Property markets move in cycles. During an up cycle prices move up rapidly and sales are high. In a down cycle prices move down rapidly and sales are low. But in most years prices move slightly and the volume of sales fall somewhere in the spectrum between the highs and lows. There are a few other principles that apply to most markets. Generally when markets are moving up or down rapidly the prime locations tend to move up faster and fall slower. Not all markets move up or down by the same margins but there is usually a rational explanation why some segments move more than others.

The Singapore property market defies all logic and is largely determined by government policy which has distorted all economic theories, supply and demand, cost plus pricing, yield curve, location……It has produced a pyramid scheme like property market which makes sense as long as the masses are making money by following the regulations. Firstly, it penalises foreigners and investors with out of this world additional stamp duties. The Singapore property market has become almost exclusively for Singaporean buyers with only one property. Then it miraculously ensures that locals who follow the government script will make money. The plot goes as below.

The majority of first time home buyers will buy a HDB BTO flat which is supposedly well below the cost of such flats. But how is it significantly below cost? It is based on the government valuers’ estimate of the land price and construction cost. Most young Singaporeans feel entitled as citizens to buy a flat below cost and will sell it after the minimum occupation period (MOP) for a windfall gain. But they can only sell after the MOP for a gain if there are other buyers who support the high market value of these flats. This is where another government scheme will facilitate this pyramid scheme. Citizens who choose not to exercise their BTO privilege get significant subsidies to buy a resale flat. With the gains citizens become savvy property investors encouraged by 35000 property agents with slick YouTube videos and free ‘guaranteed to make money formula’ free seminars. Enlightened by these property gurus they are encouraged to sell their HDB homes after five years MOP and to buy two private apartments. The new purchases are in their individual names so as to not incur the ABSD. Quite often at least one apartment will be in the same neighbourhood. Because of the high demand for apartments in the heartlands developers tend to bid high at GLS thereby filling the government coffers. Some buyers might choose to bypass the BTO route altogether and buy a private condominium unit as their first property purchase. Many of these young Singaporeans are assisted by their parents with substantial cash gifts. How many of these parents might have bought an investment property in their own names but for the ABSD rules?

Alas, like all Ponzi schemes the Singapore property market too will unravel. Heartlanders who are delighted with their recent increase in paper wealth will become distressed if it was only transient. This makes it a serious political issue and perhaps the reason why the government appears reluctant to correct a highly distorted property market. One can easily find prime properties with luxury finishes in prime areas including Marina Bay, Shenton Way, Sentosa Cove, River Valley….. at prices that are significantly lower than it was nearly fifteen years ago and even lower in price than apartments of similar size and inferior finishes in the heartlands. Despite the inertia of the government, prices of properties in the heartlands will reverse gear and the markets will eventually triumph against overbearing regulators. The reverse plot below

It starts with developers who are wiser and better at reading tea leaves. Markets will eventually become saturated and there is only so far prices can go up before it implodes. While prices for mass market condominiums were rising to incredible levels, developers were astute enough to recognise that the party will continue as long as those who purchased at inflated price levels still make a profit (or at least on paper). But eventually the pool of potential buyers including children and grandchildren of wealthy parents will be soaked up. Developers are now giving attractive GLS sites a miss or placing a single bid at very low prices where previously many of them were placing high bids for less attractive sites. Quite accurately they knew sales in the primary market is going to weaken as is shown in the numbers of new property purchases since 2021. Paper gains are only good if it can be realised. If there is an economic downturn or rentals especially in the heartlands slide downwards many may find it unbearably painful to hold on to their sell one buy two property investments.

The current run up in the property market was fuelled by the herd instinct of unsophisticated buyers. A reset was long overdue. Will there be accountability if the plot goes awry? Perhaps the government will set up a task force like for the SGX when crap hits the fan!