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Billionaire Kwek claimed that home prices may slip 5%

Bullionstar

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Over the last two weekends, my wife and myself visited private condominium showrooms of D’Nest, Urban Vista and Q Bay. We were not planning to purchase our second property at the moment but is visiting the showrooms just to have actual sensing of the market. Even though there has been much media coverage on the state of private home in Singapore in recent years, we feel that “seeing is believing”. It is more important to have actual sensing of the market because that will provide better picture of the market dynamics.

Well, according to an article in PropertyGuru, Executive Chairman of City Developments Limited (CDL), Mr Kwek Leng Beng forecasted that private home prices in Singapore are expected to drop by up to five percent due to an oversupply of residential properties from 2014 onwards. He went on to state that private home prices would likely drop by five percent from now until 2014 if all the cooling measures implemented by the government remain in place. He urged the government to lift some of its cooling measures, such as the two year “qualifying certificate”for developers. With these qualifying certificates, it will be suicidal to keep buying land at high prices just because we want a land bank,” Kwek said.
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To put things into perspective, the current housing situation is not truly due to demand and supply dynamics. The private home market has witnessed huge gains in prices in recent years because of the hot money flowing from foreign countries such as United States and China as a result of loose monetary expansion. Cash rich investors poured in funds to pump up prices of local private homes. Therefore no matter what policies that are going to be or have been implemented by government, they will have limited effectiveness to cool the market because the rich will not be hurt. Only the middle-income buyers will be curbed by the slew of measures.

The meltdown in our housing bubble will only occur when there is an increase in mortgage interest rate, and I see it looming soon. Very often, our local banks take the cue from United States banks. If United States’ Federal Reserve stopped the bond-buying programme and increased interest rates, this could signal local banks to follow too. In local context, an increase of 1 to 2 percentage in interest rate will mean a substantial monthly instalment amount to pay if property investors took out million dollar housing loans. Not many people can manage this huge jump in the monthly instalment. When this happened, many people are going to be hurted financially and this could be the start of another new crisis.

During our visit at these showrooms, we saw many 1, 2 and 3 bedders already snapped up, either by Singaporeans or foreigners.This led us to believe the statements from MAS stating that quite a number of Singaporeans are over-leveraged on property. Many Singaporeans are buying property for investment for rental purposes as they take advantage of current low bank interest rates. Nonetheless, with the curb on foreigners inflow and slew of property measures, this group of buyers could be hit very hard when the hot money flows out of Singapore.

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Updated: February 24, 2016 — 2:47 am

2 Comments

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  1. Our economy has been so reliant on cheap money for a long time. I have been blogging on the rise in interest rates too. Something will happen when interest rates start to rise.

    The property market is so hot now that people are snapping up properties because they think that prices will not fall. I have friends who are rushing into buying because they fear that property prices will keep getting more and more expensive and if they don’t buy now, in the future they will not be able to afford it.

  2. Yup, hopefully Singaporeans can be more astute and adopt financial prudence in their home purchase.

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