Tuesday, January 15, 2013

When will property burst?

Dear Mr Tan,
My wife and I have been considering the purchase of a private property (for own stay) for some time now and hope to be able to get your advice.

We understand that the current property bubble is formed by a few reasons: -
1) low interest rate environment
2) QE policies in the western economies which have created massive liquidity in the market
3) low supply of public housing over the last few years resulting in massive pent up demand
4) booming economies with many cash rich individuals (China)

I read from your blog where you shared on your past  experience with bubbles. We are hoping to learn from your experience as it seems like this bubble is unlikely to bust in the next 2 years since the FEDS has agreed to keep interest rate low until 2015. 

Middle class folks like myself can only see our dream of upgrading floating further and further away. Look forward to your views.

It may not bust within 2 years, but surely it will bust within 10 years? The question is - after bursting, will it recover? The prices are not sustainable, so the recovery will be difficult - look at Japan and USA.

Keep your commitment as small as is necessary. There will be a chance to buy it at a much cheaper price within 10 years.


Xianlong said...

Property market will surely burst. Is no longer a question of if but a question of when.

30% elderly sinkies in 2030. Importing & importing more adults to solve the low birth rate make the situation worse.

When 30% elderly sell their housing to buy food & other necesscities in 2030, the 'dam will collapse'.

It might burst even before 2030.

yujuan said...

Increase in stamp duty dun affect a purchaser's decision to buy, as developers are legally allowed to absorb them, it's a form of a discount in disguise.
What affects is the bank loan cap, now capped at 75%, meaning purchasers have to cough up 25% cash, this is the real damning effect. Not many people have $250,000 spare cash lying in bank Account to buy a $1m property. Even if they have, prefer to borrow or use it to invest in the stock market. Even in a bear market, some stocks are worth picking up, and cash comes in handy.
People wan to borrow as much as possible to buy, esp at such low interest rates.
Best strategy is to tan, dun wan to get caught in a negative equity trap, where sometimes take 8 to 10 years to break even on your investment, and property generally is illiquid.

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