The latest property cooling measures announced by DPM/Finance Minister and Minister for National Development yesterday did not come as a surprise to me.
DPM mentioned that the government is not intending to engineer a market (property) crash. If you have read the book “Drop the pink elephant”, the government has the deepest concern of property crash uppermost on their minds when they dished out these set of property cooling measures. It must have weighed these measures and looked at the impact of them in crashing the property market.
Will it crash the market? I am certain that when the stock market opens on Monday, property developers and related counters dealing in Singapore properties, banks and insurance companies will have their share prices lowered. The analysts will be working on overdrive over the weekend to decide on which counters will be impacted most and deciding on target price for each stock counter.
Why did we come to this stage? I put it down to:
1. Loose monetary policies of major economies. Fund flowing to these regions for better returns.
2. Very low bank interest rates in a long stretch since 2007/2008 global financial and economic crisis.
3. Tight labour market in Singapore where salaries are going up hence residents feels they have the means to pay monthly mortgage service rates.
4. Collective sales of old properties resulting in windfall for owners to enter the market to find replacement units. (This ties in with shortage of land in Singapore and government policies on land sales.)
5. The herd mentality of not wishing to miss out in actions of making money.
If one had lived through it, you will remember the spectacular property crash during the Asian Financial Crisis in 1997/98 some fifteen years ago. We bought our second property in July 1997 without knowing the Financial Crisis was going to hit. Property price nose-dived below our purchase price. It is only in recent years that valuation is now above our purchase price (not accounting time value of money). It took more than a decade to see daylight. We are fortunate that we are able to service the loan and are debt free. We are living in it and we have only one property.
We have a friend who was not as fortunate during the property market crash. She invested in two private properties and staying in HDB flat. Whenever rental income was delayed for a particular month, she found herself scrambling to find money to pay mortgage payments. Her banks kept chasing her for payments and she was depressed. She borrowed money from people she knew to tide her over this difficult period. It was disheartening to see this episode.
I am in support of cooling measures that curb exuberant investment in properties. This is to protect the overall property market. It is also to allow first time property owners (including our next generation) to buy their first properties. (Note that HDB and private properties are intertwined when it come to property prices.)
If we go on principle of buying a property within an individual’s ability to own a property (affordability with contingencies built in), there is less likelihood of property bubbling. Price appreciation will be less prominent. These latest measures are targeting at investment segment of property market (which includes curbing foreign funds flowing into Singapore property market) and not at first time owners. It is a relief. If prices continue to shoot higher after these measures, the government will not stop introducing further measures to bring some sense to the market. Note that accommodation is a major factor in high Consumer Price Index (CPI) in recent years and this price inflation is already a major concern.
Copyright © 2013, limkimtong for Living Investment
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