Time and time again various markets inflate into bubbles before eventually popping and causing investors to lose huge sums of money. It doesn’t matter how often a bubble pops, many investors simply seem to never learn. Now, the Singaporean government is trying to deflate a housing bubble that has seen home prices skyrocket, in some cases to more than 50 years worth of rent!
Housing Sector In Singapore Is Vital
The housing sector in Singapore is especially vital to the nation. As a small city-state with limited space, managing housing and the housing market has long been one of the chief concerns of the ruling People’s Action Party. Housing has now become the largest personal expense for most people living on the island.
The government does support a massive public housing sector that is estimated to supply housing for some 80 percent of Singaporeans. While a Westerner might conjure up images of dilapidated slums at the mention of public housing, in Singapore such “projects” can rival luxury condo estates. Still, supply has not yet sated demand, but with major public and private housing projects being launched in the next three years, with prices having already dropped by about 20 percent.
The Singaporean government has been trying to ramp up the amount of available housing in the city over the last few years. Real estate projects take time to develop, however, and ground years ago on many projects which are now scheduled to enter the market this year. The Singaporean government projects that some 18,500 new private homes will enter the market this year, compared with about 9,000 in 2012.
The government is also launching a mix of public housing projects that should help more Singaporeans secure cheap and high quality housing. High rent prices have become a serious source for discontent among Singaporean voters, and the ruling PAP attained only 60 percent of the vote in 2011, one of the lowest support ratings in Singaporean history.
These efforts present mixed opportunities for investment funds looking to get involved in the Asian real estate market. The Blackstone Group L.P. (NYSE:BX) recently announced that it is launching a fund to focus solely on Asian real estate. Dropping housing prices, however, might create losses. On the other hand, government policies designed to encourage increased home building and home ownership, could boost the bottom line. Everything will depend upon the exact policies being put in place.
Housing has become an area of concern for governments across Asia. Most Asian governments are ruled by fragile Democracies or single party states, but all rely on the tacit consent of their populations. With Twitter, Facebook Inc (NASDAQ:FB), and other social media sites widely available, the risk of public discontent spreading out of control is more real now than ever before. Even so-called “strong-arm” single party states, like China, are well aware that they will only remain in power if economic progress continues and the conditions of the average citizen improves.
While costs for food, clothing, and other goods have remained under control in most countries, housing prices have skyrocketed in major cities across the region. The reason is simple, Asia’s economy continues to boom even in the face of unstable economic conditions across the rest of the globe. And with the economy booming, real estate looks like a great investment in the long run. Asian cities are big now, they’ll most likely be bigger and richer in the future.
If Asian governments are not able to keep housing prices down, however, discontent among civil society will only continue to grow. This could lead to backlash, and in a Democratic country like Singapore, could even see the ruling party thrown out of power through elections. This, in turn, could destabilize the local economy and hinder economic growth.
Further Reading- Jim Chanos China Presentation: The Mother of All Bubbles