How would you explain the recent pickup in the property market, despite a weak economy? Is it likely to be sustained? Is there any cause for concern a

The liquidity-driven economy in Singapore propped up not only the benchmark Straits Times Index but all assets classes. The 52 week range is 1,455.47 - 2,843.57 which shows a doubling of the index within a year. The Singapore dollar remains strong and stable and the dollar functions as a channel for financial intermediation from investors in Asia, Europe and the Middle East. Such channel will give rise to volatile cross border capital flows which typically are driven by factors or reasons unrelated to local economic fundamentals. The sharp spike of demand for property can be mostly attributable to such flow of funds from overseas as it is obviously clear that the economic weakness cannot spur such frivolous consumption. The economy contracted 6.5% in the first half of the year. The GDP growth forecast for 2009 is at -6% to -4%.

Such capital inflow can become unpredictable and volatile and is unlikely to be sustainable if the major force supporting the high property demand is from this source of funds alone. Domestically, we are also seeing more local investors taking strong positions in the hope of a recovery in 2010. With new property launches seeing high take-up rate, it is clear that the optimism carries with it a certain momentum. Investors’ snapping up of risky assets is also fueled by the recent adjustment of attractive interest rate for property buyers.

The tide seems to have turned, nevertheless. It is not about pessimism in the air but how strong the tide will turn to lift everyone up for fresher air.
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