IMF Flags bubble trouble in Asia. What does it mean to you

A local newspaper recently published an article entitled “IMF Flags ‘bubble trouble’ in Asia”.  The article stated that the International Monetary Fund (IMF) released a report entitled, Global Financial Stability, which warned that many East Asian property markets (including Singapore) were overheating.  For some potential investors, this article could be seen as a warning for them to stay out of the property market.  For some property owners, it could prompt them to cash out of their property investments.  

In response to the article, our views are as follows:
After reviewing the IMF report, we note that the report concluded by saying that there were “no evidences of systematic bubbles in advance and emerging market economies and across asset classes in the near term”.  However, it cautioned that should an environment of low interest rate, abundant liquidity and capital flow persist; a bubble could form in the medium term.

In recent months, the Singapore government has shown itself to be very proactive in managing the property market.  Within a span of 6 months, the government introduced two sets of measures to cool the property market euphoria.  Hence, there are already proactive steps by the government to prevent a property bubble from forming.  

What does this mean for potential buyers and property owners?

As broad based market recovery has just begun, property prices still have some growth potential.  Hence, it may currently be a bit too early for property owners to cash out this very moment.   Property owners who are thinking of selling should not act rashly to the news and maintain their planned exit strategy.  They should consider selling only if they have realized their desired profits.   

For those who are presently thinking of investing in properties, many residential developments are presently selling at an all time high.  In current market conditions, the investment objective of capital appreciation from residential properties may be difficult to achieve.  Nonetheless, this does not mean that there is no scope for investors to benefit from the property market.  Instead of going for quick profits, they can consider the rental potential of their property investments.

In conclusion, the firm is of the opinion that property prices will continue to increase in tandem with market recovery.  Our research suggests that the uptrend will continue for the next 9 months to 1 year.  However, due to the cooling measures, a price increase in subsequent months will be more moderate as compared to a few months ago.