Will Singapore property prices fall in 2012?

Will Singapore property prices fall in 2012? This was the most asked question in 2011 which has started with a property cooling measure and is still the hot topic especially after a surprise cooling measure in December 2011. To add more confusion: the sales figures showed a sharp decline in December 2011 to 670 units and then jumped up to 2,000+ units in January 2012. It may actually be still too early to assess the impact of the last round of cooling measures, whether cooling measures really cool the market or not will be apparent in the next few months.

The last property cooling measures on December 2011 were in festive season and the jump in January 2012 was mostly attributed to a few projects which were awaited long and are in the class of most sought after properties : mixed-use. The units sold in these few popular developments, Watertown, The Hillier and Parc Rosewood were 72 per cent of all private property sales in January and most of them were small one bedroom or two bedroom units, favourite among local buyers.

The last measures are aimed at foreign buyers whose ratio among all buyers were rising fast. And it is obvious that they were designed to prevent excessive flow of printed money in the form of property investment from China and West to Singapore. But this easy money is still available to Singaporean buyers in the form of super low interest rates. So for buyers this situation creates an artificial affordability and for sellers the cheap loan rates creates an artificial holding power. And artificial or not the super low interest rates rule the market.

Still, things are quite different compared to Jan 2011 now. Growth slowed down to 4.9% in 2011 from 14% in 2010. This is expected to slow down to 1-3% in 2012. In Singapore, as in other parts of Asia, growth mostly comes from increase in working age population, not productivity. So, less growth in Singapore means less growth in influx of foreign talent, major demand source for rental units.

Immigration rules are tighter now compared to 2011. Although the tight criteria in Employment Pass work visa is far from making foreign workers less desirable, tight criteria and falling approval numbers in Singapore PR approvals combined with additional ABSD for foreigners will probably have some effect. It is now 10% more expensive to buy a private flat in Singapore for a EP holder and it is difficult for him/her to get PR.

But does these all mean the Singapore property prices are poised to fall in 2012? I do not think this is the inevitable end for home prices. One supporter of the house prices, low interest rates, are still there and in my opinion they are the most powerful force determining the price now. Contrary to what Ben Bernanke says, artificially low interest rates have fueled the housing bubble in USA. The Federal Reserve dramatically lowered interest rates in the wake of the Dot-com bubble which spurred easy credit for banks to make loans and by 2006 the rates had moved up to 5.25% which lowered the demand and increased the monthly payments for adjustable rate mortgages. The resulting foreclosures increased supply, dropping housing prices further. And fast forward to 2011, low interest rates are again fueling bubbles in the world, this time not restricted to only property and the USA. As long as interest rates holds, prices can hold. And as long as FED promises later dates to increase rates, people will more and more believe that the rates will not go up and party will run forever.

So party can last longer and prices can even go higher when low interest rates are still there. So prices may not fall in 2012 but this may well mean that when they eventually fell, it would create more damage.

Disclaimer

This blog article is to provide general information only and should not be treated as an invitation to buy or sell any property or as sales material.  Users of this report should consider this report as a one of the many factors in making their investment decision. Users should make reference to other sources of information and specific investment advice to obtain a more objective view of the property market. Asia Singapore shall not be responsible for losses suffered.