Sunday, 22 January 2017

A Prediction About Properties 13 Years Ago

Before I became a blogger in 2012, I contributed to the Straits Times (ST) Forum Page once in a blue moon. My first letter was written in Dec 2004 and discussed the issue of whether downgrading homes was a viable means of providing for retirement. I was 29 that year. Certainly, I was not thinking of retirement then, but what aroused my interest a few years earlier was whether properties could be a viable investment for me. That led me to study how the demographics of Singapore would change in the 35 years from the time I thought of the question to the time I would retire. My conclusion was the demographics was favourable for the 1st half of the 35 years and unfavourable for the 2nd half of the 35 years. The main issues were the low birth rate and greying population in Singapore. Since I had to live in one house for the entire 35 years (and more), I probably would not profit from any property investment over the entire period. Thus, I dropped the idea of buying a private property. 

In Dec 2004, ST ran a special report on retirement and one of the methods mentioned was to downgrade their homes. Since I had thought about the issue and I believed not many people had considered demographics changes in their planning then, I decided to drop a letter to ST Forum Page. In that letter, I mentioned that due to demographic changes, property sellers would progressively increase relative to buyers and eventually outnumber them in 2017. The analysis behind the letter is discussed in greater details in Properties.

Every 5 years, I would update my analysis based on the latest demographics figures to check if there are any changes to the above conclusion. The last update was in 2013, after the release of the Population White Paper and Land Use Plan (see Properties, the Population White Paper and the Land Use Plan). While the year sellers would begin to outnumber buyers has been pushed further from 2017 till 2020, the broad conclusion from 13 years ago remains unchanged: that sellers will eventually outnumber buyers and property investors are facing a significant headwind from demographics in the long run.

Just a personal note, I believed too much in my own analysis and did not recognise that even if there are no profits to be made over the entire 35-year investment period, it is possible to profit from the 1st half of the period by buying properties or property shares. In fact, I even sold Ho Bee at $0.215 in 2003 and did not pick up Chip Eng Seng in 2003/2004 when it was languishing at $0.10! That is my desserts for being a smart alec! 

The one very expensive lesson that I learnt from this episode is that even though the long-term analysis might point in a certain direction, the short- or medium-term analysis might point in an entirely different direction. I should analyse the short-, medium- and long-term situations instead of being fixated by the long-term conclusion.

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  1. For Long Term prediction to be accurate, all your assumptions made in your model have to remains unchange throughout the period while you wait for it to materialise. However human being will react to situation when face with adversity. ie. Increase immigration, reduce land supply, change curbs etc.

    1. Generally agree with you. But it is interesting to note that despite the changes in migration and housing supply in the past 13 years, the outcome of demographic changes on properties is still the same, just a little delayed.

  2. Hi Chin Wai,

    The last ten years for SG had been a miracle as we strive for economic success. I do not think it is just property shares of Ho Bee or CES, many people or companies are seeing rapid expansion.

    The question remains that if the next ten years will be as rapid.

    Therefore while I agreed that short and medium term understand is equally important to the long term, the critical success is still the "decisions which led to action". Many people understand a lot of things, but when it comes to making decisions, they chicken out!

    Combination of wisdom and knowledge is important.

    The last ten years, property is still the best tool of reaping "paper wealth increase". But it can be catastrophic also, because not many downgrade to reap the cash, rather they upgrade anticipating an ever better booming property market....

    1. Hi Rolf,

      Sorry, I missed this comment as I was slow in clearing my emails.

      Yes, I do find that people think the good times will continue, without understanding the underlying factors that led to past successes. Without this understanding, they also cannot detect that the underlying factors have shifted such that future success is no longer guaranteed.