It is easy to create a property bubble. The owners of land can collectively create a shortage of supply. The higher demand, relative to the short supply, will push up the price of the properties. This will create a panic among the end users that the property prices will soon become unaffordable, so they rush to buy the properties now. Speculators come in to drive up the prices faster and make a trading profit. The buying is fueled by low interest rate and easy credit terms offered by the banks. There - you have got a property bubble.
In Singapore, the supply of land is under the hands of a few land owners. The state is the largest owner. Most of the land available for development came from the sale of state land. The property developers who bought the state land at a high price on tender have a vested interest to control the supply and maximize their profits.
The structure of the land ownership and the Government policy adopted in Singapore have resulted in an escalation of the property prices to unaffordable levels. The average price of a 4 room HDB flat in a remote area in Singapore is now higher than the an average house, sitting on a large piece of land, in most towns in America.
As the property bubble continues to grow, the Government can proudly say that they are enhancing the value of the assets of Singaporeans. But, this economic strategy is unwise.
How long can the property bubble continue to grow? Not much longer, in my view. It has reached a crazy level and is being sustained by fear, greed and speculation. There are foreign buyers, including speculators hoping to make a profit. When the bubble burst, it will be the local Singaporeans who will be holding the can.
If we study the experience of property bursts in Japan, Ireland, Spain and America, the conclusion is that it will take a long time for the property to recover. This will be a big drag on the banking system and on the people who face negative equity on their property.
In Singapore, the supply of land is under the hands of a few land owners. The state is the largest owner. Most of the land available for development came from the sale of state land. The property developers who bought the state land at a high price on tender have a vested interest to control the supply and maximize their profits.
The structure of the land ownership and the Government policy adopted in Singapore have resulted in an escalation of the property prices to unaffordable levels. The average price of a 4 room HDB flat in a remote area in Singapore is now higher than the an average house, sitting on a large piece of land, in most towns in America.
As the property bubble continues to grow, the Government can proudly say that they are enhancing the value of the assets of Singaporeans. But, this economic strategy is unwise.
How long can the property bubble continue to grow? Not much longer, in my view. It has reached a crazy level and is being sustained by fear, greed and speculation. There are foreign buyers, including speculators hoping to make a profit. When the bubble burst, it will be the local Singaporeans who will be holding the can.
If we study the experience of property bursts in Japan, Ireland, Spain and America, the conclusion is that it will take a long time for the property to recover. This will be a big drag on the banking system and on the people who face negative equity on their property.
If you look at the numbers closely,
ReplyDeletebubbles formed and bust in countries but not in the cities.
Property prices in metropolitan TYO, Madrid did not collapse.. they weakened, but they did not burst.
These are highly urbanised areas.
Singapore is a city, and there is no "country". Furthermore, all land is owned by the Gov and this is very closely controlled.
Developers are deeply involved with the Gov in land development. The property bubble of the past will not be repeated because 2 parties are managing this closely.
Interest rates will remain very, very low. But if it moves from a base of 1% to 2%, yes in percentage terms that is 100% increase and it sounds alarming.
Yet, in absolute amounts, people will be able to pay.. even if it will take 50 years.. just like in Japan.
What will be a problem is the invention of new products to entice people to sign up in the hopes of lowering their payment amounts or leveraging further to buy another property.
Was wondering if donations to political organisations are made public.
ReplyDeletePerhaps the developers are die=hard donors.. vested interests?
I recalled a discussion on Japanese property prices with my Jap friend when I was doing my MBA in 1987. My very talented Jap friend said Japan is different. Is the Singapore property market a bubble? Every bubble is different. All bubbles have one thing in common - they all deflate.
ReplyDeleteMr. Tan,
ReplyDeletevery interesting blog post. One thing I have noticed in Singapore is that there is a complete disconnect between what people earn and the size of loan they are preapred to take on.
I agree with the first comment. In a city state like Singapore, it is possible to 'control' the property bubble. There is low risk of having a gigantic bubble.
ReplyDeleteThe structure is built in such a way that prices can inflate up to a certain bubble size. (size unknown to you & me )
ReplyDeleteHere in Singapore, everything is monitored, including Hougang. Not the small micro parochial issues.
But macro trends. Hougang's situation is designed.
Let there be no doubt that Hougang can be won over easily.. yet it serves another purpose: a listening post, a vent.
Same with property.
The situation is designed, imperfectly but serves a different purpose:
Keep asset values up
therefore keeps reserve value strong too.
Its home made and serves a deliberate purpose.
Having said that, it is a bubble, although a manageable size, and no, it is not going to burst.
So, what do you think?
I think that property prices is fundamentally affected by a supply and demand situation. As long as demand is always strong absorbing up the available supply, property prices should continue to be stable and even on the uptrend. There should be increasing number of real genuine buyers on the demand side of the equation over time who are financially capable to hold on to their properties (amidst interest rates fluctuations) in order for property prices to continue on the uptrend long term. The availability of genuine buyers who are financially capable to hold on to their properties long term will depend on the Singapore economy going forward whether people's jobs are secure and whether the population in Singapore keep on growing in the long term needing more homes either as home owners or rental homes. That's why I think there are a myraid of factors affecting property prices, our economy going forward, population growth, interest rates trend and the sentiments of people how they view property market whether more will turn into buyers or sellers in future.
ReplyDeleteEven in recent shoebox units strong demand, we can see that despite such units which have small footsize and are not thoroughly tested for their living and rental potential, there is still strong buying sentiments for such small units. The demand is simply too strong for the available supply. Much leaves to be found out regarding the future of such small units. If such units are still livable (since our family sizes in Singapore are on the decline with low birth rate) and there is strong rental demand from foreigners, the prices of such units may even be on the uptrend long term. It all really depends on supply and demand, and supply and demand is constantly changing and no one can predict the future with 100% certainty as there are simply too many factors affecting supply and demand.
All bubbles have one thing in common - it requires people to believe it will not collapse. In Singapore, there are many who thinks like this. So it is a bubble.
ReplyDeleteMr tan,
ReplyDeleteI was having my internship at NTUC income in year 1998-1999 occasionally bumping you in the company elevator.
I like to find out why is the MAS keeping the bank interest rate low for prolong period? It's even lower than hdb interest by more than 100%. When will it return to normality?
Singapore is just following the global trend in interest rates. Watch the US/Europe. If the giant Ponzi scheme collapses there eventually, you think Singapore will be spared? Wonder govt has a clue how to deal with that?
ReplyDeleteThanks for sharing points in your blog. I have read your blog. keep my some relevant informations
ReplyDeleteproperty in singapore
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In Noida and Greater Noida, developers and builders are allowed making solely around 2.75 times of the bottom space of a project Such as Supertech Oxford Square.
ReplyDelete