According to Adam Smith, as demand for a good exceeds supply, price rises. This in turn drives suppliers to release more goods to capture that supernormal profit and inevitably prices will come back to normalcy. This economic self equalisation is only possible if the market is rational.
So what happens when this economic rationalism is met by irrationality? Well, you get the Singapore residential market. There are almost 14,000 units available for sale of which over 4,000 units have been launched but remains unsold today. This is the largest volume I have seen since 2007. The remaining 10,000 units are all ready to be released to the market at any given time.
So why is the market so bullish? We have seen average private residential prices rising by another 2.2% in 1Q11 after the 2.7% recorded in 4Q10 while at the same time, the unsold stock increased at over 28% during that period. This irrationality stems from the Singaporean “kiasu” attitude (a local term used to describe the fear of losing). We can’t be blamed after all we have been bred in a highly competitive environment where resources – natural and manufactured, are always limited.
Whether it’s a genuine or perceived limitation is inconsequential. Singaporeans fear that if we miss the boat, we will be stranded even though there may be another approaching. Better safe than sorry. Who cares when there are 14,000 units available, just buy now before more foreigners come and you could lose out. This is the Singapore “kiasu-ism” at its best.
About the author
Dr. Chua Yang Liang is the Head of Research for Jones Lang LaSalle in South East Asia and Singapore.