Property market headed for a lift?

April 11, 2008

FRIDAY MATTERS

Property market headed for a lift?

By Chua Mui Hoong

WATCHING the property market is a hobby of many Singaporeans, not all of whom are savvy investors. It's an exercise replete with intellectual challenge, emotional ups and downs, and lots of human interest.

The human-drama element has been high in recent months, with court cases, lost deposits and challenges to collective sales.

The property market also allows scope to exercise one's mental muscle.

Which direction is it heading now, with uncertainties over the financial impact of the United States sub-prime crisis pulling the market down, but with strong fundamentals in Singapore pushing trend prices up?

Property analysts and players have different takes on the property market.

One view, expressed by Mr Liew Mun Leong of CapitaLand, in a Business Times interview last weekend, is that fundamentals remain strong, especially in view of Singapore's push to be a global city with a bigger population.

Another more nuanced perspective is that uncertainty remains, and the turn of the market depends on how its major players react.

This was CDL's Kwek Leng Beng's take when he suggested that the Government review its land-sales programme, and consider reintroducing a modified version of the deferred payment scheme - suggestions dismissed by National Development Minister Mah Bow Tan.

What are potential investors to make of things when experts, and those in the know, come up with different views on the direction of the market?

This will be a dilemma familiar to most investors, and in fact to anyone who has ever relied on

'expert advice' for anything, whether it's to buy a new cellphone, sign up for a series of new beauty treatments, or decide what one's dream job is.

Is expert advice worth the paper it's written on?

Financial advisers say yes - their advice is worth the weight of the paper in gold at least.

They can draw up charts showing how well their managed portfolios perform relative to MSCI or other global, regional or local indices. They can churn out spreadsheets showing how their portfolios are robust, and risk-adjusted, with high Sharpe ratios, and the correct level of variance, correlation, or whatnots.

I must confess to being sceptical of, yet sneakily susceptible to, jargon and impressive-looking charts I need an adviser to talk me through.

But does expert advice turn out to be a more accurate predictor of reality than the advice of your grand-uncle - or his maid?

University of California Berkeley professor and political psychologist Philip Tetlock tracked the predictions of 284 experts and forecasters of political and global events over 20 years to assess their validity. He then asked the forecasters what they thought of the quality of their judgments.

He found that more qualified people didn't make better predictions. Professors did no better than undergraduates - or journalists.

More interestingly, those whose predictions turned out wrong, didn't think their judgment was at fault.

They argued that their prediction was in the right direction anyway. Or that time would prove them right. Or that their judgment was right, but the final outcome was an outlier - 'I was right on the basics, but this was an exception.'

Insead decision sciences professor Spyros Makridakis led an international team that looked at the accuracy of econometric predictions over a 25-year period. They were trying to see what kind of statistical method proved most accurate. The authors of the study concluded that 'statistically sophisticated or complex methods do not necessarily provide more accurate forecasts than simpler ones'.

The above survey of the failure of forecasting is courtesy of an entertaining book by Nassim Nicholas Taleb, The Black Swan, which warns against the hubris of thinking one can predict the future, especially using methods like regression and trend lines, which assume the future unfolds at a predictable, steady trot.

It's a useful reminder to bear in mind in a country like Singapore which has got so used to success, its citizens may take steady-state reality as the natural order of events. (And forget that outlier shockers derail life. Like Sars. Or a terrorist event.)

But back to the property market.

Given that Singapore's property market is as much driven by sentiment as by fundamentals, one can argue that a layman's take is as good as the take of real-estate experts.

Like Mr Kwek, whose pronouncements on the property market I take with the same seriousness a forex trader treats pronouncements from the Fed, I think how the property market pans out depends on how people react.

If buyers believe fundamentals are strong and that prices are due to head north, then those who have remained in the margin will be tempted to come in now when prices are stabilising, in anticipation of firmer prices after the worst of the sub-prime crisis is over.

Sentiment is a strange thing. And maybe it's the bonus-effect, with lots of people getting their annual bonus payments in the first quarter, but I do think the tide in the property market is shifting. There's a barely discernible lift.

I base this on nothing more than cursory looks at asking prices in classified advertisements and on looking at the handful of developments I keep an eye out for. And on that touchstone of sentiment: my own itch factor.

I'm fully aware that my view has no statistical basis since I used neither regression analysis, nor the Box-Jenkins method nor the Bayesian estimator. (Don't ask. I just parrot these phrases without much understanding, like the exam-oriented student I once was).

Having familiarised myself with psychology works on the errors the human mind commits in decision-making, I am also aware that I am guilty of confirmation bias, recency, anchoring, loss-aversion and whatnots (Okay, these you can ask).

But if prediction is as much an art as a science, then your guess is as good as mine - or any PhD's or CEO's.

So when figures for 2Q 2008 show a slight uptrend, remember it wasn't an expert who told you so, but a reporter whose hobby is reading property classifieds.

And if it doesn't?

I retreat to that old excuse: I was ahead of the curve. The market will improve in the following quarter. Or the next.

muihoong@sph.com.sg

Copyright © 2007 Singapore Press Holdings. All rights reserved. Privacy Statement & Condition of Access

EastLiving.com.sg

Contact Stuart Chng: (65) 9691 9907
Email: stuart.chng@eastliving.com.sg

EastLiving - Singapore Property and Real Estate DB