7 Reasons Why Property Prices Won’t Recover Soon

July 20, 2015
By Property Soul (guest contributor)

There was a recent article in the Straits Times with the headline “Time to review property cooling
measures”. The argument is that as: i. Private home prices are down ii. HDB flat prices have dropped iii.
Oversupply has worsened iv. Rents have weakened v. Interest rates have risen vi. The real estate industry has shed jobs, it may be time for the government to review the cooling measures.
Many people fail to see that the government can only do so much to cool or stimulate the property
market. After all, it is an open market and there are many factors that can lead to the continual boom or
downturn of the market, such as supply and demand, the economic outlook, market confidence, etc.
I am re-reading James Rickards’s book The Death of Money: The Coming Collapse of the International
9/8/2015 7 Reasons Why Property Prices Won’t Recover Soon
Monetary System. Below are some new inspirations from this interesting read.

1. Regime Uncertainty
When the Singapore government finally decides to withdraw the cooling measures, it may do little to
help restore fallen prices.
Remember those government measures taken to stimulate the property market back in year 2005? The
loan-to-value limit was raised to 90%. But not many buyers were interested.
The “regime uncertainty” theory from Charles Kindleberger explains the reason behind the lack of
investment during the Great Depression:
“… even when market prices have declined sufficiently to attract investors back into the economy,
investors may still refrain because unsteady public policy makes it impossible to calculate returns with
any degree of accuracy … the added uncertainty caused by activist government policy ostensibly
designed to improve conditions that typically makes matters worse.”
From midJune, stocks in China tumbled 30 percent from their seven year high. Then the Chinese
government and Chinese brokerages suddenly announced drastic measures to revive the stock market.
The intervention might have saved the market from the brink of collapse and demonstrated how powerful and cash rich the government is (and compared with China’s $3 trillion reserves the money spent is just peanuts). However, the whole incident exposes the vulnerability of the fundamentals and further undermines the market confidence of the investors.
After all, who needs government to step in if a market is healthy enough to recover on its own?

2. Market Oversupply
With 24,800 vacant private homes, an additional 22,000 to be completed this year, and another 21,000 to be ready next year, what kind of population growth do we need in Singapore to absorb the surplus?
Like what Rickards says: “In the end, if you build it, they may not come, and a hard landing will follow.”

3. Wealth Effect
Rickards points out the fact that two asset classes – stocks and housing – represent the wealth of most
people (which is certainly the case in Singapore). When prices of stocks and properties go up, people
“feel richer and more prosperous and are willing to save less and spend more.”
It is a chicken and egg situation: Low borrowing rates and easy money make properties look affordable,
attracting Singaporeans to put more money in properties, thus driving property prices to new highs.
The same happens in reverse on the way down.
4. Wealth Inequality
The wealth effect only benefits the “haves”, not the “don’t haves”.
Wealth becomes heavily concentrated in the privileged class who own properties, or businesses who own a stake in the industry (property developers, real estate agencies, banks, brokers, etc.).
9/8/2015 7 Reasons Why Property Prices Won’t Recover Soon
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