Wednesday, October 10, 2007

Singapore Economy : Too Hot to Handle!

For the past 2 weeks I've been getting telephone calls from property agents offering to sell my place. To chase these pesky agents away, I told one of them that I'm not interest in selling unless he got me a buyer at $100K more than the selling price of comparable neighboring unit which was sold 3 months ago. 3 days later the agent called back to say he has an eager buyer. Oops, I was forced to admit that I'm not interested in selling my unit because I'll have to look for another one if I did...in such hot market I would really dread being buyer. A friend suggested I take the money, rent a place until the property market crashes then buy at bargain basement prices. I'm not going to sell my home just for money - I'm staying put.

Companies expanding their businesses have been driving up the commercial rental market. I heard from a friend dealing with office property that the sentiment is "now or never". Businesses fear that if they don't sign the leases now, they will be waiting "forever" to get office space for expansion.

MAS which does not control interest rates will probably allow the Sing$ to appreciate against the falling US$....the last I checked the US$ has fallen to multi-year lows of $1.47. Any cooling will have to come from slowdown in major markets such as the US. In the meantime, PM Lee might do what he did in 1996 ...but this time he might get Minister Tharman to do it - PM Lee (then Finance Minister) killed the ultra-hot property market of 1996 with a set of draconian measures that sent shivers down the spine of the most hardened speculators. For property speculators that faithful day in 1996 was like 911 - a day they will never forget. I remember being in office the next day and there were 20 people at the pantry discussing the set of measures - all looking very stunned. Really wonder when the govt will step in this time....perhaps they can invoke the ghost of 1996 just to calm the animal spirits.

Strangely, there're alot of things inflating the govt can't do much about but when it comes to wage inflation, the solution is to bring in more foreign labor. About half the new jobs are filled by foreigners. The population has expanded to a record 4.68M...the one of the fastest per capita expansion for a nation in the world! The people coming in has caused rentals & property prices to escalate at the same time helps to cool wage inflation. So your wages on average will not rise faster than the things in limited supply like property, fresh fish, concert tickets, medical care etc.
Nice setup isn't it?


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Singapore's Economy Shows Signs of Overheating, Economists Say
By Shamim Adam

Oct. 5 (Bloomberg) -- Singapore's economy risks overheating as home prices reach the highest in a decade, companies hire workers at an unprecedented pace and the stock market soars to record levels, economists say.
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Inflation at a 12-year high and an economy expanding ``a little too rapidly'' mean signs of overheating are ``a few too many for comfort,'' Robert Prior-Wandesforde, an economist at HSBC Holdings Plc in Singapore, said in an Oct. 3 report.
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``Consumer prices are by no means the only thing running relatively hot in the economy at present,'' Prior-Wandesforde said. ``A buoyant labor market was accompanied by strong wage growth. The Straits Times index has also risen nearly 50 percent over the last year.''
Singapore's economy grew an annualized 14.4 percent in the second quarter, the fastest pace in two years, fueled by construction and financial services. Employers added a record number of workers in the same period, pushing the jobless rate to a six-year low as service companies increased hiring.
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``The overheating problem in India and China has now spilled over to Singapore,'' Deyi Tan, an economist at Morgan Stanley in Singapore, wrote in an Oct. 3 report. ``Not only has persistently strong growth resulted in an office space crunch, labor supply needs have also led to a jump in the foreign population. Residential property is booming and expat schools are oversubscribed.''
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Office rents in Singapore's central business district are at record highs as financial institutions, lured to the city- state by corporate tax cuts, expand their businesses.

Home Prices
Singapore's private residential prices rose 8 percent to a 10-year high in the third quarter, the government said on Oct. 1. Home prices have increased every quarter in the past 3 1/2 years, according to data from the Urban Redevelopment Authority.
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Singapore's consumer price index increased 2.9 percent in August from a year earlier, in part after an increase in the goods and services tax the month before.
The central bank expects inflation in 2007 to be between 1 percent and 2 percent, it said on Aug. 27, up from a previous range of 0.5 percent to 1.5 percent. Consumer prices may rise as much as 2 percent next year.
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The island's longest economic expansion since 1991 and the prospect of higher salaries are prompting more Singaporeans to enter the labor force. Average monthly wages climbed 8.5 percent in the second quarter, the fastest since 2000.
Income gains are fueling consumer spending at restaurants and department stores, and may help the economy achieve the government's forecast of as much as 8 percent growth this year.

`Signs of Overheating'
The $134 billion Southeast Asian economy may expand 8.5 percent this year, and grow 7.3 percent in 2008, HSBC predicts.
``If forecasts are right and the country can look forward to another 12 months of above-trend expansion, then there will be less and less spare capacity in the economy and hence more and more signs of overheating,'' Prior-Wandesforde said.
The Monetary Authority of Singapore targets its currency instead of interest rates to guide monetary conditions and control price gains.
The central bank will probably maintain a three-year policy of allowing a ``modest and gradual'' appreciation of its currency when it reviews its policy next week, the HSBC and Morgan Stanley economists said.
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The city-state's government may also take steps to cool demand for homes and ease the labor market crunch, Prior- Wandesforde said.
It may avoid waiting too long and ``act sooner rather than later'' to damp property price gains, he said. ``Increasing immigration quotas is another tool that has been used in the past to cool a hot labor market.''
A slowdown in the economies of the U.S. and others globally may also ease Singapore's risk of overheating, the analysts said.
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``Singapore remains the most exposed to external conditions within Asia,'' Morgan Stanley's Tan wrote. ``The global soft- landing that lies ahead will help cool the economy.''
To contact the reporter on this story: Shamim Adam in Singapore at

12 comments:

The Oriental Express said...

As an agent, I don't do cold calls. I only work on referrals.

Your friend's advice is quite risky. Don't sell now unless you are buying something to leverage. I kept advising my client not to sell her potential enbloc unit but she was pessimistic, and thought she'd better cash out and rent. Now her $2.28m cannot buy her a flat of the same size in Orchard area. She is currently renting. Had she waited, she would have got $4.5m for the enbloc ....all within 10 months of her sale.

Anonymous said...

Seems to me that the government policy is to swing open the floodgate, and allow the whole world to come in.
Things are looking out of control. Not enough doctors, hospital beds, road congestion, rental hikes, insufficient housing... Just about everything.
Of course, in the short term, the economy will boom. That's a no-brainer. But the long term impact could be horrific. May just turn out to be the mirror image problem caused by the stop-at-two policy 20 implemented 20 years back.

Anonymous said...

history has shown that if you sit it out - when and if the property market ever crash the way it did in '96 - it will certainly rise again. after the painful lesson a decade ago, most homeowners and investors by now should have the means and senses to hold and not sell when home prices dip - take the cue from rich developers. so it is going to be..who's going to blink first? buyers or sellers?

being land scarce and in the interests of new policies and direction this country is taking, i reckon it should favor owners more in the long term.

so those who have sold out and hope to buy cheap cheap, well, it may not be that easy to get back in again especially in prime areas or well located properties.

my 2 cents worth.

Eaststopper said...

I believe globally we are entering an inflationary phase, marked by ever lower unemployment numbers, rising asset prices (stock market + property + commodities). The inflationary bubble appears to have been inflated by the years of easy credit given by central banks around the world. So far, central banks have found it hard to withdraw liquidity from the system without triggering a credit crisis , as evident in the turmoil in August.
The only monetary weapon the MAS has is to target the exchange rate, so expect the SGD to become stronger over the next couple of months.
I hear that the expats in the Singapore office are already complaining about the high costs of living (rental). Seems that not just the ordinary Singaporeans are bearing the effects of rising prices.
Anyways, have a great weekend ahead!

Anonymous said...

High rental is to drive them to buy. The more have a stake in this land, the better. As long as we are priced competitively, it's alright.

What is worrisome is an over supply in the rental market.If the garmen makes the wrong move here, many will get hurt.

Otherwise, the property sector is a good leveler.

Anonymous said...

>> "history has shown that if you sit it out - when and if the property market ever crash the way it did in '96 ... "

How very true if you are using your own savings. But what if you are on a bank loan for that property?

When the market slumps suddenly and you lose your regular job or income, the bank is not going smile and say, never mind, sir, pay some other time.

This is what many learnt the painful way. They lose whatever they have paid up. The bank will take back the property.

Read the small print.

Anonymous said...

point is: more people, like yourself, would have wised up and live within their means. as a result, a more stable market. in any case, a rock and roll market is not in the interest of homeowners(non investors). and we should also discourage speculative purchases.policy makers, i assume, will also want to avoid rocking their own boat? let's hope we can weather the foolishness of a decade ago so lesser will get burnt by the market.

good day and over and out.

Vin said...

The only thing more annoying than real estate agents who call all the time is the mocca advertisement.

Anonymous said...

check out www.homespace.sg . It's pretty cool...one of the better real estate search engines that actually makes sense.

GeraldKoi said...

tt's a pretty cool website...
user-friendly.

Anonymous said...

to add to the problem of buying new property is that buyers never get enough information on the house. Classified ads jus give too skimpy details and other real estate search engines are just to messy and un-user friendly. It's almost like real estate agents hold all the power over buyers

Wilhelmina said...

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