My Worries

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A sharply rising property market upsets and frightens many.  Young people aspiring for the Singapore Dream get angry to see the dream seemingly slipping away.  Their parents worry for them and get into panic.

We have to confront this issue head-on.  Alas, policies often cannot deliver instant results.  Still, we must do what we need to, as problems do not fade away by themselves.

However, even as we tackle the immediate problem, I must keep an eye on the medium term for possible pitfalls.   Sharp property price increases cannot go on forever.  Gravity cannot be wished away.  We have always recognised that unsustainable, rapid price increase brings with it enormous risks and that got us to act earlier on. While sharp rises are painful, sharp declines are just as disastrous.  Those who borrow to go into properties thinking that prices will continue to rise, will be thrown into financial hardship should prices drop and banks start calling.  The world witnessed this barely 2 years ago when the US property market crashed and we all suffered from it.

I think it is my duty to sound an alert.  A sort of a health hazard advisory, that things can go very wrong suddenly.  Why is that so?

First, 35,000 private units (condos and landed properties) have already been sold, though still in construction, with payments in various stages of completion.  But there are 45,000 units in the pipeline, waiting to be built and sold.

Second, to meet strong demand from developers and property buyers, URA has just announced its Government Land Sale Programme for the second half of this year.  This will inject another 8,000 private residential units into the market. Together with committed investments, some 53,000 units will be looking for buyers over the next couple of years or so. That is not a trivial number.

Third, the external situation is not exactly bullish.  Europe sovereign debt will take a long time to clear.  The Middle East crisis can still go ugly.  If that leads to a spike in oil prices and halts the fragile global economic recovery, the impact on Asia and Singapore will be direct and immediate. Moreover, foreign buyers of these properties have been strong.  In the recent quarter, they made up 16% of all buyers of these private properties.  Many Singaporeans also buy properties with the intention to rent them to foreigners coming here to live or work. In the event of any external shock, both foreign demand and rental demand can fall quite quickly. The impact can be serious if the drop in demand happens at a time when there is a substantial increase in supply. Further, low interest rates will not remain so forever.  Cost of borrowing and repayment must go up and households must factor this in.

These are the worries in my mind.  I am not alone.  As one property analyst put it in his recent analysis, some property investors seem either “blissfully ignorant” of the massive supply that will hit the market from 2013, or under the belief that the impact would affect others and not themselves, just like “some reckless drivers who think that traffic accidents would only happen to other people and they are immune to any mishaps.”

A market correction or any crash is not a given. If all goes well, the economy will continue to grow and those who bought properties here will enjoy good returns when their units are completed in the next few years. But no one is immune to mishaps. With so much uncertainties, I must advise investors and upgraders to bear these considerations in mind when they go to show rooms and contemplate if they should sign up.

What seems rosy today may turn out to be thorny, if we are not careful.

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