Impact of property prices on the stock market

In general, property prices tend to move hand in hand with share prices.

Therefore, when property prices have risen too fast and too high, a wise investor might want to be cautious about the stock market as a property market crash would dampen sentiment on the stock market.

We could learn a lesson from Japan in the 1980s.

After excessive speculation -----> Property prices collapse

Nikkei average 39,000 ---------> Nikkei average 14,000

Reason:

• When property prices sky rocket, investors mortgage or sell their properties to buy shares ----> share prices sky rocket.

• When property prices collapse, investors sell shares to cover the house mortgage loan

or

• When share prices collapse, investors sell their properties to cover shares margin call.

Ref: Making Mistakes in the Stock Market by Wong Yee