Singapore private property prices up again from Q2 2012

“The quantitative easing in the West is finding its way to Asia, which is perceived to be an engine of growth,” said Alan Cheong, a director at Savills Plc in Singapore. “If interest rates stay low for a prolonged period of time, inflation is always a certainty.” This is from a Bloomberg article named Asia’s Home Prices Rebound As Low Interest Rates Boost Sales which has been recently published. According to the article home prices in China, Singapore and Australia rebounded as demand for property assets rose, boosted by low interest rates as investors sought real estate investments in the Asia-Pacific region.

Singapore media has recently reported that the private home prices in the island state has been up 0.4% from Q1 2012:

The overall private residential property price index climbed 0.4 percent to 206.8 in Q2 2012, up from 206.0 in the previous quarter, according to flash estimates released by the Urban Redevelopment Authority (URA). The rise counters the 0.1 percent decline seen in the previous quarter. In addition, prices of non-landed private homes rose by 0.6 percent in the Core Central Region (CCR) during Q2 compared to the first quarter’s 0.6 percent drop.  

In the Rest of Central Region (RCR), prices were stable while it inched up at a slower pace of 0.4 percent in the Outside Central Region (OCR) compared to the previous uptick of 1.1 percent.  

This is not surprising and will continue for a while given the fact that Central Banks around the world are still creating money out of thin air and lowering interest rates:

Chinese central bank yesterday cut interest rates for the second time in a month, its euro zone counterpart slashed slashed borrowing costs to new record lows while Bank of England printed money again, as economies around the world delivered a stimulus salvo to shore up flagging growth.

If you know economics only as much as Paul Krugman, which pretty much means you do not know economics at all, stimulus news may look good to you. The only thing it will do is to stimulate mal investment to unproductive assets such as property and add up to huge public debt which is the number one reason of the lack of growth in the first place. The problem is that by keeping interest rates near zero levels. Central Banks are damaging the functioning of a financial system whose purpose is to channel savings to profitable investments. This is because interest rate is the mechanism used to separate a profitable investment from unprofitable investment projects. Here in Asia, where there is a huge lack of innovative investment projects, savings already tend to overflow to property. And with zero interest rates, they are flowing fast to properties. Although this means great gains for early private property buyers, for Asian economy, this amounts to a huge over investment to a relatively unproductive asset and is damaging for the economy.

This zero interest rates cannot go on. Yes, this has been said many times and it has always went on but sooner or later the party will be over. But until the zero rates goes on, there will probably be no reasonable price correction for private property.