Wednesday, 15 June 2011

Besides labor and talents, Singaporeans face competition of foreign money too.

 

Being an international city and centre for financial activities, foreign money are free to move in and out of Singapore to take advantage of the investment opportunities here, including property.  

 

With a limited population, and a stable increase in income, the sharp rise of property price has to come from external demand. And these foreigners have extra money, a lot of it, which Singaporeans will find very hard to fight against them.

 

Since property price increases are foreign driven, what can the government do to protect Singaporean’s dream of owning a house or flat

?  And what can normal Singaporeans prepare for the money competition?

 

The cause: Property price increases are foreign driven.

 

In a Dow Jones article ‘Singapore Prime Minister: Global Monetary Conditions Are Abnormal’, Prime Minister Lee Hsien Loong said that current global monetary conditions were abnormal with excess liquidity in the system finding its way to emerging markets.

"Money is running around and looking for investment," He also said that these capital inflows that are finding their way into emerging markets were resulting in property and asset price increases, including that in China and Hong Kong.

"Singapore has seen it (property price increases) too. The market has seen a drastic increase in the last two years to our concern," Lee said. (Dow Jones)

PM Lee has admitted there is a foreign and local money competition in Singapore property market. So, his solution is to increase the property supply to meet the demand.

The solution: Worrying, alerting and supplying

‘Why Khaw is worried …..’ is the headline of a Today report.  The report said the Urban Redevelopment Authority (URA) announced a strong supply under the Government Land Sales Programme for the second half of this year. Mr Khaw Boon Wan, however shared his worries in his blog that "things can go very wrong suddenly", possibly over the next two years.

This, even as the authorities now tackle the issue of housing affordability. But Mr Khaw not only noted that "sharp property price increases cannot go on forever", he cautioned that mishaps could befall those seeking to invest or upgrade in the months ahead.
The external situation is "not exactly bullish" either. He said Europe's sovereign debt woes will take a long time to clear, and the Middle East crisis "can still go ugly", which may lead to a spike in oil prices and affect economic recovery in Asia and Singapore.

Disclosing that foreigners comprised 16 per cent of private property buyers between January and March, Mr Khaw had this message for Singaporeans who buy properties in the hope of renting to those coming here: "In the event of any external shock, both foreign demand and rental demand can fall quite quickly. The impact can be serious if (it) happens at a time when there's a substantial increase in supply."

His final caution was that interest rates will not remain low forever.

"It is my duty to sound an alert," said Mr Khaw. (Today)

Money making Model

Both PM Lee and Minister Khaw confirmed our property price is linked to foreign money when there is an inflow, price will go up (Lee’s view – abnormal excess liquidity) and when there is an outflow, price will go down(Khaw’s view - external shock).

In such a case, how to provide affordable housing to citizens under free foreign money inflow and outflow policy?  PAP Model of making money is to increase Supply and leaving Demand intact.  There is no mention of affordable housing means selling them at a lower price and so the more they sell the more money they make, even for public housing.

Singapore is a small economy and the West has excess cash and money finding means to park in Asia and Singapore. The size of this foreign money is many times of our property market, so the demand is always greater than supply. Hence, the price increases.  When price increases, government profit will increase too. This increase will also help to maintain affordable public housing at a higher level.

This is similar to foreign labour and talent policy. They just allow foreign labour and talents to come in as far as there is a foreign and local demand.   They like to use Supply Side theory to solve problems because they can make more money by giving more work permits, passes, PRs and even citizenships.

Local population and citizens will have to face the competition, in job, wages, and opportunity. So do the property market with foreign money.

Dream and Hope for upgrade

‘Tough time for S’pore upgraders’, The Star reported.   (http://biz.thestar.com.my/news/story.asp?file=/2011/6/15/business/8899173&sec=business)
It said the price gap between mass market private homes and Housing and Development Board (HDB) flats has widened to a new record making it harder than ever for aspiring HDB upgraders to buy a private home.
You think of upgrade with you fixed income and salary. However, the foreign money that is going to buy private property in Singapore is using extra cash to compete with you. A little bit like you are going to a casino and even they upgrade you to VIP you are going to run out of cash one day.

Protection of citizens

I do not have the answer - whether increase supply and control demand will result to a better solution.  But as a government, the first duty to protect the interest of its citizens as foreign money, like foreign labour ad talents are transit passengers of our city hotels or hostels.

However, for people want to invest, speculate, and upgrade on their properties, it is worth taking note of Khaw’s warning and alert. At the end of the day, if there is a crash in the market, PAP will say they have warned you before and are unable to help those buy property at high prices. This time it will be worst for property losers as there is no workfare, training or others to help to recap your losses. 

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