Sunday, March 27, 2011

Forecasting future of Singapore property market

In the first year of second decade of 2000s, two major extremes in Singapore property supply and demand ruled the prices:

On the supply side, significant cutback in public housing supply by HDB to melt the oversupply of end 90s (the average number of HDB units completed fell to 8,260 units per annum between 2001 and 2008 from the average of about 25,700 units per annum between 1991 and 2000)[1];

On the demand side, the demand increased by increase in population (1 million in 2000s over 4 million) and artificially decreased interest rates in the global markets implemented by FED twice; first not to take the pain of 2001 dot-com bubble and then 2008 financial melt down. This let to a cheap money (credit) available in most of the years between 2001 and 2010.

Singapore took action quickly to respond to the problems which it can solve. First, projected supply is increased by private property developers and HDB and there will be plenty of Singapore property supply in the near future (especially by 2013 and beyond). Second, Singapore Government played its role to cool the demand, by property cooling measures and also decreasing foreign intake to sustainable levels.

So we know, there is more supply projected for the first half of future 10 years (an increase from 13,500 units per year between 2005 - 2010 to 32,700 units per month from 2011 to 2013)[1], less foreigner intake, less speculation due to cooling measures. But we need to still be careful to drive a conclusion that the prices will come down soon. Supply increase does not drive the price alone and as long as the largest component of the equation, global quantitative easing (a cute name given by FED to money printing) and foreign interest in Singapore property (by Chinese due to restrictions at home and global investors diverted from middle east) is there, demand will be there to take up the supply. So since, Singapore property market is much driven by money inflow for the last 2 years, it is very important to forecast money inflow before forecasting the future of the Singapore real estate.

Potential buyers at a Singapore property launch
First scenario is that money printing and historically low interest rates can continue for long since FED has a special position in money printing, it is the only central bank in the world who has right to print world reserve money, US Dollar. In this case although there will be a very painful end to FED's game, it may be far in the future.

Second more likely scenario is that FED will not extend the money printing and in the next 6 to 12 months there will be an interest hike. This will be a hard axe on the demand both from foreign buyers as well as Singaporeans since interest rates back here at home closely follows global rates driven by FED.

To conclude, as long as interest rates are at these historical lows, the property prices in Singapore will stabilize but not fall significantly. A interest rate hike is very likely in the near future and it is the only powerful enough force to drive prices down. And any decision by FED to continue the game for long and keep interest lows will prevent a price decline.

[1] - DTZ Insight Singapore house price debate Liquidity rules the market

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.

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