Applying property investment lessons from SARS to the COVID-19 outbreak

Unless you have been living in the remotest part of the world, you will probably be closely following the developments of the 2019-nCoV situation like most people.

With the raising of the DORSCON status to Orange on 7 Feb 2020, some have likened the situation to the time when Singapore was hit by the SARS outbreak. Admittedly, all the precautionary health measures (i.e. the temperature checks, frequent hand washings, etc.) do bring back some memories of the SARS episode that happened in 2003. Interestingly, that got me thinking – how was the property market affected during SARS episode and whether there were any lessons that could benefit investors in today’s market.

Before I proceed, I must qualify that I am not trying to belittle the seriousness of the situation. My heart goes out to all those who have been affected by the virus – one way or another. Property investing (or any form of investing) is probably the last thing on most Singaporeans’ mind right now. However, the purpose of this article is meant to help put some perspective on the current situation and show that it is still possible to carry on with our daily lives with a certain degree of normalcy. So here goes…

1. Did the Singapore property market stop during the SARS outbreak?
I believe that the SARS episode of 2003 left a deep impression on many Singaporeans as it was probably the first time many of us experienced a pandemic.

One would think that, given the situation, there would hardly be any property deals done that year. Interestingly, based on caveats collated by the Urban Redevelopment Authority (URA), despite the SARS outbreak, there were 10,386 private residential property transactions that year (see Figure 1). If we were to include HDB and non-residential transactions, the number of transactions would be a lot more. What this means is that despite SARS, life went on for the property market and there was still buying and selling going on.

What is noteworthy was that the property transaction volume was potentially not too significantly impacted by SARS. This is because the total number of transactions in 2004 (without SARS) was just 14% more than the year before (when SARS happened).

Figure 1: Annual transaction from 2003 to 2008

Source: URA and CoAssets Real Estate (CARE). 

Looking at the overall trend, it also suggests that had buyers entered the property market in 2003, they would have managed to ride the property boom of the 2000s. This brings me to my next question…

2. How many of those who bought during SARS made a profit from their property purchase?
Of the 10,386 private property transactions, 2,658 units were resold over a five-year time horizon. A five-year timeframe was used because I wanted to assess the shot-term profitability potential of residential units for that specific property cycle (before the Global Financial Crisis (GFC) happened).

Of the 2,658 units that were resold between 2003 and 2008, 2,284 (or about 85.93%) sold their units for profits, whilst only 374 (or about 14.07%) were sold at a loss. This meant that there were 6 times more profitable transactions than unprofitable ones.

As a whole, the profitable transactions made about $331,000 on average, for their owners, with the majority (i.e. 51%) making profits of between $100,000 and $499,999 (see Figure 2). Interestingly, there were 136 transactions that saw their owners making profits of more than $1m.  

Figure 2: Distribution of profitable transactions

Source: URA and CoAssets Real Estate (CARE).

Some readers may be interested to note that the most “value for money” transaction was for a 148sqm unit at International Plaza. The buyer bought that particular unit for $482,000 in Sep 2003 and managed to sell it for $1.84m in Jul 2007 – thus making profits of about $1.36m in slightly less than four years. Who would have thought that such a deal (and a number others like it) would have been available in 2003?

In terms of losses, the group collectively saw an average loss of about $104,000. As a whole, majority (circa 80%) made losses of less than $100,000 and only seven transactions suffered losses of more than $1m.

Figure 3: Distribution of unprofitable transactions

Source: URA and CoAssets Real Estate (CARE).

Whilst more detailed analysis is needed, the data seems to anecdotally suggest that, for units bought during 2003, the upside gains are comparatively more than downside risks.

In conclusion, we have lived though a pandemic before. Whilst I am not a medical professional and I cannot comment on the 2019-nCoV situation, I know that things will only get better with time – once the virus has run its course or when suitable vaccines are produced.

I have also observed that no matter how bad things got, there will be those who continue to remain calm to take advantage of the uncertainty. Warren Buffett said it best in his quote, “Be fearful when others are greedy and greedy when others are fearful.” So whether to be fearful or greedy – the choice is ultimately yours to decide. Stay healthy!