HOW'S THE MARKET? 5/5

JPRE Calls

In the absence of any significant catalyst to push prices higher, I believe property prices will remain generally flat, with a downward bias, over the next 1 to 3 years.

I haven't seen convincing evidence that prices will collapse, especially as most sellers continue to refuse to sell at a loss. When brokers say prices are dropping, they often refer to asking prices that are artificially inflated by zonal revisions. Actual transaction prices have remained relatively flat. Additionally, many buyers are looking for good deals, which acts as a support against any significant price drop.

Primary Risk to Forecast:

The primary risk to this forecast is the potential for a significant number of flippers to default on their contracts due to their inability to sell their units and pay the balance when it becomes due (upon project turnover). I am unsure whether developers conduct thorough credit investigations of their buyers. Many projects with super-easy payment terms (20% amortized, 80% balance) will be turned over in the next three years. If there are defaults, we will witness the fallout during this period.

Will the Decline in Interest Rates Help the Sector?

Yes, but not enough to push prices significantly higher.

I estimate that 90% of transactions in the secondary market are done on a cash basis because sellers prefer to avoid the complexities of bank-financed transactions (e.g., a 4-month delay in collecting payment). Therefore, the decline in interest rates would primarily benefit the primary sector.