19 April 2014
There have been a lot of talks over the Singapore property market in the past few years. Almost everyone was talking about investing in property and rapidly escalating prices. A friend who has no interest in the property market told me, “The market is going to crash, an abrupt rise always leads to an abrupt fall”, she said this at the time that the market was booming.
Talks of property soon entered board rooms, dining tables and social networking sites. Everyone had only one topic and that was property. I definitely felt like a star since I was dealing in Properties and that’s my specialization.
People started discussing about the property bubble in the USA and how the market had crashed but yet gradually the property prices kept rising in our heartland. Some people were complaining but many were happy. The buying activity increased and the Real estate companies were happy with their cash registers ringing.
The
people who didn’t have the resources or means or were scared to make a move
started criticizing the Government.
It’s
difficult to predict a real estate bubble, because it reflects people’s
sentiments and that’s something which is totally difficult to predict. By mid-2009 it became apparent that we are going towards an economic crisis and if steps were not taken to avert this, we would be in a disastrous situation too. The cooling measures thus started.
The
Government tried to curb speculation in property, but the temptation of low
interest rates and easy access to home loans instead pushed people to
over-borrow and speculative buying. I
have seen people buying and selling the property once they got the possession
and making $50k cash in the bargain. Mr. D.D. who is a banker and regularly
speculates in the stock market was telling me, “It’s safer to invest in
property and I will be assured of profits, this is safe speculation”. He was
thinking of buying a second private property, his third property in Singapore.
The
temptations were too strong. Everybody wanted to jump into the bandwagon. Even
after the Government imposed curbs on speculations, people were snapping up
offers at the last minute, before the curbs took effect. Little did they
realize that they could be hit hard later trying to service large loans for a
second or third property.
This
kind of runaway mood usually calls for caution as we were headed towards “inflation”.
We
already had a lesson to learn from the subprime
mortgage crisis in the United States which was a major cause for the 2008 financial
crisis. The price of irresponsible economic behavior, in both the
housing and credit markets led to the collapse of the housing bubble which in
turn precipitated a national crisis of defaults and foreclosures there. This led to the worst recession in the USA since the Great
Depression.
The Singapore
government did not want to head towards a similar situation and introduced some
cooling measures since 2010, aimed at preventing a bubble in the country's
housing market. These measures were imperative mainly to stop the rising home
prices which were not proportional to the incomes here.
Yet, people
were unstoppable due to a “follow the crowd” attitude. They were insusceptible
to the cooling measures due to the lure from banks offering low interest rates
and the potential that their investment would be definitely lucrative due to the
limited land available in our red dot.
This led
to a spate of further cooling measures.
But
since the first quarter of 2013, the market as a whole did start to see some
stabilization as a part of repeated cooling measures and escalated property
prices discouraging people to buy.
The finance
Minister Tharman Shanmugaratnam told Reuters. "We're not ready yet to lift
our measures or ease up on our measures so we're watching the market and have
to make judgments without announcing our policy moves well in advance. We have
to take this further round of measures now, to check recent market trends and
avoid a more serious correction in prices down the road."
He further
said that, “This package of measures is significant. We think it will cool the
market. It will help Singaporean couples who are buying their first home,
that's our first objective. And second, it will help all property owners
because we have to correct this trend of price increases. We've got to put in
these road barriers now to slow the market and avoid a crash later on.These statements were very profound and the measures were very effective.
The effects of the cooling measures can now be seen as the property market which was abuzz with activity has now become relatively quiet.
I strongly believe that these market cooling measures shouldn’t be permanent. The Government must study the patterns in the market and make amendments if required to sustain healthy buying sentiments and ensuring a continued confidence in the economy.
