Minister for National Development Khaw Boon Wan has expressed his worries over the Singapore private property market.
In his latest blog entry, Minister Khaw wrote that a sharply rising property market upsets and frightens many.
“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,” he wrote.
“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 two years ago when the US property market crashed and we all suffered from it.”
Tejaswi Chunduri, a real estate analyst at PropertyGuru, said that it is good that Minister Khaw is being very cautious and proactively voicing his concerns about the public and private housing facilities in the country.
“His worries are with property investors who believe in purchasing property with future prospects in mind,” she said.
To explain why things could go very wrong suddenly, Mr. Khaw said that around 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.”
He also noted that to meet strong demand from buyers and developers, the government will pump 8,000 private residential units into the market under the 2H2011 Government Land Sales (GLS) programme.
“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,” said Mr. Khaw.
Ms. Tejaswi said “looking at the upcoming supply of residential units and together with other factors that affect the property market, these investors should think twice before venturing out.”
She also noted that with such abundance in the supply of residential units, there are chances of a potential downturn waiting to happen in the coming years.
“Keeping in mind that the property market is largely dependent on internal and external factors such as the global economy, interest rates and liquidity in the market, one cannot be sure how the market would fare a few years down the road.”
Meanwhile, the Minister also brought up the issue of the Middle East crisis and European sovereign debt, which may have a direct impact in Asia and Singapore.
“Many Singaporeans also buy properties with the intention to rent them to foreigners coming here to live or work. In the event of any external shock, both foreign demand and rental demand can fall quite quickly.”
He noted that the impact can be serious if drop in demand occurs at a time when “there is a substantial increase in supply.”
“As one property analyst put it in his recent analysis, some property investors seem either ‘blissfully ignorant’ of the massive supply that will hit the market from 2013, or under the belief that the impact would affect others and not themselves.”
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