Something’s been bothering me. I keep hearing people blaming rising housing prices on truckloads of hot money coming into Singapore and blowing bubbles into the property market, and how the property market will subsequently implode when the funds inevitably leave.

In my very humble opinion, it’s very unlikely to happen like that, for the following reason: The very definition of hot money means that it has to be very liquid. It will go where the yields or profits are. By that definition, it cannot go into the residential property market, which is far from liquid even before the cooling measures. What’s more, with the Seller’s Stamp Duty, you’re not likely to turn a profit in the first few years of ownership.

The more likely scenario is that the money flows into equities or bonds or other similarly liquid assets, boosting the prices of these assets. The wealth effect then kicks in to raise prices of real assets. So the problem is this: people making money in the stock market are pushing up prices…except…do many people who made money from the stock market rush out to buy property, in large enough numbers to raise the whole spectrum of the market? I find that hard to believe.

Another scenario that is likely is that it is not hot money that is flowing into property, but rather longer-term funds that are looking to take advantage of Singapore’s strong economy and/or currency over a longer time horizon. The money may be used to buy property, or, even better, be used to develop property. It is extremely unlikely that they will be able to pull out the funds quickly. In such a case, they will not cause a vacuum when they leave. No vacuum = no implosion.

The real reason for the rising housing prices, as I have opined previously, is the low interest rate environment, caused predominantly by the massive rounds of money printing by basically every major central bank. It may surprise you (or not), but the main culprits responsible for the higher prices are SINGAPOREANS. According to Knight Frank’s analysis of URA Realis caveats data, for the first 9 months of 2012, non-PR foreigners took only 6% of the private market, PRs took 16% and the remaining 78% was taken by Singaporeans. Add in the public housing and you skew the numbers even more. Stop blaming the foreigners for rising housing prices. You deserve at least 78% of the blame!

The low interest rate environment makes housing look affordable. Too affordable. In order to stem the rising tide of unsustainable property investment, the government’s latest measure made it less affordable by restricting the tenure and quantum of loans. They’ve effectively doubled or tripled the funds required for property purchases. I think it should be quite effective, even if it’s not yet apparent.

In conclusion, hot money isn’t to blame for rising housing prices. Neither are foreigners swooping in with bags of cash to push up prices. The SSD and ABSD took care of that. And while low interest rates caused by money-printing caused high property prices to remain affordable, the government’s latest cooling measure took care of that. In other words: