SINGAPORE: National Development Minister Khaw Boon Wan on Thursday sounded the alert on the spike in property prices in his latest blog posting.
He said things can go very wrong suddenly and gave three reasons.
Firstly, 35,000 private homes have already been sold – though still in construction – with payments in various stages of completion.
And there are 45,000 units in the pipeline, waiting to be built and sold.
Secondly, URA on Thursday announced its Government Land Sale Programme for the second half of the year which 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 few years.
Lastly, Mr Khaw said the external situation is not exactly bullish.
The European sovereign debt crisis will take a long time to clear.
The Middle East crisis can still go ugly.
If that leads to a spike in oil prices and halts the fragile global economic recovery, the impact on Asia and Singapore will be direct and immediate.
Moreover, foreign buyers of these properties have been strong.
In the recent quarter, they made up 16 per cent of all buyers of these private properties.
Many Singaporeans also buy properties with the intention to rent them to foreigners who come here to live or work.
In the event of any external shock, both foreign demand and rental demand can fall quite quickly.
Mr Khaw said the impact can be serious if the drop in demand happens at a time when there is a substantial increase in supply.
Further, low interest rates will not remain so forever. Cost of borrowing and repayment must go up and households must factor this in.
Mr Khaw said he’s not the only one worried.
He cited a property analyst who recently said some property investors seem either “blissfully ignorant” of the massive supply that will hit the market from 2013.
Mr Khaw said market correction or any crash is not a given.
If all goes well, the economy will continue to grow and those who bought properties here will enjoy good returns when their units are completed in the next few years.
But no one is immune to mishaps.
With so much uncertainties, the Minister advises investors and upgraders to bear these considerations in mind when they go to show rooms and contemplate if they should sign up.