What’s the possibility of Singapore property market affecting property market Malaysia? Given the fact that Singaporeans are the largest group of investors in Iskandar and also buys into other cities such as KL, Penang and even smaller ones like Melaka? Singaporean property prices are coming down. In fact there’s a possibility that this price slump may affect it’s economy as a whole. With lower prices, construction activities are also slowing down. According to Bloomberg, the construction outputs have also fallen compared to the same time a year ago. Home prices continued declining in September and it’s the fourth consecutive quarter of decline! This is considered the worst ever within the past five years. knight Frank said that property prices have dropped 7.3% within the first six months of 2014.
Who’s causing this? Well, it’s the cooling measures which has been put in place since 2009. The crazy property price increases from 2009 – 2013 are finally declining but it’s unlikely to be any percentage which is remotely near to the 60% growth during the same period. The construction sector meanwhile will have a bearing on Singapore’s economy, just as the decline in property prices. With these twin effects from the property prices and construction activities, the economy of SIngapore has expanded only an annualised 1.2% in the third quarter which was way below analysts’ expectations. I like the statement from Vishnu Varathan, market economist at Mizuho Bank to CNBC. He said, “Property could be one of the big cogs in the whole risk mechanism impacting Singapore, but it would likely take an external trigger from the global economy to trigger a sharp price correction.”
As the main motivation for all the cooling measures is not to push prices down sharply but to stop it from growing too fast, I think the Singaporean government may be happy that its working according to their plans. Fortunately for Singapore, construction accounts for just 5% of its economy but as usual, a 50% fall would cause economy growth to be lower than expectations. Services account for 70% and manufacturing 20%. Looking at this scenario, I think this would also be a reason why investments into Iskandar property market has slowed. If prices in Singapore continues to decline, it may be more attractive and safer to buy within rather than external. After all, every new level would always be punctuated by a small decline before prices resume its march upwards in the future. The only question is when.
written on 23 Oct 2014
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