How To Handle A Hot Property Market

Singapore Public HousingProperty can be a political hot potato almost everywhere in the world. If property prices rise too quickly then first-time buyers may moan that it is too expensive to get onto the housing ladder. Governments could get blamed.

If prices are not rising fast enough then existing homeowners and landlords may feel that their assets are not generating a decent enough return. Governments could get blamed again.

When borrowers can’t get home loans easily then governments could get blamed for that. And if insufficient houses are built, then governments could get it in the neck too!

In that sense, Singapore is no different to anywhere else in the world as far as property is concerned. For instance, in Hong Kong the SAR government has put in place cooling measures to prevent the property market from overheating.

Meanwhile, the UK government is desperately trying to force-feed a moribund property market through its Funding for Lending scheme. The idea is to push banks into lending money to new home buyers at low rates of interest.

Welcome to the bizarre world of Quantitative Easing or money printing as some of us like to call it. The developed countries of the West (and Japan too) have been frantically printing money to try to get their economies growing again.

Interest rates have already been cut to the bone in the US, the UK and in the Eurozone. And the UK is now pondering negative interest rates to jump start its economy that has flat-lined. (In the interest of good taste I won’t try to compare it to flogging a dead horse for obvious reasons.)

However, the upshot of Quantitative Easing is a flow of hot money from the West to the East. This money is finding its way not only into our property market in Singapore but into other Asian property markets too. If truth be known, it could have flowed into any asset class. It’s just our rotten luck that it turned out to be property.

But if history has taught us one thing it is that markets can behave irrationally in the short term. When too much money is chasing a limited supply of a particular asset then prices can rise to levels that could be unsustainable.

So, as rational people we should step back from what everyone is doing and try to build a picture of what is going on. When looking for investments, don’t follow the fashion of the day. Some people call this being contrarian. I just call it a common sense approach to investing.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.