Macro And Micro Factors That Make The Property Market Tick

By on May 15, 2013

It is alarming how many people buy properties for investment purposes without having a general idea on how the market works. By having a good grasp of how macro and micro factors make properties tick, you will have a better idea of what types of property investments suits you most and meets your investment criteria.

If we are to put it bluntly, demand and supply is the underlying determinant that affects property values. Macro and micro factors influences these demand and supply. Because of a property time gap between when more supply is needed and when it is actually supplied, seldom do we see an equilibrium of demand and supply. This is also a key factor that keeps property cycles going in circles.

Without going through a whole textbook deciphering in detail how each macro and micro factor makes the property market tick, here are the basics that explain them.

Macro factors

Population growth including foreign workforce and migration. This is a big issue in Singapore and the recent White Paper addressed it. Strong population growth will put huge pressure on the housing market. Even though HDB is launching record numbers of new flats, there still seems to be an insatiable demand for housing. This may be attributed to the number of new citizens each year. The silver lining is that housing supply is expected to increase dramatically in the coming years.

Employment and wage growth. When wages are growing consistently, people are more comfortable taking on debts to buy properties. This confidence in credit liability pushes property prices up. The opposite is also true. When wages are declining, there are less buyers are everyone is cautious of whether they can afford the mortgage in future. Demand for properties drop.

Construction costs. Developers build HDBs and condominiums for profit. As construction costs and the costs of raw materials rise, squeezing a respectable profit out of these projects become more of a challenge to developers. As more and more policies are conceptualized by the government agencies to regulate building projects, developers may become more cautious of building more homes or delay the speed of building them. This can cause a shortage of supply.

Financing properties. Easy access to finance and mortgages was the main culprit of the sub-prime crisis in the US. There used to be as high as 90% loan to value for properties in Singapore. When money is easily accessible, people gear up and buy as much as they can. To counter this, the government authorities have implemented waves of policies restricting mortgage loan to values. The counter effect when financing criteria gets too tight, property markets can freeze. Access to credit is a very big factor that drives property markets.

Government policies. The biggest driver of the Singapore property right now are government policies which are now affectionately know as “property cooling measures”. Rounds and rounds of new policies have been introduced to cool down the Singapore real estate environment. The latest was a comprehensive package in January 2013. Singapore is no longer a playground for hardcore property players as they can never predict what new laws will be introduced next. A seemingly good exit strategy can become worthless due to a new set of rules being introduced. The mortgage market has been heavily hit by these measures introduced by the authorities.

Land scarcity. Although it is a fact that Singapore has limited land, it is not as scarce as everybody thinks. It is a matter of planning and freeing up state-owned land.  The white paper is a good example of this. With simple planning and good land usage, the country can accommodate a huge influx of population growth. The Punggol project is a great example. There is still a huge segment of land being planned to house over 100,000 more people.

Infrastructure. When money is spent on building infrastructure to cater to the masses, you can be assured that local property values will be preserved. Building of infrastructure is a good indication that population is expected to grow. This in turn indicates that property demand will be strong.

Micro factors

Location and amenities. Any home buyer will naturally prefer a location with amenities nearby that is easily accessible. Things that make locations attractive include, proximity to MRT stations, near expressways, close to major roads, shopping malls, wet markets, schools, hospitals, child care, parks, food centres, etc.

Master plans. The government may have huge plans for a particular area. These could include infrastructures that is of great value for a particular profile of home owners. Plans can highly affect property prices over the long term.

What would you pay for a view like this?

Orientation. The “morning sun” and “afternoon sun” has become something that home buyers are particularly interested in. It seems that homes with a North or South facing is preferred over those that are directly inviting the sun into the house. A home with a great sea view is also generally accepted to be of higher value.

Building style. Building architecture that cannot be easily replicated also tend to have a higher value. Just take a look at Reflections at Keppel Bay or Pinnacle at Duxton and you implicitly know that they will cost more than the average apartment.

Layout. A squarish floor plan is easier to furnish that one with protruding or round corners. Space can be easily planned and furnished. A layout that does not allow an owner to fully utilize it’s space can be deemed as lower value.



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