Thought to write about this since July 2018, finally it might be timely to do so…

Source: CNA

Since 2011, potential homebuyers and homeowners have been continually impacted by cooling measures the authorities implemented. Round after round, year after year, to no sign of these measures being called off. Many have sounded their unhappiness, having been stopped from making their riches. Some debated about market intervention vs free market.

These were difficult and important moves; it would have been easy to simply “let free market take over.” Indeed, it would have benefited the country’s coffers more to sell more land and properties at higher values, from a sales and property tax perspective. Think about it, for every one piece of land sold, or in fact one property transacted, at a higher price, the other 99.9% rise in value!

So why go through all the trouble to come up with unpopular policies and intentionally curb property values?

Singapore Residential Property Index
Hong Kong Residential Property Index

If we take a step back and look at these charts detailing the housing index of Singapore and Hong Kong, perhaps there were some lessons learnt from the mid-nineties boom, the period before the Asian Financial Crisis, which saw property values deplete and languish for a good 13 years before breaking even in 2010, that is 0% return in 13 years.

Specifically, the policies were designed to curb residential house-flipping and excessive price increases. It was as though some really smart people learnt from that experience and asked “what if that boom never happened in the first place – could there be a subsequent ‘crash’?”

My imagination of how the housing index may have looked like had policies guided housing prices back in the 1990s, do you think that may have helped an entire generation of people?

We have to ask ourselves – with that boom, was value created, or were wealth simply transferred from some pockets to other pockets? Clearly we want to steer towards one extreme and balanced from the other.

I say good job to the fellows involved!

An intriguing 15 years comparison between Singapore and Hong Kong Residential Property Index.

Now, if we come back to the cooling measures and ask why… I wonder if these smart people saw/ sees something down the road that investors do not?

P.S. The capitalisation rate for Hong Kong’s residential properties is at or nearing 2%, while Singapore’s is probably nearer to 4.5% to 5%.

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