With property prices increasing since last year, you may have heard talks of a “housing bubble” or a “bubble burst”. What exactly is this phenomenon?
A bubble burst in the real estate market happens when the sustained hike in the demand for properties against the limited supply, is unaligned with the market fundamentals.
A property bubble is unlikely on the horizon, with the government keeping a close eye on the real estate market, ready to implement a new set of cooling measures in the case of a possible bubble formation.
The tightening of the Loan-to-Value (LTV) limit is an example of a cooling measure that may kick in. This would translate to a further cap on the maximum amount that could be borrowed from the bank, for property purchases. As such, homebuyers may be deterred from capitalising on the low interest rates at present, and borrowing a sum that is beyond their financial capacity.
A potential increase in the additional buyer’s stamp duty (ABSD) could also discourage property investors from spiking up the property prices, and rendering properties unaffordable for homebuyers.
While a new round of cooling measures may not seem to be good news for homebuyers and home investors, they are crucial in ensuring that prospective homeowners do not have to suffer the repercussions of a housing bubble.
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