Thoughts on the Property Cooling Measures

Following the announcement of the latest measures to cool the speculative bubble in the real estate market here, much of the debate continues to centre around the role played by speculators, immigration and foreigners. What I have not seen discussed in detail is the role played by the negative real interest rate environment.

From an Austrian School perspective, negative real interest rates tend to foster bubbles through mal-investments. In my view, Singapore's current monetary policy has to some extent been held hostage (due to export competitiveness considerations) by the US Federal Reserve's zero-interest rate policy as well as the People's Bank of China's USD-peg policy. This has resulted in a negative interest rate environment that is 'conducive' for the growth of speculative bubbles.

If the latest measures by the Ministry of National Development are effective in cooling real estate demand, the continued existence of negative real interest rates could well see hot money moving into the local stock market or other asset classes.