Last week, new minister of Ministry of National Development, Mr Khaw Boon Wan, wrote a blog entry, “my worries“. He expressed deep concern for property speculators. He says:
I must keep an eye on the medium term for possible pitfalls. Sharp property price increases cannot go on forever. Gravity cannot be wished away. We have always recognised that unsustainable, rapid price increase brings with it enormous risks and that got us to act earlier on. While sharp rises are painful, sharp declines are just as disastrous. Those who borrow to go into properties thinking that prices will continue to rise, will be thrown into financial hardship should prices drop and banks start calling. The world witnessed this barely 2 years ago when the US property market crashed and we all suffered from it.
He cited a few major factors to consider:
- 35,000 private units (condos and landed properties) have already been sold, though still in construction, with payments in various stages of completion. But there are 45,000 units in the pipeline, waiting to be built and sold.
- URA will inject another 8,000 private residential units into the market. Together with committed investments, some 53,000 units will be looking for buyers over the next couple of years or so. That is not a trivial number.
- The external situation is not exactly bullish. Europe sovereign debt will take a long time to clear. The Middle East crisis can still go ugly. In the event of any external shock, both foreign demand and rental demand can fall quite quickly. The impact can be serious if the drop in demand happens at a time when there is a substantial increase in supply.
- Low interest rates will not remain so forever. Cost of borrowing and repayment must go up and households must factor this in.
A market correction or any crash is not a given. … But no one is immune to mishaps. With so much uncertainties, I must advise investors and upgraders to bear these considerations in mind when they go to show rooms and contemplate if they should sign up.
What seems rosy today may turn out to be thorny, if we are not careful.
My View? When Khaw Boon Wan blogs, it’s going to be official.