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Singapore Property Prediction

>> Saturday, August 20, 2011

There seems to be a lot of volatility in the global equity market, and of course, Singapore included. This has resulted in billions wiped out over the past 2 weeks since National Day.

A piece of interesting news is the Swap Offer Rate (SOR) went into negative territory. The SOR which is highly correlated to the US interest rate and exchange rate, has just got an unprecedented guaranteed from US Fed Chairman, Ben Bernanke, that it will not go up for the next 2 years! This is truly risk free investing if you know how to take advantage of it. Well, one way I can think of is to refinance your mortgage to a floating SOR rate with 2 year lock it, reviewing the global situation to repackage if necessary 2 years later.

Another piece of news that grabbed the headlines is the downgrade of US debt by S&P. This has resulted in Singapore which is one of the remaining few AAA rated government debts to be thrown in the limelight as a safe haven during these turbulent times. I would think that Singapore is facing the threat of appreciating the SGD dollar too much and affecting its exports, currently it is trading close to a never seen before 1.2 vs the USD. The upside is it is combating inflation since Singapore is a major importer, but the downside is deposit rates will remain low and investing overseas will be challenging, so more savvy investors will be turning to local property, perhaps even commercial properties, as compared to the volatile equity market.

Taking these 2 factors into consideration, coupled with the stamp duty penalty of 16% 1st year, 12% second year, 8% third year, recent buyers are enjoying a rising property market. They unlikely would sell in the next 2 to 3 years, A: because hit with stamp duty penalty, B: low interest rates, using leverage to maximize profits without any opportunity cost, C: there is less uncertainty for the next 2 years, D: SGD is appreciating, overseas investment opportunities are difficult, property will remain attractive as it is less volatile than equities, E: Demand still exceeds supply, and demand is increasing as foreign investors are eying this market as well.

Therefore, my analysis is that Singapore property will carry on to climb even higher for the next 2 years at least but it potentially will come crashing down after if interest rates start increasing, today's buyers start off loading due to lower stamp duty penalty and a gradually increasing over supply.

4 comments:

financialray August 22, 2011 at 11:11 AM  

I will not invest in a residential property over the next few years for the following reasons :
1. Seller's Stamp duty - up to 4 years and there is a chance property peak is over by then
2. our population is dwindling and that is why PM Lee has let in so many foreigners. If the population size continue to drop, more foreigners will have to come no matter whether economy good or bad. Will there be social integration or more upheaval?
3. our population is aging - and aging fast.If above 60, the banks will not lend u money to buy property
4. LKY may not be around - even with LKY present, in his book "The Hard Truths", he says there is nothing he can do if Singaporeans do not reproduce except welcome more foreigners.
5. Even if foreigners come, will they sink their roots here when economy hits a bad patch? Even if they stay, will Singaporeans accept them as their MP, ministers or even PM? Or even as their equal?
There are too many ifs. I feel that the Singapore Govt has to do something fast to increase our local population. ANy delay will just mean more costs as we cannot expect the population to increase overnight. Also it is by no means easy as there are many reasons why Singaporeans choose NOT to have kids eg high cost of living, lack of job security.
6. None of the new generation of Leaders nor the President elects have even realised this problem

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