Friday, June 25, 2010

So is there a property bubble or isn't there?

Jun 26, 2010
Probably no property bubble here yet: MM

THERE is probably no bubble in Singapore's property market, Minister Mentor Lee Kuan Yew said yesterday.

The sharp price rises that have been seen are 'part of the total liquidity in the whole world system', said Mr Lee, noting that interest rates are low, and foreigners still see properties as affordable.
'Even if we cap our excess, people in Hong Kong, Indonesia, will say, compared to what I have to pay, Singapore is cheap, let's buy it,' he added.
'And apart from landed properties, they can buy into any condos.'
Mr Lee, who was speaking at a dinner hosted by the Association of Banks in Singapore, said that the Government is convinced that there is real underlying demand for residential property.
'So it's probably not a bubble yet,' he added.
Still, he pointed out that the Government has taken measures to address concerns relating to the market overheating, including releasing more land to developers and putting in place more stringent rules for buyers when borrowing from banks to finance property.
'More land is being released, to dampen the enthusiasm of everybody rushing for the latest release, and we've told the banks to be more prudent and have a higher downpayment,' said Mr Lee.
'These are the precautions we can take, but it does not stop the Indonesians or the Thais or the Malaysian Chinese or the Filipino Chinese from coming here and saying, 'Compared to what I have to pay in my country, this is cheap'.'
Mr Lee was responding to a question by a Standard Chartered banker who had asked about whether he was worried about property prices here.

Above is a part of the report extracted from The Straits Times on June 26, 2010.
MM uses the word PROBABLY, hence probably there is indeed a property bubble forming, but not big enough to burst yet? Nobody knows.

I agree the statement that he make in the middle and last part, "Compared to what I have to pay in my country, this is cheap." He mentioned this statement twice!
I have been noticing that the property prices in the neighbouring countries and that includes Hong Kong and China, that their property prices are much higher than our homeland.

So what happens when the housing prices, or the 'bubble' burst in those countries?

Singapore property prices will follow suit as the investors will go back to their country to buy the properties there. But where do they find the money? By selling the properties here.
This is another example of the simple theory of "Supply and Demand", the most important topic in economics.

As the number of people to buy properties are limited, the buying craze must stop somewhere, hence demand drops. Then it will come a day when those people who follow blindly to buy, will have to sell the properties at a loss. This will slowly translate to more supply over demand and hence prices must fall.

Meanwhile, let's continue to build our warchests.

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