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14-01-13, 15:42
http://www.businesstimes.com.sg/premium/top-stories/why-singapores-property-market-has-defied-gravity-20130114
Published January 14, 2013
COMMENTARY
Why Singapore's property market has defied gravity
By Vikram Khanna
Associate Editor
FOR the seventh time in less than four years, the government is trying to tame Singapore's runaway property market. The measures announced on Friday, which included a 5-7 per cent across-the-board hike in buyer stamp duties, are reckoned to be the toughest yet. They will, of course, have some dampening effect, but whether they will succeed in decisively cooling the market remains to be seen. Don't bet your bottom dollar that it will happen; if someone had told you in 2009 that the government would impose six successive rounds of cooling measures all the way to 2013 and the property market will continue going up, would you have believed them?
Announcing the measures, Deputy Prime Minister Tharman Shanmugaratnam noted that interest rates are "extraordinary low, globally and in Singapore, and continue to add fuel to our property market".
Let's get a fix on what exactly is going on in this world of the new abnormal, and where things are headed. What we are up against is the fact that all of the world's biggest central banks - the US Federal Reserve, the European Central Bank (ECB), and soon the Bank of Japan (BOJ) too - are firing on all cylinders to keep interest rates as close to zero as possible. What's more, this situation does not look like it will change anytime soon, not till at least the end of 2014.
In the US, the Fed has pledged not to start hiking interest rates till US unemployment comes down to 6.5 per cent (from around 8 per cent at present). While a weak recovery is underway, the shenanigans over the US fiscal cliff - the package of tax increases and spending cuts that were to automatically take effect this year - will weaken the economy, no matter what is agreed.
So far, US lawmakers have come to some agreement on the tax side, but its net effect is deflationary, mainly because of a hike in payroll taxes, which will be borne by workers and cut into their expenditure. On the spending side, the main debate is about what to cut, and by how much. The net effect of that, too, will be negative for the economy. In other words, while the US fiscal cliff "resolution" may not abort the US economic recovery, it will certainly postpone the day when US unemployment falls to 6.5 per cent. It will therefore delay any interest rate hike by the Fed.
Over in Europe, the ECB is waging a hard and lonely battle against the effects of economic austerity. Despite evidence that it has failed and warnings by the IMF not to overdo it, austerity policies (mainly public spending cuts) remain the centrepiece of the European strategy to deal with its sovereign debt crisis. The ECB has kept the eurozone from collapsing through extraordinarily loose monetary policies, which include a pledge to buy unlimited quantities of troubled debtors' sovereign bonds, which has the potential to create vast amounts of liquidity. Raising interest rates is about the last thing on the ECB's mind.
Ditto for the Bank of England, which, too, has to deal with a government that remains stubbornly wedded to the notion that belt-tightening is the way to economic salvation. Unless these political dynamics change, interest rates in the eurozone and the UK can go nowhere but down. If anything, austerity may get worse. German Chancellor Angela Merkel faces an election in the second half of this year. and is likely to turn more populist. In the German context, populism means increasing the pressure on Greeks, Spaniards and Italians to "live within their means" - in other words, more austerity.
In Japan, it's a different story. A new prime minister, Shinzo Abe, has just injected a mega-dose of old-fashioned populism - a 20 trillion yen (S$275 billion) economic stimulus package. He is also demanding "bold monetary policy" from the BOJ, consistent with a 2 per cent inflation target to counter deflation and kindle a long-elusive economic recovery. It is likely that he will have his way, and we will have a BOJ that mimics the Fed and ECB.
The summary of the writing on the wall then is that the world will be awash with central bank-created liquidity. This means that Singapore's market-determined interest rates are likely to remain at close to zero as far as the eye can see.
Property then becomes the obvious bet. For foreign buyers, Singapore is attractive for the fact that it is stable, with good protection of property rights, and no currency risk - with inflation elevated, the chances of the Singapore dollar depreciating are low. For Singaporeans, besides the stock market (which is now richly valued and needs specialised knowledge), property looks better than leaving money in the bank - which earns almost nothing and in fact, is a sure loser after taking inflation into account.
The latest round of property curbs are designed to make property less attractive for all except first-time buyers. Many who are not in this group will undoubtedly be deterred.
Some of them will be tempted to explore property markets overseas (the curbs are probably positive for the property market in Iskandar, for example). But there will still be those who view the latest curbs as just another one-time tax on property that they are willing to pay - as many buyers did, six times since 2009, and don't regret it.
Published January 14, 2013
COMMENTARY
Why Singapore's property market has defied gravity
By Vikram Khanna
Associate Editor
FOR the seventh time in less than four years, the government is trying to tame Singapore's runaway property market. The measures announced on Friday, which included a 5-7 per cent across-the-board hike in buyer stamp duties, are reckoned to be the toughest yet. They will, of course, have some dampening effect, but whether they will succeed in decisively cooling the market remains to be seen. Don't bet your bottom dollar that it will happen; if someone had told you in 2009 that the government would impose six successive rounds of cooling measures all the way to 2013 and the property market will continue going up, would you have believed them?
Announcing the measures, Deputy Prime Minister Tharman Shanmugaratnam noted that interest rates are "extraordinary low, globally and in Singapore, and continue to add fuel to our property market".
Let's get a fix on what exactly is going on in this world of the new abnormal, and where things are headed. What we are up against is the fact that all of the world's biggest central banks - the US Federal Reserve, the European Central Bank (ECB), and soon the Bank of Japan (BOJ) too - are firing on all cylinders to keep interest rates as close to zero as possible. What's more, this situation does not look like it will change anytime soon, not till at least the end of 2014.
In the US, the Fed has pledged not to start hiking interest rates till US unemployment comes down to 6.5 per cent (from around 8 per cent at present). While a weak recovery is underway, the shenanigans over the US fiscal cliff - the package of tax increases and spending cuts that were to automatically take effect this year - will weaken the economy, no matter what is agreed.
So far, US lawmakers have come to some agreement on the tax side, but its net effect is deflationary, mainly because of a hike in payroll taxes, which will be borne by workers and cut into their expenditure. On the spending side, the main debate is about what to cut, and by how much. The net effect of that, too, will be negative for the economy. In other words, while the US fiscal cliff "resolution" may not abort the US economic recovery, it will certainly postpone the day when US unemployment falls to 6.5 per cent. It will therefore delay any interest rate hike by the Fed.
Over in Europe, the ECB is waging a hard and lonely battle against the effects of economic austerity. Despite evidence that it has failed and warnings by the IMF not to overdo it, austerity policies (mainly public spending cuts) remain the centrepiece of the European strategy to deal with its sovereign debt crisis. The ECB has kept the eurozone from collapsing through extraordinarily loose monetary policies, which include a pledge to buy unlimited quantities of troubled debtors' sovereign bonds, which has the potential to create vast amounts of liquidity. Raising interest rates is about the last thing on the ECB's mind.
Ditto for the Bank of England, which, too, has to deal with a government that remains stubbornly wedded to the notion that belt-tightening is the way to economic salvation. Unless these political dynamics change, interest rates in the eurozone and the UK can go nowhere but down. If anything, austerity may get worse. German Chancellor Angela Merkel faces an election in the second half of this year. and is likely to turn more populist. In the German context, populism means increasing the pressure on Greeks, Spaniards and Italians to "live within their means" - in other words, more austerity.
In Japan, it's a different story. A new prime minister, Shinzo Abe, has just injected a mega-dose of old-fashioned populism - a 20 trillion yen (S$275 billion) economic stimulus package. He is also demanding "bold monetary policy" from the BOJ, consistent with a 2 per cent inflation target to counter deflation and kindle a long-elusive economic recovery. It is likely that he will have his way, and we will have a BOJ that mimics the Fed and ECB.
The summary of the writing on the wall then is that the world will be awash with central bank-created liquidity. This means that Singapore's market-determined interest rates are likely to remain at close to zero as far as the eye can see.
Property then becomes the obvious bet. For foreign buyers, Singapore is attractive for the fact that it is stable, with good protection of property rights, and no currency risk - with inflation elevated, the chances of the Singapore dollar depreciating are low. For Singaporeans, besides the stock market (which is now richly valued and needs specialised knowledge), property looks better than leaving money in the bank - which earns almost nothing and in fact, is a sure loser after taking inflation into account.
The latest round of property curbs are designed to make property less attractive for all except first-time buyers. Many who are not in this group will undoubtedly be deterred.
Some of them will be tempted to explore property markets overseas (the curbs are probably positive for the property market in Iskandar, for example). But there will still be those who view the latest curbs as just another one-time tax on property that they are willing to pay - as many buyers did, six times since 2009, and don't regret it.