Tuesday, February 14, 2012

"Feng Shui Finance" and the Singapore Property Market

You know that a property bubble is brewing when Feng Shui gurus are getting into the property market. A recent article on propertyguru quotes the comments of a Feng Shui master on the state of the nascent 'shoe box' market in Singapore. According to Feng Shui expert-cum-architect Shang Zong Wei,
"we are now living in Period 8 where high-rise developments with small units and expensive pricing will become the norm. Period 8 refers to the 20 years spanning 2004 to 2023. This is represented by the trigram Gen (艮), a characteristic of Qi (气) normally relating to mountains, children, feet, ankles and so on. Hence, in Period 8, erection of high-rise housings may be anticipated - modern structures manifesting as 'mountains with livable caves', complete with 'mountain-high' prices. The trend of dwelling units becoming smaller and smaller may seem a natural response to market demand, but it can also be just a natural tendency towards 'children scale'. What is really uncanny is the nickname given to such units - 'shoe box', because Gen (艮) also relates to feet and ankles."
Well, I seriously have no idea about Feng Shui, but according to the Skeptic's dictionary, "Feng shui has ... become another New Age "energy" scam with arrays of metaphysical products from paper cutouts of half moons and planets to octagonal mirrors to wooden flutes offered for sale to help you improve your health, maximize your potential, and guarantee fulfillment of some fortune cookie philosophy. " Also, "in countries where belief in feng shui is still very strong, feng shui has become a hodgepodge of superstitions and unverified notions which are passed off in the university curriculum as scientific principles of architecture or city planning." 

Personally, I have a much simpler explanation for the emergence of 'shoe box' units in Singapore — there has been a surge in demand for properties in the country, driven by a combination of population growth, capital inflows, expansion of credit and speculative mania. At the same time, supply has been constrained until recently, and there is less and less land available to build properties, hence the apartment sizes are getting smaller and the buildings taller because the space per unit population in country is shrinking. It is just a simple function of mathematics and basic microeconomic theory of demand and supply.

This is also why I think the impact of ABSD on property prices is going to be limited in the medium term. The ABSD was targeted at muting foreign demand for Singapore properties. A careful analysis of the statistics reveals that a significant proportion of foreign purchases was focused on properties in the Outside Central Region (OCR), which also happens to be the mass market for which participation by Singaporeans in general forms the bulk of the activity. While the ABSD is sure to impact the demand of these mass market properties by foreigners, the underlying trend of Singaporean-driven demand is still going to be strong, and this is evidenced by the strong performance of mass market condos launched in early 2012 (Watertown Punggol, Trilliant, Parc Rosewood etc.) following the implementation of ABSD. 

Contrary to the consensus predictions of several property agencies that property prices are going to fall 10-15% this year, I think that mass market prices will continue to show resilience, and that price falls will come mostly from the segments of the market primarily driven by foreign demand (CCR properties, luxury apartments). It will take some sort of external economic or financial shock (like the Asian financial crisis 1997 and the US financial crisis 2008) that slows the Singapore economy down significantly in order for the prices of mass market properties to fall, rather than just so-called "cooling" measures like the ABSD. 

Propertyguru (Feb 2012) "Vacant homes on the 'up and up'" 
Skeptic's Dictionary (Feb 2012) "feng shui"

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