Are we heading towards a Property Bubble again?

Being in the construction sector, I am keenly aware of the boom and bust of the property market.

Perhaps, it is not like some sectors whereby the intensity of the work is fairly constant. For instance, in the healthcare or deathcare (except when there is a major epidemic or pandemic), sectors in the civil service, etc. Whereby the nature of work and industry is not that cyclical.

Deja Vu?

I remember prior to the 2007-2008 global financial crisis, there were talks among those people working in the developer side getting many months of year end bonus, given the heady rush up in property prices and sales. Those were the days before the Singapore government implemented their various cooling measure regulations. It was like if there was a cock-tail party, people would be talking about property and their prices. If you were one of the buyers, you would be one of the lucky ones. It was not just about Singapore properties, but also about overseas properties (esp. those in China, and other developing regional markets), since many of the big local (MNC) developers were actively expanding their footprint there. 

In 2007, the then CapitaLand’s president and chief executive Liew Mun Leong was awarded a bonus of $20.52 million for helping the property developer achieve a record profit of $2.76 billion that year. At that time, this amount was unprecedented in Singapore, even among the three listed local banks, whose management typically draw high bonuses. (read here)

Work-wise, it was a busy period for us. Being relatively new in the workforce, I did not know we were heading towards a bubble then.

In Singapore, at that time, people were able to ‘flip’ properties for quick 6 figures profit.

End of era for flippers (read here)

Then the global financial crisis struck. Our company was lucky in the sense that we have steady projects coming in during that period. I was also glad that work was more manageable then. My company then implemented a freeze on salaries and there were some pay cuts at the senior level. However, I do not recall anyone was laid off at that time.

As for those chatters about big multi months bonus (esp. among those working for developers), these quietly and quickly died down, and was followed by disgruntled complaints.

So here we are now, the coronavirus has upended everyday life in the eight months since the crisis was declared a pandemic by the World Health Organisation (WHO). The economies of many countries are adversely affected including the United States.

In response, US Federal Reserve Chairman Jerome Powell has highlighted the importance of the lending programs aimed at battling the economic fallout from the coronavirus pandemic.

He highlighted that even as recent positive vaccine news raised the prospect of a swifter economic recovery next year, it is not time to shut down emergency programs yet. In addition to the lending and liquidity programs, the Federal Reserve is expected to pump more money into the economy, expanding both its bond-buying programme and ultra-cheap loans to banks to support economic recovery. The Central Bank left the target range for its federal fund’s rate unchanged at 0-0.25% during its November 2020 meeting.

You know, for me, being in the construction sector, I am wondering if this is the calm before the storm. After all, ‘work’ comes in cycle, well at least for me. Without a doubt, in Singapore, the construction sector has been one of the hardest-hit industries amid the fallout from the pandemic, contracting 97.1 per cent from the first to the second quarter.

Construction sector takes $10b hit as demand plunges (read here)

Yes, for many companies, there is a sudden drop in demand, and with the disruption in the supply chains and the constant worries about possible upticks in infection cases in the dormitories, many companies faced an uphill battle.

However, the pent-up demand is still there. My opinion is that if not for the various cooling measures still in place now in Singapore, there would probably be a revival in the buying fever or sort by now.

With the low interest rates and plenty of liquidity finding its way into the markets, I am starting to read more and more about the frenzy in the housing property markets.

With the flood of liquidity, asset prices tend to inflate.

The subprime mortgage crisis started in 2007 when the housing industry’s asset bubble burst. With the previous years’ increasing home values and low mortgage rates, houses were bought not as places to live in, but as investments. (read here)

Where are we at now?

Hong Kong

Let’s start with Hong Kong. In my opinion, it is a place with many intrinsic issues (unresolved) and some interesting news and trends.

Firstly, a bit of context here. I believe many are aware that Hong Kong entered a recession even prior to the onset of the pandemic, in 2019. This is due to the many months of social unrest which started in early 2019 and till today is not entirely resolved. Many people in the low income segment of the population are currently already struggling.

Before COVID-19, there were 1.4 million people, or 20.4 per cent of the population, living below the poverty line (before taking government aid into account) — the highest level in a decade. The city’s unemployment rate has risen to 6.4 per cent…. while the rate for those living in poverty “is even higher”

Hong Kong unemployment rate
Source: Chart of the Day: Hong Kong Unemployment Hits Nearly 16-Year High (read here)

The current jobless rate in HK reached 16 years high in the three months to September 2020, hitting 6.4% for the July to September period amid the on-going Covid-19 pandemic. Hong Kong was also just hit by the fourth wave of Covid-19. Consequently, Hong Kong and Singapore postponed the launch of quarantine-free flying until 2021 on 24 November 2020, dealing a heavy blow to hard-hit industries banking on travel bubbles to salvage a recovery from the coronavirus pandemic.

Source: 4th wave of Covid-19 in Hong Kong because rules eased too soon: Expert (read here)

Fear, uncertainty and the grim face of poverty in Hong Kong with COVID-19 (read here)

Poor in Hong Kong: life is hardest for the elderly, jobless and single-parent families living on a pittance (read here)

Coronavirus: Hong Kong’s low-income residents suffering more under strain of pandemic, with relief doing little to help, survey finds (read here)

Chart of the Day: Hong Kong Unemployment Hits Nearly 16-Year High (read here)

4th wave of Covid-19 in Hong Kong because rules eased too soon: Expert (read here)

Hong Kong, Singapore put brakes on travel bubble until 2021, will reassess Covid-19 fourth wave situation in late December (read here)

So yes, it is not looking good over there. However, it is a different story for the rich / upper class, as the pandemic widen the inequality.

COVID-19 is only making Hong Kong’s inequality worse (read here)

Still, I am surprised by the many recent news of Hong Kongers rushing to buy properties given the dire situation there.

In spite of the prolong recession, rising jobless rate, unabated poverty hardship, social unrest, political issues, business closures, fourth coronavirus wave…. droves of people nevertheless found time to queue up so as to buy properties.

After all, if you stuck at home due to the pandemic, fearing for your job security (if you still have one), what else can you do right? Why not just pop by your friendly neighborhood show-flat and sign yourself up for a few million dollar worth of debt, leverage, mortgage, apartment unit..

To quote the below article:” Hong Kong’s homebuyers packed a real estate developer’s showroom over the weekend to snap up hundreds of new flats, as assurances of low interest rates by monetary authorities drove them to seek sanctuary in fixed assets.”

Hong Kong homebuyers snap up first new property project in two months, lured by discounts and falling interest rates (read here)

New World posts a third sell-out weekend in Tai Wai as buyers rush to park their money in flats amid era of low interest rates (read here)

Hongkongers come out in droves to buy property even as developers steadily raise prices amid improving confidence (read here)

Source: Hong Kong homebuyers snap up first new property project in two months, lured by discounts and falling interest rates (read here)

Despite the prolong recession, residential property prices in Hong Kong are still stubbornly high. Hong Kong SAR (China) Real Residential Property Price Index was reported at 186.870 2010=100 in Jun 2020. This records an increase from the previous number of 184.535 2010=100 for Mar 2020. (read here)

Source: Hong Kong SAR, China Real Residential Property Price Index (read here)

Sure there are many factors to consider in Hong Kong, be it competition from mainlanders buying up properties in Hong Kong, the lack of affordable public housing, relaxation of restrictions and favourable financing, etc. Still, the rush towards properties in droves, as Hong Kong strives to mitigate its fourth coronavirus wave, is worth noting. Will this be the start of a very big gold rush towards property post pandemic?


From Hong Kong, we move on to the news from China. China property prices rebounded fairly quickly from the pandemic. However, the rising debt of Chinese property developers are in the spotlight again, as liquidity issues at top developer China Evergrande trigger investor concerns.

Chinese regulators imposed the red lines and other quantitative limits at an Aug 20 meeting with developers. In the near term, a developer with a weak balance sheet and sizeable exposure to second-tier cities may need to cut home prices to boost sales and shore up cash. Over the longer term, it may force developers to devote more resources to non-residential property, such as office and retail.

Asia’s largest junk bonds are riskier than ever — and Chinese property developers may be feeling the heat (read here)

China’s three red lines for home developers (read here)

The Chinese property market with the reviving economy is heating up again, and Chinese buyers are buying properties from overseas as well.

Wealthy Chinese buyers snapping up luxury homes again (read here)

Rich Chinese investors snapping up luxury homes from Singapore to Sydney (read here)

The $52 Trillion Bubble: China Grapples With Epic Property Boom (read here)

The Chinese property bubble is now bigger than the U.S. housing bubble that led to the Great Recession (read here)

The pandemic hardly made a dent to the climbing property index. China Nominal Residential Property Price Index was reported at 140.262 2010=100 in Jun 2020. This records an increase from the previous number of 139.494 2010=100 for Mar 2020. (read here)

Source: China Nominal Residential Property Price Index (read here)

With China, we are talking about epic proportions here. As stated in the last article above: “”The resulting asset bubble, many economists say, now eclipses the one in U.S. housing in the 2000s,” the Journal writes. After all, residential real estate in the U.S. was reportedly seeing about $900 billion a year during the property boom’s peak, but in China, investors flooded the housing market with roughly $1.4 trillion over the past 12 months ending in June.”

The United States

Likewise, the housing market in the US is booming. In September 2020, the number of Americans buying new houses spiked to a 14-year high. Home prices are growing at their fastest pace since 1991. And US mortgage lenders just recorded their biggest quarter in two decades.

Source: The U.S. Real Estate Market in Charts (read here)

American Housing Is In A Full-Fledged Boom (read here)

Wow! U.S. housing market sizzles, despite pandemic (read here)

The U.S. Real Estate Market in Charts (read here)

Source: Wow! U.S. housing market sizzles, despite pandemic (read here)

New Zealand

Beyond the major economies of the US and China, even at the bottom of the world, in New Zealand there is a housing frenzy.

To quote the article below: “The red-hot market is causing such concern that Prime Minister Jacinda Ardern’s government has taken the unusual step of asking the central bank to do something about it, saying surging prices are “harmful to our aims of reduced inequality and poverty.”….
New Zealand house prices jumped 9.2 per cent in November from a year earlier to an average of NZ$769,000. In Wellington, a compact harbour city with a shortage of homes for its growing population, prices climbed 5.8 per cent in the past three months alone for an annual gain of 13.5 per cent.”

Housing frenzy in New Zealand exposes perils of ultra-low interest rates (read here)

Investors snapping up homes, first-home buyers struggling in ‘hyped-up market’ (read here)

Source: New Zealand Real Residential Property Price Index (read here)

Likewise for some parts of the world…

Mortgage boom risks coming home to roost for Brazil’s banks (read here)

To quote the above article: “Home loans surged 49 per cent in October from a year earlier to their highest monthly volume since 1994, data from Brazil’s mortgage association shows, driven by a dramatic drop in the benchmark interest rate to 2 per cent, from more than 14 per cent in 2016.”

In Summary

I would have assumed that people being rational beings would learn from their past lessons. However, people all have an innate desire for a higher standard of living and for many, an infatuation with the property asset class as an investment. It is one of the few asset class which allows buyers (and especially investors) to obtain high leverage, and achieve profits at an accelerated pace.

Frankly, if not for the cooling measures still in force in Singapore, my wife and me could I gone on to purchase an investment property.

Nevertheless, many factors are different now, with banks financially stronger and government (in many countries) taking steps to tackle any unbridled frenzy.

Still, it is interesting how the 2020 ‘QE Infinity” by the Fed, and low interest rates (and in some cases negative interest rates) environment around the world is panning out. Consequently, how it is affecting the property markets, while we are still in the midst of a global pandemic and many countries are still technically in a recession.

The other push factor at play here due to the pandemic is that it has hasten the drop in housing inventories. Developers and contractors are building less due to the restrictions and demand is starting to outweigh supply. This is not going to change anytime soon.

This can clearly be seen in the US. The existing home months’ supply is the lowest it’s been since they started collecting this data in the late-1990s:

Source: The U.S. Real Estate Market in Charts (read here)

To quote the below article: “Builders shut down operations in March and April, as the economy shuttered, and then they were largely blindsided by the soaring demand that surged in May. They are now faced with a dwindling supply of finished lots as well as skyrocketing prices for lumber. That has some of the biggest builders actually slowing production.”

New home sales crush expectations, but the supply is running out (read here)

So unlike the period prior to the GFC, there is now another key factor, which does not spell good news for genuine buyers looking for homes. In addition to the access to ‘cheap money’, there is also the fact of falling housing inventory, hence, for buyers, in the near to mid term, they either buy NOW or have little else to choose from later (or be priced out of the market)..

Put it in another way, these days, it is hard not reading news of the rush towards properties.

The Singapore residential property market is heavily regulated. The rush is not that evident here….yet. However, being a small open city state, it is nevertheless exposed to the risks in many major economies overseas and heavily dependent on externals. In other words, it is not easy for Singapore financial sector or property sector to be totally insulated. The ‘bursting’ of the bubbles in China or the US would definitely be felt here….

Singapore’s Oct new home sales halve on fewer launches, options curbs (read here)

Sjngapore unlike China cannot afford to look internal. The latter can still depend on its internal economy for growth and consumption. Singapore is just too small and open.

Singapore has just unleashed an unprecedented amount of fiscal support during this pandemic to help counter the fallout from the virus and supported hard-hit sectors such as airlines, construction and tourism. It unleashed a package of almost S$100bn — or nearly 20 per cent of GDP — and drew down a record S$52bn from past reserves to fund the plan.

Are we ready for another crisis? MAS cannot print unlimited amount of money…

Many countries battling new waves of infection (read here)

A rush to create Asean travel bubble holds too much risk (read here)

It is like how we are like now during this pandemic. Even if Singapore manage to have zero community cases and start to shift into Phase 3, slowly opening up, but with many parts of the world still seeing record high number of cases and battling second and third waves of infection, can we truly be out of the woods?

Do let me know what you think. Leave a comment below.

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About apenquotes

Born in 1976. Married with 2 kids (a boy and a girl). A typical Singaporean living in a 4 room HDB flat. Check out my Facebook Page:
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