I have some opinions on this phenomenon.
We know people invest with their spare money. Some put it idling in FDs, some buy shares, UTs, currencies and properties. The definition of investment basically means to postpone current consumption for higher or more purchasing power in the future. Hence, money will be constantly flowing into the financial markets as investments when people do not spend it on goods and services.
There are five main components of the financial market, namely: Securities, bonds, futures, forex and property. The first 2 components are not doing well due to high inflation, low interest and growth rate environment. Our forex and futures market does not have much investment interest due to lack of education and awareness. MAS gradual currency appreciation policy does not encourage prudent investors to invest into alternative currencies.
Hence, investors with spare cash are likely to place their interest on the property market. Of course our low interest rate, growing population (migrants) and small land area is another positive motivation for our property market.
The income distribution in Singapore is also another contributing factor. In China, due to exceptional high income disparity, 80% of the bank deposits are held by 20% of the population, according to official figures. I am not sure about Singapore, but I am inclined to believe that 40% of our bank deposits are held by 60% of middle income families. Hence, slightly up market and mass market properties are still having healthy take up rates for investment and residential purposes.
The recent OCBC preference shares offer was 5 times over subscribed. This shows the excess liquidity or free cash, our population is holding. I believe that retail investors contribute to a large bulk of the buying interest. For the wealthy, they have better avenues to invest their money, such as through private bankers, their own businesses, antiques, fine wine, watches etc. Only poor people like me will be interested in gains of 5% and above. Again, this explains why mid-tier properties buying interest is sustained. Rental yields of 5% are not difficult to achieve at current property market.
With excess liquidity competing for limited goods in the economy, prices will have to go up to match demand and supply. Unless everybody work together to spend less and bring down prices of goods and services, high inflation is here to stay at least for the next 5 years.
I am also interested in buying a property when there is a good opportunity. For readers who are interested, I have a tip from my family trusted property agent. He said that there are people who bought a few high end properties at one go during the height of the property boom. These greedy people have no holding power to ride over the lackluster luxury property segment and bargains may be out there towards TOP. Check with your trusted property agent for potential fire sale deals. However, make sure you are investing for at least 3-5 years, to be safe.