To put things into perspective, the current housing situation is not truly due to demand and supply dynamics. The private home market has witnessed huge gains in prices in recent years because of the hot money flowing from foreign countries such as United States and China as a result of loose monetary expansion. Cash rich investors poured in funds to pump up prices of local private homes. Therefore no matter what policies that are going to be or have been implemented by government, they will have limited effectiveness to cool the market because the rich will not be hurt. Only the middle-income buyers will be curbed by the slew of measures.
The meltdown in our housing bubble will only occur when there is an increase in mortgage interest rate, and I see it looming soon. Very often, our local banks take the cue from United States banks. If United States’ Federal Reserve stopped the bond-buying programme and increased interest rates, this could signal local banks to follow too. In local context, an increase of 1 to 2 percentage in interest rate will mean a substantial monthly instalment amount to pay if property investors took out million dollar housing loans. Not many people can manage this huge jump in the monthly instalment. When this happened, many people are going to be hurted financially and this could be the start of another new crisis.
During our visit at these showrooms, we saw many 1, 2 and 3 bedders already snapped up, either by Singaporeans or foreigners.This led us to believe the statements from MAS stating that quite a number of Singaporeans are over-leveraged on property. Many Singaporeans are buying property for investment for rental purposes as they take advantage of current low bank interest rates. Nonetheless, with the curb on foreigners inflow and slew of property measures, this group of buyers could be hit very hard when the hot money flows out of Singapore.