Jul 31, 2009

How To Understand Information in the Age of Lots of Information

Early this year, I wrote a post entitled The Modern Risks of Information and Advice. In that post I explained why we must be careful how we interpret information and advice, even when it comes from expert sources.

The key point is that no matter how knowledgeable an expert may be, his interests are not necessarily aligned with yours. Therefore he may or may not tell you what you really need or ought to know. Also, he is likely to say the things which are in his own best interests to say.

It doesn't mean that all experts are always out to deceive or mislead you. It does mean that whenever you come across any expert providing his views or opinions, you should take a moment to consider his possible motivations in providing such views or opinions.

A case study below. Suppose you are a property developer, with many units left to sell. Further suppose that it is suspected that a property bubble might be forming. Is it in your own personal interests to say that there is a bubble forming ... or that there isn't?

July 31, 2009
No property bubble forming
They say buying frenzy hasn't reached point where Govt needs to intervene
By Joyce Teo

PROPERTY developers are enjoying the surge in interest from buyers but they do not believe that speculation has reached a stage where the Government needs to step in.

They also maintain that the prevailing economic conditions will begin to cool the buying frenzy and stop a bubble forming in its tracks.

'It's not a bubble, it's just a blister after the pain we experienced in the global financial crisis and it comes before a recovery,' said Cushman and Wakefield managing director Donald Han.
Meanwhile the TODAY newspaper reports that yesterday, at a showflat in Tanah Merah, hundreds of people showed up yesterday and started queueing to get in - even though the showflat was supposed to open only today.

So the developer TID opened the showflat last night at 8 pm. It started sales by open ballot sometime after 11 pm. The balloting carried on "well into the wee hours of the morning" - we assume this must be 1 am or 2 am.
Bubble or not? Hmmmm ....
A late night property ballot ... is this a sign of the times?
Jul 31, 2009

The showflat was only due to open today.

But on Monday, some, mostly property agents, were already lining up for units at the Optima condominium at Tanah Merah. They went home after developer TID made it clear the queue would not be recognised.

However, this did not stop hundreds from turning up early yesterday - leading to a massive queue and the occasional ugly spat over queue-jumping. The result? TID decided, at about 8pm, to open the showflat doors and, unusually, kick off open balloting.

The process began after 11pm last night and carried on well into the wee hours of the morning. Successful applicants paid the 5-per-cent deposit on the spot.

19 comments:

thor said...

Dennis Ng from HousingLoanSg has come up with a rather quaint way of putting how long this rally can last. Looking at the average median household salary of 6k, and 4% ave interest rate, the max loan one should be comfortable with is about 500k(35% of salary). Given that most low end condos are already at 800/900k-1 mil+, either there are a lot of rich ppl around, or speculation is in the air.

Physics Wizard said...

If we do not trust the experts, i.e. people who are knowledgeable and experienced in certain areas, who should we listen to?

How do we know the real truth? How do we, as members of the public, protect ourselves from misinformation?

Anonymous said...

Physics, what you are asking for, is encompassed in "Role of Governments" through "protection of public spheres and interests".

Let's see our gahmen keep that KPI.

Mr Wang Says So said...

Unfortunately, the government will also have its own reasons for telling you what it tells you. Here is one example.

Anonymous said...

reminds me of a book i read - Freakonomics. it had some unorthodox of experts using information against you. the only way to protect ourselves other than the govt is to obtain some information ourselves and observe the situation. through certain decisions whether right or wrong, we will learn and grow and through these experiences we will be better at interpreting these 'experts' advice.

Parka said...

Show me how (not how much) they are paid and I will show you how they behave.

Anonymous said...

It is in PAP govt's interest to help the developers and big businesses. Once these developers have cleared their stock and the buyers are left to hold the babies, the govt will step in with measures to "cool the market". LOL

Anonymous said...

mr wang, i would like to hear your comments about the affordability of the average median household against the cost of the low-end condos as thor has highlighted. you've speculated on various reasons in your previous post about the possibility of potential demand but don't you think question of affordability would be the over-riding factor in the end?

Anonymous said...

@anon 4:45

"Affordability"?
How is it related to speculative bubble?

porcorosso said...

Depending on how cynical one is you could either say - there is no point asking an inmate in an asylum whether he is mad or that this is a Jedi mind trick. There is no property bubble.

Anonymous said...

'Affordability' is the least important worry of those who speculate on properties. Their motive is selling out and making a profit even before the property is ready for occupation.

'Affordability' only features into the plans of those who intend to stay in the house for the longer term.

LuckySingaporean said...

Bubble or no bubble... Since these price rises occurred without the corresponding rise in income....it simply means Singaporeans have less money for other things in life.

For prices to stay up either incomes have to rise or more Singaporeans forgo other things in life for property....and this adjustment is permanent among Singaporeans otherwise property will go right back down.

In the long run property has risen with income. There is a chart in my blog that shows this close correlation. If you look at the chart for recent months, clearly the prices have gone up too quickly. Either income catches up or based on past history the price of property will eventually come down.

Mr Wang Says So said...

Ah, Lucky. The other way to look at it is that the income divide is growing.

Some rich Singaporeans are growing richer and richer, and some poor Singaporeans are growing poorer and poorer.

So while the average income of Singaporeans looks more or less unchanged, there is a segment of the population which is genuinely able to afford to put their money into all these expensive properties.

LuckySingaporean said...

Mr. Wang,

Some validity in what you said. Given that our median household income is $4.6K while average household income is $6.4K. Totally skewed....the man-in-the-middle is not doing so well.

However, after the rich guy buys his 3rd home. can he buy his fourth? Even when we look at total GDP, it is not growing as fast as property price. No matter how the money is distributed, there isn't enough to sustain this type of rise in the long run.

Anti-Chronic Singapore said...

Mr Wang,

You are right. Singapore's gini-coefficient has been rising (from 0.49 in 2000 to 0.52 in 2005). This means income disparity is growing.

This is more common amongst those above the age of 45. During colonial days, not many have opportunities for higher level of education.

Our new economy needs skilled labour and a good percentage of foreign talents and graduates are skilled labour, who are paid the higher income.

Look at your close relatives in that category and speak to them. Many are asked to take much lower pay or switch to jobs in tourism.

Doubt many could participate in the private property boom.

Whatever data or information from the media, read it, tear it apart and look at the what-ifs... Try to develop your own insights.

Anything that is in demand would be speculative for a while, not just properties. Oil, stocks, Palm oil, I-Phone, durians, etc.

This is common in capitalism. And so is adverising and propaganda from companies. Its called 'Marketing'.

Anonymous said...

mr wang, when 99-yr mass market condos are now selling at 3 mth ago prime district pricing level, the widening income divide cannot be the main reason. I would put my money on blind speculation aided by reckless bank lending.

I checked around, none of my friends are getting any pay rise. Those running businesses are also not getting any better income. Only people that are having a better time nowadays are stock brokers and property agents.

Anonymous said...

Maybe if just only 10-20% of households has >$10K pm income, there will be more than enough buyers who can afford $800K-1M condos. If more high talent high pay FTs let in, even better.

So maybe Govt really knows how many can really afford based on the "market price". They will also then adjust HDB prices "accordingly".

Anonymous said...

Lucky

Mr Wang already told u. Income divide is widening.

The condo market is targeting at the top 10% where the income is growing.

The rich guys in the top 1% can afford 4th or 5th. And in fact there is a lot of foreign money parking in SG.

And GDP figure is only relevant to minister's pay. the only thing that matters is income.

Having said that, that a quick look at URA website for sub-sales to decide for urself if it is speculation or real demand.

Anonymous said...

Last week, I went to a property preview presentation. The agent presenting was trying to scare the people that there might not be enough private housing although govt said that there are sufficient units for the next few years. The agent presented data showing that after deducting the figures for landed housing, there isn't much left for condo etc etc. He also denied that bubble was forming. In short he encouraged the audience to submmit the blank cheque as soon as possible otherwise they might missed the chance of grabbing the unit. Guess what??...the unit cost about $1000psf for a 99 years leasehold. I walked out of the presentation immediate when it ended. I am a cool headed person!