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Thread: Low interest rate environment risking asset bubble forming=More Cooling Measures

  1. #1
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    Default Low interest rate environment risking asset bubble forming=More Cooling Measures

    Hi guys, I have been talking to my team recently and a coffeeshop topic surfaced. Someone asked if an asset bubble will form in the near term due to interest rate stagnation/decline.

    With low interest rate environment that is countering low-yield curve around developing markets hitting the ground or below already. The best time to get loans for long term asset growth comes as an attractive opportunity in today's volatile market environment.

    However, an asset bubble will eventually form and we know what happens to one when fully blown. More CMs.....

    What are your thoughts about this?

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    Default Re: Low interest rate environment risking asset bubble forming=More Cooling Measures

    The current cooling measures seem enough to prevent a bubble from forming. The low interest rate environment is possibly only enough to encourage a gradual price increase.

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    Default Re: Low interest rate environment risking asset bubble forming=More Cooling Measures

    Such decade long low interest rate environment creates 2 key things amongst others. Most notably, consumers are addicted to low credit and take on more risks. Lots of recent asset growth in SEA is driven by cheap credit and will continue as long as cheap credit goes on. Since funds have been piling on EMs in the region. Corporates including developers are trying to borrowing more (just like REITs gearing ratio +5%) and are able to bid higher for land prices. Even though their margins are squeezed here, their land bank value will eventually rise in value over time.

    Hard to imagine a hard reset where interest rates goes up to above ~5% all of a sudden. Weed out the weak corporates and banks.

    Hence, our coffee talk arrives at CMs are on the uptrend path rather than status quo since hard assets are one of the few hedge against macro volatility. My 2 cents suspicion is that we will hit higher sales in 2019 vis-a-vis 2018 in total sales as a start.

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    Default Re: Low interest rate environment risking asset bubble forming=More Cooling Measures

    Quote Originally Posted by PropVestor View Post
    Such decade long low interest rate environment creates 2 key things amongst others. Most notably, consumers are addicted to low credit and take on more risks. Lots of recent asset growth in SEA is driven by cheap credit and will continue as long as cheap credit goes on. Since funds have been piling on EMs in the region. Corporates including developers are trying to borrowing more (just like REITs gearing ratio +5%) and are able to bid higher for land prices. Even though their margins are squeezed here, their land bank value will eventually rise in value over time.

    Hard to imagine a hard reset where interest rates goes up to above ~5% all of a sudden. Weed out the weak corporates and banks.

    Hence, our coffee talk arrives at CMs are on the uptrend path rather than status quo since hard assets are one of the few hedge against macro volatility. My 2 cents suspicion is that we will hit higher sales in 2019 vis-a-vis 2018 in total sales as a start.
    yes, it does look like some pick up in new home sales since july and likely higher sales in 2019 vs 2018. i still doubt there would be CMs in 2020 though. price appreciation on its own should not lead to CMs unless there is acceleration in both price and volume?

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    Default Re: Low interest rate environment risking asset bubble forming=More Cooling Measures

    I think you might have put in too much emphasis on CMs on buyers which I might have inadvertently insinuate.

    We thought it might go the developer way too as we see safe haven funds heading this way from the rest of the world which is directed at land sales in open bids. In short, CMs to deter stronger bids for our land coming 2019-2021 too.

    Such 'land tax' will of course be partly driving up prices on consumer end.
    Last edited by PropVestor; 14-08-19 at 11:50.

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    Default Re: Low interest rate environment risking asset bubble forming=More Cooling Measures

    Quote Originally Posted by PropVestor View Post
    I think you might have put in too much emphasis on CMs on buyers which I might have inadvertently insinuate.

    We thought it might go the developer way too as we see safe haven funds heading this way from the rest of the world which is directed at land sales in open bids. In short, CMs to deter stronger bids for our land coming 2019-2021 too.

    Such 'land tax' will of course be partly driving up prices on consumer end.
    true.

    but for developers, its already stringent with the 5 year limit or pay the hefty ABSD. the min. average size also restricts how much they can shrink to increase the psf. if we do see their buying activity pick up then maybe there is cause for concern for CMs.

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