1 semi-D + 1 cluster house = 1 flat and $700k loss
By Melissa Tan
IN 1995, Mr Zachary Tsai (not his real name) paid nearly $1.3 million for a second house. A general manager with a manufacturing company in his early 40s, he earned a five-figure salary and lived in a semi-detached house he owned in Upper East Coast with his wife and four children.
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But pressured by his 'rich and successful' friends, he decided to pool his hard-earned savings of $300,000 with his sister to put down a deposit on a three-storey cluster house in Kew Gate, a 31-unit leasehold development in the Upper East Coast area.
Intending to sell it about 10 years later, and confident of being able to repay the mortgage and make a handsome profit, he took out a 90 per cent bank loan.
Any thought that he would lose his job and house prices would drop like a stone never occurred to him. But the unthinkable became an unpleasant reality.
In 2001, after his employer merged with another company, he lost his job.
He managed to cover monthly payments on the loan with the remnants of his savings, but that did not leave much for his family.
Desperate to make ends meet, he tried to sell the cluster house in which his sister and mother had been living, but for two long years was unable to do it.
Although he managed to secure a new job in 2003, his salary barely covered the monthly payments. Then the Sars crisis hit and property prices plunged further, recalls Mr Tsai, who is now an operational manager in his late 50s. He eventually disposed of the house at a bank foreclosure sale in 2003 for $680,000 - almost half of the original value and $300,000 below valuation. In total, he lost about $700,000 on the house.
The Tsais, who had to sell their semi-detached home to pay off the debt, now own and live in a five-room HDB flat - also in the Upper East Coast area - bought with Mr Tsai's Central Provident Fund savings. 'I've dreamed of owning private property again and going back to a semi-D. But next time I'm not going to think twice - I'm going to think three or four times,' Mr Tsai says.
Home owner M.K. Kung, 42, has also been hit by shrinking values.
She purchased a two-bedder at Yio Chu Kang condo Seasons Park in 1996 with her husband for about $700,000. They are still living there with their child, but she reckons the apartment is now worth only $650,000 or less.
'We have been thinking of upgrading, but it's not easy to sell something when you know you're going to make a loss on it,' says the public accounting executive.
Mr Tsai and Mrs Kung - along with thousands of others - had bought into what PropNex chief executive officer Mohamed Ismail terms 'the myth that prices would only keep going up'.
'Prior to that we had little experience of prices being crushed. Queueing up for two, three days was common, and queue spots were changing hands for $15,000 to $30,000,' he says. Some property analysts draw parallels with the upbeat market we have today, but are keen to point out differences between the last property crash and today's situation.
DTZ's head of South-east Asia research Chua Chor Hoon says: 'The market right now is reminiscent of 1996 in atmosphere with the queues, the packed showrooms and good take-up rates for popular projects.
'But the level of speculation now has not reached the feverish state seen in 1996 and it's still too early to tell whether it will turn out the same way.''
Dr Chua Yang Liang, head of Southeast Asia research at Jones Lang LaSalle, agrees: 'It seems that there is a market euphoria that is quite similar to that in 1996...but the market fundamentals are quite different.'
What may cut the danger of another crash is the fact that properties in many areas are still worth less than at the time of their launch, while others have made only relatively small gains. Prices still have a lot of catching up to do, just to make up for inflation over the years.
Recent transaction data from the Urban Redevelopment Authority website shows that suburban properties launched in 1996 lost more value over the past 13 years than those in prime districts, some of which have actually risen in value.
Prices at Seasons Park, where Mrs Kung lives, have fallen from $610-$670 per sq ft (psf) at launch to around $520 psf now. And Hougang Green units now fetch around $520 psf, down from their average launch price of $560 psf.
At Ardmore Park in Orchard, however, the 2,885 sq ft apartments, launched at an average of $1,850 psf in 1996, have been selling for $1,976-$2,513 psf since August last year.
'The average price of resale leasehold suburban properties in the second quarter of this year was about a quarter below that in the second quarter of 1996; whereas the average price of resale freehold properties in prime districts in the second quarter of this year was about 5 to 10 per cent above that in the second quarter of 1996,' Ms Chua points out.
Ms Tay Huey Ying, director for research and consultancy at Colliers International, explains: 'Prime district prices recovered in the property boom of 2007 but the mass market recovery came later and was short-lived due to the United States sub-prime mortgage crisis.'
Current launches in suburban areas, such as Optima in Tanah Merah and Centro Residences in Ang Mo Kio, have sold for about $810 psf and around $1,170 psf respectively, on average. These are record prices in their districts.
Asked whether such new launches are overvalued, Dr Chua says: 'It's hard to tell now. There are no signs pointing to a major correction...but I don't think the current rate of price increase is sustainable if it is not supported by economic growth.'