It is easy to create a property bubble. The owners of land can collectively create a shortage of supply. The higher demand, relative to the short supply, will push up the price of the properties. This will create a panic among the end users that the property prices will soon become unaffordable, so they rush to buy the properties now. Speculators come in to drive up the prices faster and make a trading profit. The buying is fueled by low interest rate and easy credit terms offered by the banks. There - you have got a property bubble.
In Singapore, the supply of land is under the hands of a few land owners. The state is the largest owner. Most of the land available for development came from the sale of state land. The property developers who bought the state land at a high price on tender have a vested interest to control the supply and maximize their profits.
The structure of the land ownership and the Government policy adopted in Singapore have resulted in an escalation of the property prices to unaffordable levels. The average price of a 4 room HDB flat in a remote area in Singapore is now higher than the an average house, sitting on a large piece of land, in most towns in America.
As the property bubble continues to grow, the Government can proudly say that they are enhancing the value of the assets of Singaporeans. But, this economic strategy is unwise.
How long can the property bubble continue to grow? Not much longer, in my view. It has reached a crazy level and is being sustained by fear, greed and speculation. There are foreign buyers, including speculators hoping to make a profit. When the bubble burst, it will be the local Singaporeans who will be holding the can.
If we study the experience of property bursts in Japan, Ireland, Spain and America, the conclusion is that it will take a long time for the property to recover. This will be a big drag on the banking system and on the people who face negative equity on their property.
In Singapore, the supply of land is under the hands of a few land owners. The state is the largest owner. Most of the land available for development came from the sale of state land. The property developers who bought the state land at a high price on tender have a vested interest to control the supply and maximize their profits.
The structure of the land ownership and the Government policy adopted in Singapore have resulted in an escalation of the property prices to unaffordable levels. The average price of a 4 room HDB flat in a remote area in Singapore is now higher than the an average house, sitting on a large piece of land, in most towns in America.
As the property bubble continues to grow, the Government can proudly say that they are enhancing the value of the assets of Singaporeans. But, this economic strategy is unwise.
How long can the property bubble continue to grow? Not much longer, in my view. It has reached a crazy level and is being sustained by fear, greed and speculation. There are foreign buyers, including speculators hoping to make a profit. When the bubble burst, it will be the local Singaporeans who will be holding the can.
If we study the experience of property bursts in Japan, Ireland, Spain and America, the conclusion is that it will take a long time for the property to recover. This will be a big drag on the banking system and on the people who face negative equity on their property.
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