.
Recent articles discuss Grade A office rentals in the Marina Bay area fetching roughly 20 per cent higher than Raffles Place (about $8 per sqft per month). The reports I read then concluded that Marina Bay is a more desirable location, thereby having higher average rentals as compared to those in Raffles Place that are slowly dropping. But just looking at the actual rental numbers will tell you that drawing that conclusion is skewed.
Even within the not-so-clearly-defined ‘Grade A’ category, Raffles Place has a mix of old and new buildings, such as Ocean Financial Centre and UOB Plaza. The tenant mix is more varied and some tenants may have renewed their leases several times over the past decade.
Marina Bay’s spanking new shiny buildings boasts tenants who are Fortune 500 companies, global banks, trading houses and service firms. The earliest tenants moved into One Raffles Quay in 2009 with high rentals that were struck during the crunch years of 2007 to 2008. In my opinion, it would be awfully strange and very newsworthy if Marina Bay’s office rentals were not higher than that of Raffles Place’s.
Viewed another way, the fact that average rentals for Grade A offices in Raffles Place is a mere 20 per cent below Marina Bay’s says a whole lot about the strength and the tenacity of the demand in Raffles Place — and, not to mention, the prestige factor.
The rental numbers and the conclusion presented to journalists and the articles written in the press were pretty persuasive about Marina Bay. But reflecting on these figures, it seems to me like the conclusion is as expected as the sun setting in the west this afternoon.
A research statement about rental transactions notes Keppel Bay Reflections figures dropping from 197, in January to April last year, to 69 this year. Is that a drastic 65 per cent drop? The headline “Rents for Keppel Bay condo take a hit” that summed up the weakness in the rental market is actually flawed.
Reflections was officially listed as completed in the fourth quarter of 2011. At the time of completion of the 1,129 apartments, most of them were available for lease. But due to the massive number of units, some investors collected the keys to their units as late as April 2012. Also, aany had collected their keys in December 2011 and January 2012, and within a few weeks, had curtains and lights installed to make their units tenant-ready.
Most of the units were sold to private investors and another hundred over units owned by the developer were available for lease in early 2012. Therefore it is no surprise that during the January to April 2012 period, 197 tenancy agreements were stitched up. Most of these leases would last for two years, up till early 2013. And by the end of 2012, I hazard a guess that 70 to 80 per cent of the 1,129 apartments in Reflections have been leased out, owner occupied or just left empty by the investors. So, the total stock available for lease would have dropped. The fact that only 69 rental transactions were signed in January to April 2013 is therefore no surprise.
There is nothing wrong with the mathematics showing a shocking 65 per cent drop in rental transactions. But there is also nothing to be alarmed about. Such research is no different from someone waking up for the first time and announcing, “Wow! The sun rises in the East!”
Recently, District 8 made the news for the largest drop in resale prices and District 19 made headlines as the hottest district for landed property. Again, if readers reflected on these, they would hardly be surprised because District 8 (around Little India) is one of the smallest districts in Singapore and has relatively few transactions to begin with. So for any given period of time, compared to another period, the number of transactions and prices could vary widely. The data pool is simply too small for any meaningful comparisons. As for District 19 being such a hotspot for landed homes, readers should keep in mind that it is one of the largest districts in Singapore stretching from Paya Lebar to Punggol. And it probably has the highest number of landed houses. So again there is no surprise that District 19 holds the top spot for the most number of landed homes transacted.
In summary, property research cannot be a desktop job. It has to be accompanied by walking the ground and smelling the earth. Even researchers and market commentators of good repute and balanced thinking may hold views which are influenced by their shareholders, or the landlords and developers they represent. It is up to those who read these opinion pieces to keep a critical mind and question the motivations of the research.