Bubbles can be ‘good for property market’

Dear Straits Times,

I refer to your 24 Mar 2010 report that told of Hong Kong’s Cheung Kong Holdings executive director, Mr Justin Chiu saying that property bubbles can be good. Of course property bubbles can be good, but good for whom? Good for property developers because they end up making a killing. But it is not good for consumers and buyers because they end up paying more for nothing. The gain by the property developer equals the loss suffered by buyers so that the country as a whole gains nothing.

Mr Chiu said that the price of his latest West Coast project, the Vision, is reasonable because he was able to sell 200 units in two weeks. But a sale frenzy hardly justifies that the price is reasonable. It merely signals that demand, whether rational or otherwise, is very high. There are so many property frenzies in recent history around the world accompanied by property bubbles that ended up being burst and hurting the respective countries’ economies.

History tells us that property bubbles are not only no good, they are highly dangerous and ultimately, disastrous to a nation’s economy. The property fever is not unlike the fever that we succumb to from time to time. It not only tells us that our body is sick but also requires our immediate attention to bring the temperature under control before it can do further, irreversible damage.

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