It's all about Amelioration

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Of Property Bubbles…..

with 4 comments

Now here is a guy that has gotten way over himself. Mr Simon Cheong, Chairman of Real Estate Developer’s Association of Singapore (REDAS). Speaking at a launch of the National Residential Price Index, he pleaded with the government to NOT interfere with free market forces in the private property market, and also encouraged buyers to purchase to take advantage of the opportunities in rising prices. This, after private home prices rose almost 16 per cent in the third quarter of 2009 – the highest quarterly increase in almost three decades. I mean seriously???

I do NOT agree much with our government these days, but in this aspect, I do. While free markets are great in encouraging capitalism and healthy competition, without proper regulation and timely government intervention, it could turn into a loose cannon. Imagine what will happen if a child is placed in a candy store with unlimited funds and limited supervision. As we know our government made a couple of tweaks in the private property market like the removal of the deferred payment and interest absorption scheme recently. As the Ministry of National Development states, ” The government’s objective is to maintain a steady and healthy property market where price movements are supported by economic fundamentals” Wow, finally something quote worthy by them.( Don’t get me started on the”affordable” HDB homes which I will dwell further in a later post.)

But anyway, I thought that Mr Cheong’s statement is way out of tangent and irresponsible. Being the chairman of REDAS, does he not understand simple economics or is he too disillusioned by the bloated pockets of developers like  himself – who coincidentally is the Chairman of SC Global, a property developer.

Of course, some might argue that government’s intervention in property market cycles might do more harm than good. Case in point:  Singapore 1996, where an introduction of Capital Gains Tax, fueled by a Asian economic crisis, triggered the property market to collapse. On the flip side, the lax regulatory environment and loose credit policies by the US in the past decade has led to a housing market collapse of mammoth proportions which triggered one of the greatest recession since the depression in 1929.

The two cases mentioned above and of course countless others like the infamous Japan and Irish property bubble bursts are insightful examples that any government can study when tackling such a problem. At the end of the day, it is a balancing act. A combination of fiscal and monetary policies, coupled with sensible regulations and a deep understanding of the global environment, will ensure that there will not be a drastic reaction in the property market which could hurt the economy.

Our current private property market in Singapore might be a case of irrational exuberance in my humble opinion. Singapore is still a very export reliant nation. In fact 60% of our GDP is contributed by our net exports, which means when the economic giants like US and China sneezes, we will definitely catch the cold. How than did our private property market rebounded so strongly in 2009?

Well firstly, our locals and foreign investors were cleverly sold on the idea by the government on the 2 upcoming integrated resorts (IR) which would boost out economy and appreciate property prices. Secondly, the massive $20.5billion stimulus package that was introduced by the government to cushion the impact of the great recession of 2007 – 2009. Thirdly, the high influx of foreigners which pushed up demand in property. Finally, the low interest rate environment for the past 3 years which most governments set, to spur recovery and hence attractive mortgage packages.   The worst have most likely passed, and our GDP is back in green. But if I were a property investor, what is there next to look forward to? The IR theme is so passe. I find it amusing when property agents still use that story to try to sell you that lucrative condominium. To tell you the truth I still find it hard to fathom how private property showrooms are filled by throngs of people akin to shopping in a warehouse sale. I always tell my girlfriend, that either I am relatively poorer than the majority or that the majority do not have financial sense and are merely crowd followers. If it is the former, then can I assume that most of them (first time buyers) are earning at least $150,000 per annum, to satisfy the financial planning rule that your property value should not exceed more than 4 to 5 times your annual income?  Either way, can someone please enlighten me if there is still any positive economic sense to invest in a private property?

Take a look around us. The world economy is not really rosy as yet. True, economic numbers in the US like CPI and unemployment is improving gradually, but elsewhere, Europe is in a mess with the huge deficits of PIIGS (Portugal, Ireland, Italy, Greece, Spain). UK’s economy is still teetering on negative GDP growth. China, while growth is still intact, is trying to tackle its inflationary issue especially in the banking and property sector, which would slow down its growth. Being a little red dot and export reliant, how is it possible that we will be sheltered from all these global issues once the effect of the stimulus injection fades away? Plus, while recent high influx of foreigners have spurred our economy and pushed up prices, it is only a matter of time before we the hit the law of diminishing returns and immigrating our way to GDP growth can no longer be a sustainable policy.  Also, what if mortgage rates went up again to the norm of 5% and cheap financing is not available anymore? Will the demand still be as strong, will there be a string of higher defaults and a glut in supply?  All these fundamental issues begs the question – will our private property market continue to rise indefinitely? I highly doubt so….


Written by Nabs

March 26, 2010 at 2:23 am

Posted in MIND, Politics, Ramblings

4 Responses

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  1. I find it incredulous that despite the sky high property prices, people are still jumping on the wagon. A news article tdy clearly state that private resale market in Jan-Feb surpass 2007 peak. New projects are the reason behind the lift in resales prices n the developers are the ones mainly responsible for it. It’s no wonder that they call for the government not to intervene.
    If u ask me, i certainly think that in the current society, most are definately followers. Look at the car and property showrooms every wkend. It’s a sign that many are chasing the ‘Singapore Dream’ and not wanting to wake up from it.
    Definately not poorer than most but different from most. U dare to challenge and question the society. Times hv changed and it’s only that then u will not find urself burdened with debts till old age and raise above it all.

    Ur No. 1

    March 26, 2010 at 8:03 am

  2. […] Corner: Who sets the market rate? Private sector or URA? – It’s all about Amelioration: Of Property Bubbles.. [Thanks Nabil] – Singaporean Skeptic: Some silly Singaporeans think they can actually benefit from […]

  3. […] Corner: Who sets the market rate? Private sector or URA? – It’s all about Amelioration: Of Property Bubbles.. [Thanks Nabil] – Singaporean Skeptic: Some silly Singaporeans think they can actually benefit from […]

  4. […] Of Property Bubbles….. […]

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