Real estate game just like sports
In sports, we use numbers to measure the performance of leagues, teams and athletes.
Each league ranks its teams according to a methodology consisting of wins, losses and other factors.
Each team evaluates its players according to statistics that might include goals scored, minutes played, runs (baseball and cricket) or tackles (rugby and American football).
We measure athletes not only by their on-field performances, but also by their fitness.
We track how fast they run 100m, how many kilos they bench press and how high they can jump.
The game of real estate is no different in using measurements to evaluate performance at different levels.
We use property indices to measure the overall performance of the real estate market.
We use capital appreciation, rental yield and sales volume to assess the strength of a project.
We use listing prices, transactions and X-Value to evaluate the worth of an individual home.
In sports, we know that league tables are just one part of the story.
A league table tells you which team is top at a particular moment, but does not tell you who will win a match between the first- and second-placed teams.
Every sports fan knows that he or she must study all the statistics to evaluate the future performance of a sports team.
The same is true in real estate - you cannot look at just one indicator.
For example, one of the most studied scorecards in the game of real estate is the price index.
As either a property investor or consumer, it's important to understand what it tells you and what it doesn't.
Like a league table, the property price index tells you historical trends.
In the S-League, the table tells you who has been winning and losing and each team's record to date.
In the case of the price index, it tells you if the market is up, down or at a plateau.
Neither the S-League table nor a property index tells you the future.
For example, SRX Property recently published the SRX Price Index for non-landed resale homes. It showed an uptick of 0.4 per cent.
The number 0.4 is meaningless if viewed by itself, and it certainly does not tell you whether prices will be higher or lower next month.
Instead, you should look at the trends embedded in the index.
In this case, while private, resale flats ticked up in price in October, over the last four months, prices have been bouncing around the 168.8 and 169.8 index range, according to the SRX Price Index.
We call this a plateau, and it suggests a new support level for prices in the private non-landed market. In other words, prices seem to be stuck.
The next question that usually pops into the mind of a property analyst when they see a plateau is what caused it and what would cause prices to become unstuck.
The index by itself cannot answer these questions.
Therefore, a property analyst must overlay other graphs and indicators in seeking an answer.
Now, if we overlay the volume graph for private resale flats and highlight key cooling measures, we can make some observations.
First, we can see that the first Additional Buyers Stamp Duty (ABSD) did not achieve the Government's objectives in slowing prices. Resale volume stayed about the same while the SRX Price Index increased.
Second, we see that the second round of changes to the ABSD did reduce volume significantly and slow prices to a plateau.
Third, we can observe that prices did not come down until well after the total debt servicing ratio (TDSR) had already caused the number of resale transactions (or volume) to decrease significantly.
Fourth, we can identify a new plateau and observe that resale volume seems to have achieved a new equilibrium in the neighbourhood of about 400 units transacted per month. With the exception of Chinese New Year, volume has been consistent since the implementation of TDSR.
Since the market has reached its resale volume equilibrium, and prices have hit a new plateau, we can conclude that, with reasonable certainty, TDSR has probably run out of steam in terms of its effectiveness in reducing prices further.
Therefore, for prices to continue to decline, something else, like new supply, must be introduced into the equation to alter the market's dynamics.
In conclusion, the headline price increase of 0.4 per cent tells us nothing. We must introduce other information into our analysis.
To judge the real estate market on a single movement of the price index would be like predicting that Brunei DPMM would win the S-League championship on the basis of it being in first place on the morning of the final day of play.
Sam Baker is co-founder of SRX Property, an information exchange formed by leading real estate agencies in Singapore to disseminate market pricing information and facilitate property listings and transactions. In September, he used his "Home Stadium" prediction model to predict that the Warriors FC would win the S-League championship. Check out his earlier piece at srx.com.sg
We track how fast they run 100m, how many kilos they bench press and how high they can jump. The game of real estate is no different in using measurements to evaluate performance at different levels.