What can cause property market on the path of downward trend over the long term? Can property price keep going up? Latest vlog from Seth to understand more. Scroll further down to read my blog.
Isaac Newton famous story of apple falling on his head has often led to some investors saying that "what goes up must come down". I find this story has some problems. First, there is no record to say that the apple did fall on his head. Isaac Newton most probably observe it from a distance*. What Isaac Newton observed had led to his development of the Law of Universal Gravitation. So secondly, this law apply to our physical world but may likely not be applicable to the real estate market.
So this "apple" question remain in our head: After going up for awhile, can the property prices go down over long term? Real Estate market like any other investment can move both ways, so I believe this is possible. So let me share with you what I think can make property prices go down over long term.
Please note that I am referring to long term investment. Short term movement will always be expected, especially when the world is in some kind of crisis like the Covid19 pandemic.
Dwindling Population
If the city or the country population are on the downtrend, it will affect the economy, the GDP growth and the demand for real estate (both residential and commercial).
Population growth usually is a challenge for developed countries like Singapore, where their fertility rates are low. With aging population, this add on the stress of population maintenance or growth along with other issues like healthcare and social issues. If such country does not rely on attracting foreigners to take up citizenship, to get a PR status or to work long term in Singapore, we should not expect the economy and property price to grow.
Dysfunction Business & Financial Hub
If this happen, it will discourage many MNCs, large corporation or other country government to want to do business in the country. The central business district and various manufacturing facilities could remain quite empty. This likely will affect the economy, increases unemployment rate, encourage low wage employment and discourage foreigners to want to come and work here. And guess what? Real estate market can be affected negatively.
What could cause the dysfunction?
Not having a efficient place to conduct business
No good local pool of talents and workers
Unstable Government and politics
Bad infrastructure
Bad telecommunication
High tax environment
Bad land planning
Government regulation and policies that discourage business set up
Corruption
And many others
Cost of Borrowing is high
One key factor that can affect the demand is how much the bank can allow borrowing for real estate purchase and the interest rate.
If the banks are not willing and impose strict limitation on how much an individual can borrow, this can cause many not to buy a property as the capital outlay to make the purchase can be out of reach to many.
If the interest rate is high, even if the population is high with limited supply, this will affect significantly the buying appetite of home seekers and investors alike. As long as interest rate is kept high, the monthly commitment to own a property will be high, and this can discourage many to make the decision to purchase property.
No Government Intervention and Development
If the Government has no plan to develop anything in the country, not pouring money to develop the nation, we should not expect any increase of value of real estate. What are the things Government can do to increase the value of properties? Below are some examples:
Building more and better transportation systems (example: new MRT lines, new highways, etc)
Creating more amenities (examples: zoning for shopping malls, schools, clinics, etc)
Creating more recreational facilities and zones (examples: parks, recreational centres, sports facilities, etc)
Betterment of the lifestyle of residents (example: shelter walkways, more greenary, easy access to pick up area, etc)
There are many other other big and small items that Government can do. But if the Government is not doing anything, what can we expect the value of the property?
Above are only just few factors I personally find can cause your property price to drop. There are others I am not sharing here.
Now lets bring it to home in Singapore. Are the above pointers happening in Singapore? Let me end this blog with the pointers below.
Possible population growth to 6.9 million or more. Currently Singapore has about 5.7 million population
Singapore is a major business and financial hub, not just in the region but in Asia and the world
Interest rates are low now
Many Government plans on urban redevelopment and renewal, couple with many sound policies, are to propel Singapore and her economy forward
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**all data and information extracted from URA and OrangeTee & Tie Research & Consultancy. The content and information provided is for general information only. It should not be treated as an invitation or recommendation to buy or sell any specific property or product. Each illustration in the presentation or article is based on current information as at the date of publication. Readers are to consider the content as one of the many factors in making investment decision and should seek specific investment advice. Readers should carry out their own due deligience or verification of such information. The author and publisher of the article are not liable for any losses. All right reserved.