Saturday, August 29, 2009

Spike in property values driven by 'feeling of wealth'

I REFER to Mr Ng Kok Lim's letter last Wednesday, 'Affordability of homes: Let's do the comparisons right'.

Jones Lang LaSalle's Affordability Index is a comparison of how properties are relatively affordable for a typical resident at a point in time given the prevailing interest rate, property prices and other macro market conditions.

The index compares the condition today with that of a base year and is not a measurement or statement on the ability of an individual to purchase.

The index shows that affordability of residential property in 2008/2009 has improved relative to conditions in 2006/7, given the lower interest rate and home prices.

'GDP per capita' or 'wealth creation' was mentioned in the discussion only to illustrate the 'feeling of wealth' in the economy that has helped lift buyers' sentiments, contributing to the recent surge in buying volume. However, this indicator is not a parameter in the Jones Lang LaSalle Affordability Index.

Our view is that the recent spike in property values have been driven by the 'feeling of wealth', latent demand and lower costs of financing.

This spike, if not accompanied by an equivalent growth in the economy and income, could lead to asset inflation in the longer term.

Chua Yang Liang (Dr)
Head of Research and Consultancy, Singapore
Head of Research, South-east Asia
Jones Lang LaSalle

Source: Straits Times, 29 Aug 2009

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