High property prices

I made a statement that Singapore is exposed to the danger of depending on high property prices. If there is a serious correction, Singapore will be badly affected.

Someone challenged me to look at the National Statistics to look at the proportion that is contributed by property. He said that we have a highly diversified economy and does not have a high reliance on property.

I believe that the National Statistics may not record the correct picture.

Here are my reasons:

a) A large part of the profit of financial institutions can be attributed to high property prices and transactions.

b) A large part of the wealth of Singaporeans are linked to property. They can borrow against their high property prices for spending and for financing businesses. I have seen many small businesses close shop with large losses, but their owners appear to be financially sound, due to wealth in properties.

If property prices were to fall, the domino effect will be quite bad. We have seen it in Japan.

At present, property prices in many countries are being supported by very low interest rate and that has been going on for at least one decade. The situation will be quite different when interest rate goes up to much higher level at some time in the future.  However, the correction does seem to take a long time to happen.