Is Cooling Measure Bad for Investors?

Cooling Measure Singapore

Well, the property market has taken a hit after 7 round of cooling measures.What are my views on the cooling measures?

I had given a talk on the property market in Indonesia for the investors there. The topic was about how did our property market rebound just about a year after what was touted as the most severe economic crisis in 2008. How is this related to the cooling measures?

Well, our property market rebound because first of all we had good economic fundamentals and strong financial systems in Singapore. But very importantly since the 1997 property slump, I believe the authorities in Singapore have learned that the market cannot be left to it own devices. That means the market has to be managed.

Unlike the slump in 1997, the prices of the property took about 10 years to recover. Yes! 10 long years. But the prices of the property took only about 1 year to start recovering, despite the severity of the global crisis in 2008. Why is that so? One of the many reasons (the one that we are interested here) is that the government had various measures in place to simulate demand and at the same time reduce supply. Coupled with an open economy policy that help the demand side of property the prices recovered fast.

What are these measures in place that simulated the demand? These are the previous measures put in place to curb excess demand during the boom time. Like now, we had 7 different type of measures that are managing demand. Without these measures there are basically no room for any regulatory stimulus to bring back the demand. How than can the property market pick up again in a short period of time? Reducing supply is not an option and are less effective as it would not encourage expenditure or simply taking up of the property in time of crisis. Hence, during a bull run it is necessary to curb excessive, speculative demand, so when the bear market returns, we have "weapons" to bring back demand from those buyers who would have otherwise bought during the bull market.

I am seeing this from a long time view. So the cooling measures is not at all scary or bad. If the authorities are vigilant and can be alert enough to adjust the measures according to the market situation, if you are a value investor and believe in steady long term growth, this is then a good news for you. We might have slower rate of growth, but we can be less volatile and has lesser investment risk comparable to others.