Singapore Entrepreneur - Hot Money, Easy Money?

We have all seen a phenomenal growth in 2010, especially in the East Asia region. Stock market rallied, jobs created, cash registers kept ringing, and countries' GDPs in healthy numbers. It was all a stark contrast comparing with previous years of 2008 and 2009. The recovery was literally a sharp V-shape.

Most of us who have held on our jobs, operating a business, or even invested in the equity market, would have been rewarded by good bonuses, profits or capital gains in 2010. Those who had invested in properties during the downturn would be handsomely rewarded from a rise in property prices.

From a gloom and doom year in 2009 to a stellar year in 2010, who had made all these possible? Are we still going to continue enjoying such healthy growths?

In this article, I am going to describe the phenomenon and analyse the possible scenarios unfolding.


The Great Recession

I am sure you are aware of the 2 big engines of the world economy; the US and China. The US, for all mother nature's sake, was the main cause of the Great Recession of the century. It started in with a thing called Sub-Prime credit crisis. (For more understanding, you can read my previous blogs in the link.) When Mr Barrack Obama just came on board as the US 44th and first black president in Jan 2009, lucky or not, he inherited his country's and the world's largest problem. Within months, he managed to push through a legistration of a US$1.7 Trillion stimulus package to help the faltering US economy. This amount helped bail out some of the world's biggest banks from the brink of collapse. These banks went through major restructuring and cut down their exposures in toxic assets in the US and turned their heads to Asia. European banks, also largely affected by the American crisis, followed suit.

China as the darling of Asia, has been enjoying relentless growth of double-digit GDP for years. Money started pouring from the US into China, seen as the next hope to help the world out of the great mess. The rest of Asia, seen as emerging economies, enjoyed the overflow from investments in China. So in the whole year of 2010, the Asia region was enjoying an influx of 'hot money' from the US and Europe. The US stimulus package spending (called quantitative easing 1 or QE1) officially ended in March 2010.


So did the QE1 help US and the world?

QE1 spending helped the US economy from collapsing further by saving the banks. It contributed significantly Asia's unprecedented growth. However, it is still far from effective in bringing US back to its pre-crisis level. Unemployment figures, albeit decreasing, are still hovering at record high levels. Home prices are still stagnating.


Quantitaive Easing 2 (QE2)

The FED decided to inject another $600 Billion to further stimulate its economy. The amount will be spent from 2nd quarter of 2011. It will be used to purchase Treasury issued bonds from banks like Goldman Sachs and JP Morgan. These money will be used by the banks to loan out or seek further investments for returns. Such money would be expected to again spill into the Asia region as most investors are still hedging on its phenomenal growth.


Where on earth does US get so much money from?

US, being the largest economy in the world does not mean that it has a mountain of savings in its bank. It is like a large business centre which has a big capability in earning money. But all the money invested in its business are borrowed from the world. It issues Treasury bonds, like IOU, to foreign countries like China, who lends it a lot of money in return for interest. This is one way how US raises money to spend. Alternatively, it can simply print money out of mere paper. This is in the case of QE2, where $600 Billion are printed money. The effect of this, is a devaluation of the US currency. The government, however, does not see it as a problem because devaluation of the US dollars would invite higher exports of its products.


How would the QE2 unfold?

The US, for several years, has been complaining about China's stance in artificially devaluating its reminbi. China has, however, repeatedly denied this and is not succumbing to pressure from the US to appreciate its currency. For a long time, China has an unfair advantage of being the world's largest factory where most businesses from the US are outsourcing their production, tapping on its low labour cost. US has no qualms in going ahead with printing $600 Billion out of thin air to save its economy. This has a double effect of devaluing its dollar, thus making US businesses think twice about purchasing China goods with their weaker dollar. China may embark a tit-for-tat action by further supressing its yuan to maintain its currency value against the US dollar. Other major economies, fearing for their higher cost of goods with the weaker dollar may follow suit by printing more of their own currency. This is already evident in Brazil when its government started buying up all US dollars with its Real. When there was not enough, it started printing more of its own notes. If this continues, a major currency war would emerge. The world would be flooded with increasingly worthless currencies and inflation would rocket. Prices of precious metal like gold would also shoot through the roof when people scramble to find safer reserves. Governments around the world would start imposing high interest rates to curb inflation. When this day happens, a major economy apocalypse would have arrived. This time, much worse than the recent global recession.

But before we see the D day, let us see how the $600 Billion would affect us, people from Asia. Again, hot money would start pouring from the US. We may see further gains in the stock markets and other assets. But do remember that Asia has seen a sharp growth in 2010. Investors may start to see limited upside for Asia's growth in 2011. As hot money has entered into the Asia so easily, it may also exit easily to find better investments outside Asia.

Let us look at the charts below and analyse the behaviour of the equity markets in recent months. The first chart is the Dow Jones Industrial Average (DJIA), second is the Hang Seng Index (HSI) and the third is the Straits Times Index (STI). Each blue eclipse highlights the trading period between Oct 2010 and Jan 2011. The DJIA shows a clear uptrend, while the HSI and STI show sideway trend. In recent trading days, HSI and STI have also been lacklustre in performance despite DJIA seeing several days of rally. These patterns may be exhibiting some early signs of what I have mentioned; hot money exiting Asia and going back to the US. DJIA performance has lagged behind Asia's indexes by more than 20% in 2010 and it may be a catch-up time now. Moreover, this year's hot topic in Asia is about rising inflation, which may put off many investors.

So going forward, while we continue to enjoy the economic growth in 2011, let's not be complacent and always keep a watchout for any sudden market change. Happy investing!

Singapore Entrepreneur - Latest Property Cooling Measures

Ok. The Singapore government is really coming down hard this time on property speculation. Let us swallow and digest the facts here and analyse what are the possible consequences.

The overwhelming response from the latest launch at Loft@Holland, just before the news was released, evidently showed that the previous 3 rounds of cooling measures had not dampened the mood of property investors. It averagely attracted 3 keen buyers to 1 unit, which resulted in a fully sold project within 2 hours after balloting.

There was a knee jerk reaction from the market after the news release. Many buyers retracted from deals almost signed on the dotted line or even forfeited the option fees. They are expecting a fall in prices in the following months with the slew of tough changes.

For a $1M purchase of a private home, if it were to be a 2nd (or more) property, the maximum loan approved by bank would be 60%, or $600,000. This means that you have to fork out a minimum of $400,000 upfront in both CPF and cash. For middle income earners, this is a sheer amount not to be trifled with. If you intend to let go within a year after the purchase, the Seller's Stamp Duty (SSD) will be 16% of purchase price, which equates to $160,000. This means that you need sell at least 20% above your buying price just to break even, not forgetting other costs like Buyer's Stamp Duty, legal fees and bank early redemption charges.

For a small property investor like me, it is certainly coming on me from all corners. One thing for sure, I will be out of the game for now.

The new rules are certainly going to put a hard brake on price and sales volume. The mass to mid-level market private condominiums and landed properties are going to be the worst affected. For the following months to come, it will be a stage of tough standoff between buyers and sellers. Sellers have the ability to withhold their properties with their financial abilities. Buyers have cash but will hold on to see if prices start to fall further. Property developers, who are keen to letting go their new projects may start the ball rolling by offering perks to potential buyers. But since the government measures are slated, developers have already long factored in their costs and would unlikely compromise in their selling prices anytime soon. For the following months to come, prices are expected to be flat while transaction volumes coming down sharply.

Slowing sales volume in the private sector would likely have a trickle down effect on HDB sales. Cash-over-valuations (COV) would be expected to ease further while prices would continue to hold.

On the other end of the market, which comprises high end condominiums and landed properties, would be the least impacted from the measures. This sector, not restricted to foreign buyers, often attract sophisticated overseas investors with high net worth. Prices would likely continue to grow at a healthy level with a lot of money pumped into the Asian region. Comparatively, Singapore property prices are still lower compared to properties in cities like Hong Kong and Shanghai.

In summary, the Singapore government's agenda is to encourage first-time buyers or upgraders, weed out property speculators and invite foreign investments into the local market. Afterall, its primary interest is to protect the people from being blinded by low interest rates and ever increasing property prices, resulting in a property bubble burst. The consequence would be unimaginable.

Singapore Entrepreneur - Latest 2011 Property Cooling Measures

"The government has announced on Thursday (13 Jan 2011) the fourth round of property cooling measures to 'maintain a stable and sustainable property market'.

They include:

1) Increasing the holding period for imposition of Seller's Stamp Duty (SSD) from the current three years to four years;

2) Raising the SSD rates to 16 per cent, 12 per cent, 8 per cent and 4 per cent of consideration for residential properties which are bought on or after Friday, and are sold in the first, second, third and fourth year of purchase respectively;

3) Lower the Loan-To-Value (LTV) limit to 50 per cent on housing loans granted by financial institutions regulated by MAS for property purchasers who are not individuals

4) Lower the LTV limit on housing loans granted by financial institutions regulated by the Monetary Authority of Singapore from 70 per cent to 60 per cent for property purchasers who are individuals with one or more outstanding housing loans at the time of the new housing purchase.

The measures will take effect on Friday. "

Copyright © 2010 Singapore Press Holdings. All rights reserved.

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The news is finally released after some long anticipation. It is going to be a hot topic for the next few days. I am rather surprised that they are releasing it so early and implementing it almost immediately. It looks like the government is really hot behind the heels of property speculators. It is certainly going to irritate some investors and put off many people out of the property market. But, it's better to do it now then later. Remember, it's a year of the General Election. This is expected to be held after the 2nd half of the year. It is understandable for the government to impose the rule early to allow negative sentiments to subside in 6 months. Afterall, people would start to realize and appreciate that their dear government is doing it for everyone's good.

If you have been picking up the newspapers daily for the last couple of months, you would have realized that many pleasant news and plans are being published. Big plans like rejuvenating old heartlands like Hougang and Balestier, new MRT extension to Tuas area and big Budget surplus to benefit most lower income people. In my neighbourhood, there are ongoing sprucing up of roads and pavements, and even the HDB blocks around getting a new fresh coat of paint after 5 years.

I guess everyone should know what to do when the time comes, right? Who else can we choose...?

Singapore Entrepreneur - Latest 2011 Property Cooling Measures

Market Outlook for 2011

We went through a topsy turvy year of 2010. The first half of the year appeared to continue the gloom of 2009 where there was much speculation of a double dip recession happening in US. There was sudden news about Dubai economy nearly falling apart. Europe was not spared the rod either with Portugal, Ireland, Greece and Spain dragging the Eurozone into credit crisis. In the second part of the year, things appeared to look better with better employment figures and improving home prices in the US. What's more, the Barrack Obama administration, inspired by its first stimulus package during the global depression in 2008, decided to further boost its slow moving economy by injecting another US$900 billion (dubbed QE2), to buy up treasury bonds. The immediate reaction to that was the euphoria felt by stock markets in the world. On the other side of the world, is China, still enjoying an ever red hot economy. The whole of East Asia was enjoying the spillover effects from China. Global investors, attracted by the turbocharged economy of Asia, started pouring hot money from the US into the region.

In Singapore for 2010, we have seen phenomenal economic growth of 14.7%, a figure not seen since for the last 20 years. We have also seen an unstoppable rise in property prices, passed the last peak in 2007. So what lies ahead for us in 2011?

If you have been following news and analysts' forcasts, most are still bullish about the world economy. The IMF forecasts that the world economy would grow at 4.3% for 2011 compared to 4.2% for 2010. Although most are painting a brighter picture, they are putting words of caution with the Eurozone crisis still hovering and US still struggling to pull itself out of its stagnating economy.

Inflation will be the hottest topic for the year while crude prices are expected to reach the high of US$100 per barrel, a record breached in 2007. Signs of these have already shown up before 2010 came to a closure. China, has already taken measures to increase interest rates to curb rising prices of its commodities. My Hong Kong friend cited that in recent months, mainland chinese are swarming into the territories to buy up daily necessities like fruits, vegetables and diapers with their appreciating Yuan against HK dollars. For those car owners in Singapore, you would have experienced at least 3 times of petrol price hike in the last 2 months.

How about the red hot property in Singapore? It has surpassed the previous peak in 2007. The Singapore goverment has already put in several measures to weed out speculations. With still gravity defying property prices, the government is expected to come in soon again to further dampen the speculation mood. Latest index has shown that HDB prices are still on the rise, while mass market condos are easing. Landed houses and high-end apartments have just started its rise. The government has reiterated that it wants an affordable home to all Singaporeans. It has the utmost duty to moderate home prices and while allowing them to beat inflation.

As an investor, I update myself with news, check on stock market behaviour and network with industry players to be aware of what is going on around.




Let us take a simple view of the Straits Times Index (STI) performance over 2010 in order to forecast a 2011 behaviour. Refer to the topmost chart seen above. This is the STI performance between June and Dec 2010. If we draw 2 parallel blue lines to coincide with most highs and lows, they look clearly in an ascending pattern. This is what Chartists call an uptrend. If you refer to the end of the line (highlighted by the blue eclipse) which shows a downward direction, it is still not at a dangerous low. A dangerous low will be when it is crossing the lower parallel line. A 2011 market will be expected to be choppy. If the STI line remains within the window of the parallel lines, it would then be a healthy uptrend sign.

Chartists believe that market is always the first to digest information and reacts immediately to it. Chart patterns do not behave randomly but to some specific patterns that can be plotted out. However, as retail investors like us, although it can help us to forecast the future, we should not be too engrossed in only one camp of thought. We should open our eyes and ears to look for other indicators.

In my point of view, the 2011 will await signals on how US will help itself recover from recession and how the Eurozone crisis will unfold. The market will continue its 2010 behaviour when it was very sensitive to any grim news. China economy will also be closely tracked for any changes from impact of its policy change.

As for the Singapore property outlook, it is rather certain that the government is coming in with more measures to cool down the sector, as it has mentioned in its previous move. However, it certainly does not intend to kill the market. It has to moderate the growth to beat inflation and yet cannot allow speculations to create a property bubble, like what happened in the US during the sub-prime crisis. Too much hot money has been pouring into Asia from new found wealth around the region. With new immigrants also swarming into Singapore, the government is certainly right to regulate on property as it is one of the core investment engines for investors. But do remember that the General Elections is drawing near and the government cannot do absurd measures to its voters' ire. It has to ensure the economy grows healthily and at a moderate pace, get a mandate from its election win and then go back to work as usual.

In my view, the property, although has formed a new high, is not going down anytime soon. Rather the government is putting in measures to prevent it from spiking further up. If you look at the previous troughs in 1997, 2003 and 2008, they coincided with global economic downturns. If the world economy does not meet its nemesis in the few years ahead, the Singapore property is unlikely to see another slum. In fact, we will meet more new highs before we see the next global recession. This phenomenom will be attributed to the ongoing new money and new immigrants we are witnessing today.