S'pore property bubble to burst in 2013?
A property expert feels that the Singapore real estate market, which has recorded a stellar performance, could be heading towards a perfect storm, according to a report by The New Paper.
Prices of private homes last year rose 17.6 percent, while prices of HDB resale flats surged 14.1 percent. The series of cooling measures announced by the government since 2009 have had little impact on property prices.
Ms. Chua Chor Hoon, Head of Southeast Asia Research at property consultancy firm DTZ, has outlined several worst-case scenarios that the local housing market may experience in as early as 2013 and 2014, during a real estate conference organised by the National University of Singapore in May.
"If all the ingredients come together, it will make a perfect storm," she said.
The three primary ingredients Ms. Chua was referring to are higher interest rates, falling demand and greater supply.
She also said at the conference that while overseas buyers boost the real estate market, this could change if the government tightens immigration rules. She noted that if economic growth continues, the property market will unlikely see any drop in prices.
"But a word of caution: Don't expect interest rates to be low forever. Look beyond the short term and be prepared for a worst-case scenario."
Meanwhile, the three-month Sibor rate, which is the benchmark interbank rate for loans, has been hovering at an all-time low.
Ms. Chua said that if property prices increase at a higher level, the government will likely implement more cooling measures.
She said that investors easily get carried away with the real estate market nowadays, especially younger investors who did not experience the Asian Financial crisis of 1997-98 or the downturn that followed the 9/11 attacks.
"Those who have gone through the 1997 crash are more cautious," she said. "HDB prices have been going up for the last five years and some think prices will keep going up, especially since in Singapore, land is scarce."
Colin Tan, Research and Consultancy Director at Chesterton Suntec International, warned that a "perfect storm" in the property market could happen even before 2013.
He noted that the key element is interest rates, which are set by banks in the country.
"If a hike in interest rates happens today (from one percent to four percent for example), the price correction may happen immediately."
Mr. Tan said that higher interest rates typically increase business costs and affect economic growth. He said there is currently a price bubble and prices have increased ahead of rental rates.
"Rental is a support (for prices). If one cannot sell his property, there's still rental to support it. But some are already saying that rental may come down."
"If demand drops when the supply of homes comes into the market, we'll have ghost towns similar to those in China," he said.
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