As a follow to my earlier article on the state of the Singapore property market, I will examine where we are right now after another 2 quarters of decline.
After running up over 60% from end the Global Financial crisis in 2009 to the peak in 2012Q3, Singapore’s property market has since declined for the last 4 quarters. So the big question is “Has Singapore’s property bubble burst“?
All markets ebb and flow. They go up and down in cycles. This is a fact of life. So is this downturn any different? Is this downturn good for the property market?
Singapore’s property market is very unique. There are many factors at play. The most influential are changes in government policies. The Total Debt Service Ratio (TDSR) rule introduced last year has effectively pulled the rug off under the market. Also working in the background is the tightening of permanent residency approvals. This coupled with falling demographics in our population have put more dampener in the works. Our population grew by 5.4% between 2007 and 2008, but last year the figure was just 1.5%.
Sentiment plays a huge role too. This can shift from elation to gloom when news and policies change gears. As we have witnessed from recent property news and statistics, gloom has already set in. This is further fueled by news of recent surge in forced sales of high end properties and a rise in number of repossessed properties put under the auctioneer’s gavel.
Another major factor is the economy. This seems to be holding up well but it is too early to tell given the tightening of monetary stimulus from the US and the threat of higher interest rates.
Another rope on the neck of the property market is the looming oversupply. More than 90,000 private units are expected to be completed over the next five years, alongside 25,000-27,000 public housing flats per annum, according to the Urban Redevelopment Authority (URA). This will cause further pressures on the rental yields which will impact property prices negatively.
Last but not least, and this could yet be the wild card, is the state of the global economy. The US seems to have crawled its way out of a quandary, growing 3.5% in the 3rd quarter powering their stock market to an all time high. The same cannot be said about Europe. It is mired in a deflationary contraction. Japan is clutching at straws with more QE of their own which hasn’t been working. China looks stable for now but growth has slowed over the last few quarters resulting in less property investments here. So all in all a mixed bag but could spring a surprise to the downside if not careful. Watch this carefully as no one is going to ring a bell before any big fall.
So back to the question of whether the property bubble has burst. By all measures it has not. It is more like a government induced correction. Which is a good thing. Because if prices were allowed to go up unabated it would have been more dangerous and the eventual pop will cause a lot of people (and banks) to get hurt. So this is a prudent move by the government and it has made the market less volatile and safer for investors. Whether this is a distortion of free market mechanisms is a debate for another forum.
The current downtrend is not going to end any time soon. It is the stated intention of our Finance Minister Tharman Shanmugaratnam who just a week ago said that “There is some distance to go in achieving a meaningful correction.” Minister Tharman adds, “If we do not get a meaningful reversal after each upswing, property prices will run ahead of the growth of household incomes over the long term, which we should avoid,”
So in the short to medium term do expect prices to moderate further but a crash may be avoided if external factors remain stable. Buying for investment or rental income is not advisable at the moment but if you need a roof over your head then look for one that is well within your budget.
Hope you find this article useful. If you like to be updated on Singapore’s property market please drop me a note using the contact box on the right. I will provide periodic updates on where property prices are heading
Disclaimer: Please note that these are my personal opinions and not to be construed as investment advice. You are strongly advised to conduct due diligence before making any property investments.