The “Magical” Kingdom


I was taking a walk along the MacRitchie reservoir this evening along with my wife, as part of my weekend walking exercise regimen.

While discussing about the global economy in general and Singapore economic situation in particular, my wife mentioned that it is highly likely that the U.S. Federal Reserve would increase its interest rates 2 to 3 times next year. Given the recent increase of 0.25%, this might lead to somewhere around 1.0% in total over the next 12 months or so. The stock markets have taken a hit around the world as a result of the U.S. Fed rate increase earlier this week.

Given the growing strength of the U.S. Dollar, the drop in the price of Gold, the increase in the price of Oil, etc., it is apparent that the global economy is headed for more shakeups than ever in the coming 12 months. Combined with the uncertainty of the Trump Presidency, all this adds to the growing concern in Asia of the future of the world economy. Currencies in Asia are taking a major hit, the SGD has dropped to 1.44 to the USD already and is projected to hit 1.50 by the end of calendar 2017.

I made a remark to my wife that the Singapore economy is going to face major headwinds as a result of these developments, and the real estate will be a big loser. There will be auctions and loan foreclosures looming in the coming months and a drop in real estate values which will be a boon to folks waiting to buy an apartment (Singapore real estate is one of the priciest in all of Asia, second only to Hong Kong). Interest rates are set to climb up after a long sojourn of very low rates. Rental values have already been dropping over the past couple of years and recently took a further downturn. Given that the Government has been quite tight on employment passes, the demand is dropping from foreign population.

So, my conclusion was that the “magical” economic kingdom of Singapore is all set to take economic knocks in the next 12 months after significant performances over the past several years. The real estate had doubled between 2009 and 2013 and remained more or less at those inflated prices over the past 3 years (with minor drops of 5 to 10%). This obviously cannot continue for ever and finally the situation is all set to change for the worse for home owners who are planning to sell. The buyers are going to sit tight, despite some annual increases in the takeup rate of apartments.

However, Singapore has always found a way out of economic challenges due to the firm guidance provided by the Government. While real estate market prices are  something that the Government does not directly control, it has put in place some innovative policy mechanisms to curtail speculation and these seem to have, at least partially, worked.

So, if I were a home buyer, I am rather inclined to wait out for the next 6 to 9 months, see some interest rate increase, some significant price drops, some wait and watch games, before actually seeking out bargains. On the national economic fronts, there are going to be some big pains for the next couple of years before recovery can be made. The U.S. economy is bound to make gains, while the China economy is expected to decelerate. Singapore economy is highly vulnerable to external shocks due to its openness.

See – how much a walk around a reservoir (lake) can generate in terms of economic and real estate discussions! I enjoy such “active” walks which help to accomplish some brisk physical walking combined with energetic discussions with the most important person in one’s life – your spouse!!

Enjoy your walks with your spouse and talk economics, health, household matters, and what not. These are very important for relationships as well.

Cheers,

Vijay Srinivasan

17th December 2016

 

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