Is 2012 a tipping point in Singapore residential property market?

Today in his article named Is This tipping Point?, Tan Ching Keong from UBS CIO Wealth Management Research says that, in his view, the days of never ending up trend in Singapore residential property prices are numbered, and he expects the private residential property market to correct moderately over the next 12 months. He bases this on the changing trends in 2 of 3 supporters of Singapore property price inflation: Immigration and Supply.

On the immigration side, things changed a lot compared to the last decade. Last decade saw very relaxed immigration policies in Singapore and hence rapid increase in Singapore’s population. Currently, immigration is not that relaxed. For example there were almost 80,000 Singapore PR approvals in its peak of 2008 and this number now stands around 25,000 – 30,000 in 2011 and onwards. This would result in slower population growth.

He also says the terrible supply crunch of the last decade is addressed now and will disappear fast:

The second change is in the works. The market’s decade-old shortage of  90,000 units, based on my estimates, is now being addressed, thanks to active project launches by the Housing Development Board and record Government land sales over the last one to two years. From 2012 to 2015, my estimate is that a total of 140,000 to 150,000 residential units will be completed, enough to fully compensate, by 2014 or 2015, for my estimated shortfall.
Source : Is this the tipping point?

HDB is adding around 100,000 new flats 2011 onwards and already 75,000 are guaranteed between 2011 - 2013. Since there are around 1 million units of HDB flats, this is almost 10 per cent increase in public housing flat stock in just 3-4 years. On the private side, never cooling private property sales fuel increased number of launches and around 50,000 new units to be completed until 2015 in the private property market.

But the third and the main reason for the Singapore's current property bubble is here to stay for a while: artificially low interest rates created by money printing machines in USA, Europe and China. Since these governments do not show any sign of economic intelligence yet, we can safely assume that interest rates will continue to damage world economy and keep the asset prices up for a while. So although the fundamentals may be shifting, financial stupidity is not. For a while, central banks will print money and keep interest rates low with the excuse of stimulating economy while the only things stimulated will be excessive taxpayer guaranteed risk(!) taking and asset bubbles.

Singapore houses at East Coast

So in my opinion, as long as the interest rates are this low, any price drop will probably be temporary. We can even see a short term sharp uptrend if USA and China prints money again. But this only means that the prices will be inflated upwards to crash from a higher altitude later with more severe damage that they would create. Do not make mistake, any increase in interest rate will not result in a moderate decline in demand for property. It will sharply cut the demand and Singapore at that time may look like USA in 2008 onward in terms of property market. Although hope for a very moderate increase in interest rates, put a sharp increase in interest rates in your what-if scenarios while buying a house now anywhere in Asia.

So is this a tipping point in Singapore property? Mr. Tan says maybe:

Low rates, tight housing supply even as new homes are being built in the next few years and developers’ pricing power given their good balance sheets lead me to believe that the upcoming residential price decline in the next 12 months will be moderate. 

You may ask: Can we really call this a tipping point for the market? Admittedly, that will depend on how long the change I predict in the market would last. But considering that the change in the two price forces I
discussed above is fundamental in nature, I believe that, at least, the one-directional price movement we have seen so far will not be sustainable.
Source : Is this the tipping point?

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.