In very recent times, there were several policy changes to the Loan To Valuation (LTV) for home loans and car loans have been revised. It is largely seen by many, as a curb to help first time home buyers, as well as making it inaccessible to ordinary people to own a car.
The policy on the property market is much labelled as, "Cooling Measures", to curb the run away price on properties. No doubt prices of properties have risen at an alarming level, prompting many changes in policies.
Where car purchase are concern, sometime in early 2003, car loan policy was changed to allow 100% purchase price (not LTV) and maximum tenure of 10 years (or remaining years of COE). The latest change (25 Feb 13, Budget 2013) saw car loan to be reduced to 60% LTV and tenure down to 5 years maximum.
Both the Property Loan and Car Loan policies makes me wonder, "What is the health of the global economy? Are we heading for a very turbulent and long bad ride ahead?"
A little history on loan's LTV
In the mid-2000s, when economy was recovering, the LTV for homes were 80%, and in the economy started to recover in about 2006, LTV for homes went up to 90%.
Car financing policy before 2003 were, 70% LTV and 7 years loan (max). From around Mar/Apr 2003, it was relaxed to 100% LTV and 10 years loan (or remaining years of COE).
A worrying sign
With low LTV, it seems like a sign that, if the economy drips into prolonged recession, valuation of big ticket items will drop. When that happens, where 100% or even 80% LTVs are concern, banks will be financing negative value assets (lower in value than the loan amount).
The Risk On Banks
Cars, depreciates immediately upon obtaining it. If economy dips, the car market 'dies'. A lot of car owners who can't afford the car anymore, will be forced to sell, flooding the market, and with low demand and high supply, the banks will be caught with more and more bad debts.
Homes, if the buyer purchased a property at $500,000 and took 80% LTV $400,000 loan, and if the valuation of the property dips to $400,000, the banks are faced with 100% LTV. If the valuation dips further, it becomes negative asset, as what happened in the early 2000s in Singapore, as well as US Sub Prime in 2007.
New Policies - The Assurance To Banks
Thus, with low LTV, even if the economy weakens or dips, the value of these assets will still remain above oustanding loan, eg, the scrap or export value of these cars will be able to cover the outstanding loan.
Take a $150,000 car (with COE price of $80,000) for example. If the LTV is 60%, the buyer can only loan $90,000 ($60k downpayment). Given that LTV being 60% and loan tenure being 5yrs, there is almost no risk on the banks even if buyer drives out the car and at that very moment, he totalled the car. WHY? Outstanding COE being nearly $80,000, PARF minimum would be about $10,000 (illustration purpose). Besides, insurance usually pays out about 70% of the car's open valuation.
Is That A Sign?
Monday, February 25, 2013
Wednesday, June 20, 2012
Singapore Housing Oversupply?
S’pore’s Housing Oversupply, and What You Can Do About It
By Ryan Ong | MoneySmart – Thu, Jun 14, 2012 12:00 AM SGT
Tuesday, May 15, 2012
CPF Valuation Limit - How It Affects You
As mentioned in Parliament, not many home owners have hit the CPF valuation limit. Yes, not many, but what are they NOT TELLING us?
What they didn't tell us is, once you hit 100% of the valuation limit, you cannot use CPF to pay for your loan, till you build up the "Minimum Sum". Than you can continue using it again.
Given a 30yrs loan, most likely, you will hit the valuation limit (the valuation of your property) somewhere on Year 26 (assuming, interest rate remains unrealistically at 1.5% throughout, AND not taking into consideration Accrued Interest). If you take interest hike and accrued interest into consideration, the Valuation Limit will be reach in a far shorter years.
A few things to consider.
1. How many home loans have reach 20 years (let alone 30)? A lot of properties today, have not reach 20yrs loan yet. Increased in property transaction took place in the mid-90s onwards. Which means, most loans from the 90s (if those pple didn't change home again), will only be about 15yrs old.
2. How many people are aware of the Maximum Withdrawal Limit, and the Minimum Sum policy?
Way into the mid 2000s, I hear home buyers saying, I will upgrade after 5yrs. Is this practical? How many friends you know stayed in their same flat beyond 5yrs?
3. If you get married, buy a flat now, you may end up being a parent in 2-3yrs time. 20yrs down the road (You may have hit the 100% withdrawal sum), your child is ready for University education.
You suddenly faced the stoppage in using of CPF for housing. HOW? Pay in CASH!!
So, have you been told the above? Why are they not coming out with the real information?
--------------------------
CPF valuation limit not an issue for majority of home buyers
Posted: 14 May 2012 2004 hrs
SINGAPORE: The CPF Valuation Limit is not a constraint for the vast majority of members who are servicing housing loans using their CPF savings.
Minister of State for Manpower Tan Chuan-Jin said this in response to MP for Pasir Ris-Punggol GRC Gan Thiam Poh's question on whether the CPF Board will review the CPF withdrawal limit for housing.
The valuation limit restricts the amount of CPF savings members may use or property purchases to the lower of property price or property value at the time of purchase.
This is to ensure Singaporeans' retirement needs are not compromised when CPF savings are used to finance housing needs.
Mr Tan said the number of members who can no longer use CPF savings to pay for monthly instalments after reaching the valuation limit is actually very small.
"But the small minority of members who may find it difficult to continue servicing their housing loans after they reach the valuation limit, CPF Board does assess the situation and has allowed them some flexibility on a case-by-case basis," Mr Tan said.
"For example, where giving such flexibility helps them tide over a period of temporary hardship or where the member is in the midst of right-sizing his property to avoid defaults."
"CPF Board will continue to exercise such flexibility and discretion where the case merits," Mr Tan added.
- CNA/wm
http://www.channelnewsasia.com/stories/singaporelocalnews/view/1201195/1/.html
What they didn't tell us is, once you hit 100% of the valuation limit, you cannot use CPF to pay for your loan, till you build up the "Minimum Sum". Than you can continue using it again.
Given a 30yrs loan, most likely, you will hit the valuation limit (the valuation of your property) somewhere on Year 26 (assuming, interest rate remains unrealistically at 1.5% throughout, AND not taking into consideration Accrued Interest). If you take interest hike and accrued interest into consideration, the Valuation Limit will be reach in a far shorter years.
A few things to consider.
1. How many home loans have reach 20 years (let alone 30)? A lot of properties today, have not reach 20yrs loan yet. Increased in property transaction took place in the mid-90s onwards. Which means, most loans from the 90s (if those pple didn't change home again), will only be about 15yrs old.
2. How many people are aware of the Maximum Withdrawal Limit, and the Minimum Sum policy?
Way into the mid 2000s, I hear home buyers saying, I will upgrade after 5yrs. Is this practical? How many friends you know stayed in their same flat beyond 5yrs?
3. If you get married, buy a flat now, you may end up being a parent in 2-3yrs time. 20yrs down the road (You may have hit the 100% withdrawal sum), your child is ready for University education.
You suddenly faced the stoppage in using of CPF for housing. HOW? Pay in CASH!!
So, have you been told the above? Why are they not coming out with the real information?
--------------------------
CPF valuation limit not an issue for majority of home buyers
Posted: 14 May 2012 2004 hrs
SINGAPORE: The CPF Valuation Limit is not a constraint for the vast majority of members who are servicing housing loans using their CPF savings.
Minister of State for Manpower Tan Chuan-Jin said this in response to MP for Pasir Ris-Punggol GRC Gan Thiam Poh's question on whether the CPF Board will review the CPF withdrawal limit for housing.
The valuation limit restricts the amount of CPF savings members may use or property purchases to the lower of property price or property value at the time of purchase.
This is to ensure Singaporeans' retirement needs are not compromised when CPF savings are used to finance housing needs.
Mr Tan said the number of members who can no longer use CPF savings to pay for monthly instalments after reaching the valuation limit is actually very small.
"But the small minority of members who may find it difficult to continue servicing their housing loans after they reach the valuation limit, CPF Board does assess the situation and has allowed them some flexibility on a case-by-case basis," Mr Tan said.
"For example, where giving such flexibility helps them tide over a period of temporary hardship or where the member is in the midst of right-sizing his property to avoid defaults."
"CPF Board will continue to exercise such flexibility and discretion where the case merits," Mr Tan added.
- CNA/wm
http://www.channelnewsasia.com/stories/singaporelocalnews/view/1201195/1/.html
Thursday, March 22, 2012
Is Housing In Singapore Still Affordable?
Propertyguru.com did a write up on housing affordability which I shall just discuss a little.
In their article, it was said that public housing (HDB) has become severely unaffordable. The affordability formula was based on globally-recognised formula where the Median Multiple (median house price divided by the annual median household income) where a result of
- 3.0 and below would imply that houses are affordable,
- 3.1 to 4.0 (moderately unaffordable),
- 4.1 to 5.0 (seriously unaffordable), and
- 5.1 and over (severely unaffordable).
It was stated in the article, that private properties median was 6.03, which means they are 'severely unaffordable' but in contrast to Singapore's public housing which stands at a high of 6.7, it is, actually mor affordable to own a private property than a HDB flat.
The HDB's primary role is to provide affordable housing to the masses, but from this recent home prices, they have failed terribly. The HDB is now a profit chunking machine of the government. Here is some simple comparison.
Way back in the mid-1980s, a 4 room HDB flat type cost abou $45,000 per unit while combined household income average at about $20,000-$30,000. Home prices were about 2 times of the combined household icome.
Currently, the same 4rm flat type from the HDB itself, cost about $400,000 (or in some projects, A HELL LOT MORE). Given that same formula, shouldn't the same house hold be earning about $200,000 per annum? NO! An average household is now earning about $60,000-$80,000 per year, which makes affordability median at about 6 times their combined household income.
However, our government always reminds us, we are a city state, and they use Hong Kong's housing prices to 'convince' us that housing is still affordable. An average home for the average Hong Konger is about SGD1 million while the combined household income is possibly near $100,000 or 10 times their combined household income.
How convenient! Shouldn't we expect the government's remuneration to be compared with Hong Kong since we are quite much modelled against Hong Kong, both highly dense city (don't get me wrong, am not getting political... but just comparing)?
Monday, March 5, 2012
Own a HDB Flat with $1,000 Income
Recently, Finance Minister Tharman Shanmugaratnam comment in parliament that a family with combined income of $1,000 could actually afford a small HDB flat. That created an uproar from many people, as $1,000 a month these days, could hardly pay for a basic life.
Emotions aside. Yes, it is indeed, possible to own a flat with an income of $1,000. The question is, what's the mathematics that the minister didn't explain (of course, in parliament, they don't go into the bits and pieces).
Here is the breakdown.
- New 2 room BTO flat (1 bed room) cost : $100,000
- Enhanced Additional Housing Grant : $40,000
- Special CPF Housing Grant : $20,000
- Loan needed : $40,000
The monthly installment (CPF/HDB Loan) :
- 30-year loan: $161 per month
- 25-year loan: $182 per month
- 20-year loan: $214 per month
So, actually, a family with $1,000 combined income, can actually afford to buy. Monthly installment is by CPF. As compared with RENTING from HDB, the same flat would cost $123 and $165 monthly and this amount is payable in cash.
This may free up a little more cash for such families (since installment is from CPF).
Emotions aside. Yes, it is indeed, possible to own a flat with an income of $1,000. The question is, what's the mathematics that the minister didn't explain (of course, in parliament, they don't go into the bits and pieces).
Here is the breakdown.
- New 2 room BTO flat (1 bed room) cost : $100,000
- Enhanced Additional Housing Grant : $40,000
- Special CPF Housing Grant : $20,000
- Loan needed : $40,000
The monthly installment (CPF/HDB Loan) :
- 30-year loan: $161 per month
- 25-year loan: $182 per month
- 20-year loan: $214 per month
So, actually, a family with $1,000 combined income, can actually afford to buy. Monthly installment is by CPF. As compared with RENTING from HDB, the same flat would cost $123 and $165 monthly and this amount is payable in cash.
This may free up a little more cash for such families (since installment is from CPF).
Friday, February 10, 2012
HDB resale prices could drop 10%
It was writen in PropertyGuru.com.sg website that HDB resale prices could drop 10%.
(source : http://www.propertyguru.com.sg/property-management-news/2012/2/32295/hdb-resale-prices-could-drop-10-say-experts)
In the article, property experts shared their view on the HDB flat (public housing) prices in the current Eurozone debt crisis.
There was 'coffeeshop' talk that property prices will dip by 30% this year. Would you believe the rather baseless blind leading the blind talk, or the experts from the property market (as cited in the report above)?
New HDB Flats
The many BTO projects will help first timers, which, a lot are not
able to pay the high Cash Over Valuation (COV) and valuation in the first place. So the HDB's release of more BTO projects will provide first timers with the chance to own their flat, to provide to the demand.
Resale Flats
On the resale market, what may happen when the economy soften further? Valuation won't drop too much. HDB flat valuation is government controlled, not independent to market movement like private properties. So, if valuation comes down, new flat prices will also come down. That is not what the government wants.
However, COV will come down. COV is what buyers are willing to pay on top of valuation. If cashflow is limited, people will not splash so much cash. Sellers may expect, but if the market is not paying, they can't fetch. It will come down slowly but surely. It may even dip below valuation like what happened in the mid 2000s.
30% Dip
If such a big adjustment happens, all properties will be affected, banks will be affected,
economy will slide further. So I don't think this is gg to take place so easily right now. Yes it can, but not so easy.
Post Eurozone Debt Crisis
Propnex CEO said, “Public housing resale prices have gone up by over 80 percent in the last five years".What happened after US Sub-Prime dust settled? In 2006-2007, private property prices shot up drastically. It soften and came down in 2008 and started climbing again after CNY 2009 (with the launch of Alexxis).
Will we see a repeat of big spenders coming into the picture after Eurozone problem is settled and economy recovers? Singapore needs more sound policies to curb foreign speculation.
(source : http://www.propertyguru.com.sg/property-management-news/2012/2/32295/hdb-resale-prices-could-drop-10-say-experts)
In the article, property experts shared their view on the HDB flat (public housing) prices in the current Eurozone debt crisis.
There was 'coffeeshop' talk that property prices will dip by 30% this year. Would you believe the rather baseless blind leading the blind talk, or the experts from the property market (as cited in the report above)?
New HDB Flats
The many BTO projects will help first timers, which, a lot are not
able to pay the high Cash Over Valuation (COV) and valuation in the first place. So the HDB's release of more BTO projects will provide first timers with the chance to own their flat, to provide to the demand.
Resale Flats
On the resale market, what may happen when the economy soften further? Valuation won't drop too much. HDB flat valuation is government controlled, not independent to market movement like private properties. So, if valuation comes down, new flat prices will also come down. That is not what the government wants.
However, COV will come down. COV is what buyers are willing to pay on top of valuation. If cashflow is limited, people will not splash so much cash. Sellers may expect, but if the market is not paying, they can't fetch. It will come down slowly but surely. It may even dip below valuation like what happened in the mid 2000s.
30% Dip
If such a big adjustment happens, all properties will be affected, banks will be affected,
economy will slide further. So I don't think this is gg to take place so easily right now. Yes it can, but not so easy.
Post Eurozone Debt Crisis
Propnex CEO said, “Public housing resale prices have gone up by over 80 percent in the last five years".What happened after US Sub-Prime dust settled? In 2006-2007, private property prices shot up drastically. It soften and came down in 2008 and started climbing again after CNY 2009 (with the launch of Alexxis).
Will we see a repeat of big spenders coming into the picture after Eurozone problem is settled and economy recovers? Singapore needs more sound policies to curb foreign speculation.
Monday, January 16, 2012
European Crisis! Will It Affect Singapore? Property Policies - The Other Side Of The Coin
It has been nearly 2 years since my last blog post. Economy was rosy for awhile. Now that European Crisis is too real to divert, it has become a worry, a big topic of concern.
(1) European Crisis
The question of late is,
- Will it affect Singapore?
- When will it hit our shores?
- Is the government capable to steer us out
A simple broad based issues to consider:
- Singapore is an export based economy.
- We are not self-sufficient.
- We are a very small economy, like a small boat in the ocean.
Just based on these 3 points, we are always affected by international turbulances. The only thing the government can do is, foresee some of these turbulances and try to implement
policies that can soften the wave.
(2) When Will It Hit Shore
There are many street talk that it will hit us after Chinese New Year (funny, it is 1 week away from today... that spells doom in about 2 weeks???). Street talk is baseless! Fear mongers are just shooting away.
The few concerns includes Job Security and Economy Data. Some small scale retrenchment started taking place since Q4 2011. Companies big and small already felt the decline in business perhaps since Q4 2011.
So, to say it will hit shore after Chinese New Year is really shallow. First few ripples have arrived since months ago. The rollers and waves are approaching. It will start showing more signs if more policies and countries in Europe failed.
Economy data would be more accurate indicator of a recession.
(3) Government Policy Making
The government already noticed the European financial situation since years back. Good thing this time they "have yet" to act smart and let the two loose financial canons fire their rounds into failing European banks. We hope they didn't, but we can't trust them either, they did too many bad investments even a novice thought was stupid.
Property Control Policies were implemented since August 2010, with the change in Minimum Occupation Period, Seller Stamp Duty, etc.
More policies were implemented in early 2011, where Foreigner investors will have to pay 10% Buyer Stamp Duty.
On the surface, this is to curb runaway inflation. However, is it really that innocent, to help Singaporeans own homes? Take a look at it from the other side
(3.1) A lot of property price spike were lead by private properties
A lot of the spike were influenced by foreigners who had divert their funds to Singapore property, leading to a spike, and their ROI being huge (as in, purchase and sales price differences).
A lot of these foreigners doesn't even live here. So it doesn't matter if properties are are expensive. They just want to park their money
China took property control measures after seeing their property market inflate tremendiously. So these rich Chinese National has to park in another save haven, Singapore.
Now, given the above, it is very dangerous situation we faced. If these investors were to suddenly pulled funds out, the property market will collapse and a lot of people will go under. So having policies to deter further foreign investment is to reduce the risk of having more foreign cash (hot cash) in our property market and causing a potential crash.
(3.2) Cash Strap Investors Pulls Out - Stamp Duty
If a rich investor faces uncertainty, they will dump their property here and pull cash back to their home country. Now, looking at the Seller stamp duty, where stamp duty applies for property sales within 4yrs, and the foreigner stamp duty (10%?) on purchase, it is also a measure to
stop too much inflow of cash, and prevent investors pulling out overnight.
The 10% Buyer stamp duty will reduce more foreigners from investing into Singapore properties as the price is now inflated 10% above market valuation. A smart investor will not start with a negative (n -10%).
The seller stamp duty :
- 16% within First Year
- 12% within Second Year
- 8% within Third Year
- 4% within Fourth Year
This is a good deterrant to dump property and cash out as they will exit with a negative valuation (as in, sales price less x% seller stamp duty).
This can be a deterrant to these foreigners, making them look elsewhere for cash if the need arise.
Further measure the government could take may include, restriction in foreigners bringing out cash from the sale of property. So even if investors wants to sell their property and incur Stamp Duty, they are not able to bring their funds out, trapping their monies here. However this will be unpopular as investors will be too cautious to invest here in Singapore again.
The European Crisis may take years for the dust to settle. Thus the 4 years tiered Stamp Duty is possibly a good measure yet doesn't over penalize foreign property investors.
(1) European Crisis
The question of late is,
- Will it affect Singapore?
- When will it hit our shores?
- Is the government capable to steer us out
A simple broad based issues to consider:
- Singapore is an export based economy.
- We are not self-sufficient.
- We are a very small economy, like a small boat in the ocean.
Just based on these 3 points, we are always affected by international turbulances. The only thing the government can do is, foresee some of these turbulances and try to implement
policies that can soften the wave.
(2) When Will It Hit Shore
There are many street talk that it will hit us after Chinese New Year (funny, it is 1 week away from today... that spells doom in about 2 weeks???). Street talk is baseless! Fear mongers are just shooting away.
The few concerns includes Job Security and Economy Data. Some small scale retrenchment started taking place since Q4 2011. Companies big and small already felt the decline in business perhaps since Q4 2011.
So, to say it will hit shore after Chinese New Year is really shallow. First few ripples have arrived since months ago. The rollers and waves are approaching. It will start showing more signs if more policies and countries in Europe failed.
Economy data would be more accurate indicator of a recession.
(3) Government Policy Making
The government already noticed the European financial situation since years back. Good thing this time they "have yet" to act smart and let the two loose financial canons fire their rounds into failing European banks. We hope they didn't, but we can't trust them either, they did too many bad investments even a novice thought was stupid.
Property Control Policies were implemented since August 2010, with the change in Minimum Occupation Period, Seller Stamp Duty, etc.
More policies were implemented in early 2011, where Foreigner investors will have to pay 10% Buyer Stamp Duty.
On the surface, this is to curb runaway inflation. However, is it really that innocent, to help Singaporeans own homes? Take a look at it from the other side
(3.1) A lot of property price spike were lead by private properties
A lot of the spike were influenced by foreigners who had divert their funds to Singapore property, leading to a spike, and their ROI being huge (as in, purchase and sales price differences).
A lot of these foreigners doesn't even live here. So it doesn't matter if properties are are expensive. They just want to park their money
China took property control measures after seeing their property market inflate tremendiously. So these rich Chinese National has to park in another save haven, Singapore.
Now, given the above, it is very dangerous situation we faced. If these investors were to suddenly pulled funds out, the property market will collapse and a lot of people will go under. So having policies to deter further foreign investment is to reduce the risk of having more foreign cash (hot cash) in our property market and causing a potential crash.
(3.2) Cash Strap Investors Pulls Out - Stamp Duty
If a rich investor faces uncertainty, they will dump their property here and pull cash back to their home country. Now, looking at the Seller stamp duty, where stamp duty applies for property sales within 4yrs, and the foreigner stamp duty (10%?) on purchase, it is also a measure to
stop too much inflow of cash, and prevent investors pulling out overnight.
The 10% Buyer stamp duty will reduce more foreigners from investing into Singapore properties as the price is now inflated 10% above market valuation. A smart investor will not start with a negative (n -10%).
The seller stamp duty :
- 16% within First Year
- 12% within Second Year
- 8% within Third Year
- 4% within Fourth Year
This is a good deterrant to dump property and cash out as they will exit with a negative valuation (as in, sales price less x% seller stamp duty).
This can be a deterrant to these foreigners, making them look elsewhere for cash if the need arise.
Further measure the government could take may include, restriction in foreigners bringing out cash from the sale of property. So even if investors wants to sell their property and incur Stamp Duty, they are not able to bring their funds out, trapping their monies here. However this will be unpopular as investors will be too cautious to invest here in Singapore again.
The European Crisis may take years for the dust to settle. Thus the 4 years tiered Stamp Duty is possibly a good measure yet doesn't over penalize foreign property investors.
Sunday, February 28, 2010
Quota for Permenant Residents Buying Resale HDB
The government announced in late January 2o10 that they are considering imposing a quota on Permenant Residents (PR) buying resale HDB flats. This is taken from two angles. Firstly, they claimed this is to prevent congregating of groups of nationalities. Next, this is in light of their intention to cool the HDB prices.
In recent times, there are blames on PRs driving up property prices. Are the PRs really guilty of causing property prices to escalate in recent years?
(1) En-bloc
In the years 2005 to 2007, there were many en-bloc in mature private condominium estates. This made residents cash rich. While waiting for their new condo, some opt to purchase a HDB flat as their temporory housing.
With loads of cash on hand, they could easily dish out high Cash Over Valuation (COV). At one stage, a 5-room HDB flat was asking for $100,000 COV. So who drove up COV?
(2) PRs and CPF
Many PRs wouldn't have much CPF funds within the first 5 years of obtaining their PR status. Cash on hand is also limited for many. A simple senario:
- Valuation : $500,000
- Cash Over Valuation : $50,000
- CPF Available Funds : $30,000
- Downpayment : $100,000 (20% valuation) + $50,000 (COV)
- Total Cash Outlay : $120,000 ($150k - $30k CPF). This amt excludes Stamp Fees, etc.
Do PRs have that much money to pay high COV? Not forgetting, the amount above is just a simple illustration on purchasing a HDB flat, and not taking into consideration, renovation, purchase of applicances, etc.
(3) PR Quota
If there is a consistent amount of PRs buying HDB flats and a consistent supply of sellers of HDB flats prior to the quota, with the new quota (limiting PRs to HDB flats), wouldn't that drive up prices?
Demand is now narrowed to limited supply. When Demand exceeds Supply, prices goes up.
(4) Effect on Resale Flats that Can't Be Sold to PRs
If the neighbhour sold his flat at $550,000, would the next seller with similar condition sold his flat at $500,000?
So, how does the policy affect HDB prices?
In recent times, there are blames on PRs driving up property prices. Are the PRs really guilty of causing property prices to escalate in recent years?
(1) En-bloc
In the years 2005 to 2007, there were many en-bloc in mature private condominium estates. This made residents cash rich. While waiting for their new condo, some opt to purchase a HDB flat as their temporory housing.
With loads of cash on hand, they could easily dish out high Cash Over Valuation (COV). At one stage, a 5-room HDB flat was asking for $100,000 COV. So who drove up COV?
(2) PRs and CPF
Many PRs wouldn't have much CPF funds within the first 5 years of obtaining their PR status. Cash on hand is also limited for many. A simple senario:
- Valuation : $500,000
- Cash Over Valuation : $50,000
- CPF Available Funds : $30,000
- Downpayment : $100,000 (20% valuation) + $50,000 (COV)
- Total Cash Outlay : $120,000 ($150k - $30k CPF). This amt excludes Stamp Fees, etc.
Do PRs have that much money to pay high COV? Not forgetting, the amount above is just a simple illustration on purchasing a HDB flat, and not taking into consideration, renovation, purchase of applicances, etc.
(3) PR Quota
If there is a consistent amount of PRs buying HDB flats and a consistent supply of sellers of HDB flats prior to the quota, with the new quota (limiting PRs to HDB flats), wouldn't that drive up prices?
Demand is now narrowed to limited supply. When Demand exceeds Supply, prices goes up.
(4) Effect on Resale Flats that Can't Be Sold to PRs
If the neighbhour sold his flat at $550,000, would the next seller with similar condition sold his flat at $500,000?
So, how does the policy affect HDB prices?
Monday, January 11, 2010
Time To Spend?
It was reported on the news, Certificate of Entitlement (COE) for vehicles have gone up in recent times, but car dealers have slashed prices for new cars to lure in buyers as the Lunar New Year approaches.
Quote Chin Chee Min, Senior Manager C&C Kia, "We will sacrisfice a lot of our profit margin. But if we don't do it now, we won't get in tune with the buying sentiments with the customers."
What is causing the buying sentiments? The economy looks set to recover, the global recession appears over, consumer confidence have strengthen. But are we not walking into the same path as in year 2007, where buyer confidence were at sky high and people were spending like they are set to get a windfall?
When the economy is recovering, it is unwise to spend lavishingly. That is as good as spending what we do not have yet.
Spending should be based on what we have. In recovery stage, it is wise to save up and invest as the market will recover first thus the returns on investment will be higher.
It's never too late to spend but it is always too late to save.
Quote Chin Chee Min, Senior Manager C&C Kia, "We will sacrisfice a lot of our profit margin. But if we don't do it now, we won't get in tune with the buying sentiments with the customers."
What is causing the buying sentiments? The economy looks set to recover, the global recession appears over, consumer confidence have strengthen. But are we not walking into the same path as in year 2007, where buyer confidence were at sky high and people were spending like they are set to get a windfall?
When the economy is recovering, it is unwise to spend lavishingly. That is as good as spending what we do not have yet.
Spending should be based on what we have. In recovery stage, it is wise to save up and invest as the market will recover first thus the returns on investment will be higher.
It's never too late to spend but it is always too late to save.
Friday, January 8, 2010
What Is The Interest Rate Prediction in 2010?
With the global recession easing off in the last quarter 2009, nations Central Banks are looking at adjusting interest rates.
America's Federal Reserve Chairman have hinted that interest rates may need to be adjusted upwards soon to help recovery. Many other countries' Central Banks, including America, have held onto interest rates for the Q1 2010.
For the first time in 5 months, China's Central Bank have adjusted interest rates upwards, by 0.04%, from 1.328% to 1.3684%. The increase is to cool the supercharged economy and control inflation.
With recovering economy, like in year 2004 and 2005, interest rates are destined to head north. In year 2004, interest rates for home loans were as low as 0.5% but by late 2005, it reach 4.0%. Will this pattern occur again in 2010?
A quick look at SIBOR Rates may give us an idea how SIBOR rates will move this year.
Months : Jan 10 - July 09 - Jan 09 - July 08 - Jan 08
3mths : 0.6833% - 0.6867% - 0.9680% - 1.1870% - 2.3750%
12mths : 0.9192% - 0.9242% - 1.2390% - 1.8750% - 2.6250%
Two years ago, in January 2008, it was the meltdown of the US Sub Prime, which lead to the start of recession. SIBOR rates starts to tumble rapidly for the whole year. In the last one year, since February 2009 till January 2010, interest rates stablized with little variation.
Chances of SIBOR going up in 2010 is high. Plan your finances carefully. If you are servicing high monthly mortgage, involving cash, becareful. Chances are, you will be paying more in the coming months.
Saturday, November 21, 2009
An Essential Guide To Buying Your First Property
As the global economy creeps out of the financial meltdown which started in 2007 (Sub Prime), people will soon forget the painful lesson learnt. It will be a matter of 1-2 years that people will start spurging and go on years of spending without too much reflection of the painful recession.
This year, since second quarter (2009), as the recession dust starts to settle, the property bubble starts forming right till September. Property sales seems to have started slowing down in October and November. This can be a sign that the property market has overheated and is now cooling off.
This is time where the average buyers are looking at buying their first property.
Property purchase is usually the biggest ticket item in our life. As such, there are things that buyers need to take into consideration.
What is the best way for an individual to gauge if they can afford to buy a property?
It is important to do financial planning. The banks use a bench mark of 40% to 50% Debt Servicing Ratio (DSR). This means, there should not be more than 40% - 50% of the combined income, being commited to financial outlays.
For example, if the combined gross income is $5,000, the maximum financial commitment should not be more than $2,500 per month. Financial commitment includes home loan, car loan, credit card debt, etc.
Financial planning includes being conservative in the outlook. Would be property buyers should not take potential future income in their calculation as this will cause a large proble when income falls.
What are some important factors in securing a bank loan?
Largely, a lender are concern of the ability of a borrower to repay the loan. As such, good financial rating and being free from litigation helps ease banks concern.
Few common reasons why loan application are rejected, is usually due to bad credit history or outstanding litigation which could affect a person's financial standing. Other reasons could be due to inconsistency of income (frequent change of job).
What is the consideration on loan tenure?
Many people believes that they should pay off their loans within the shortest time. That is not totally wrong but not suitable for all senarios.
Shorter loan tenure means lesser interest paid. Loans repayment usually takes principle divided by duration. A simple calculation as follows (taking a small loan size for calculation).
- Loan Principle : $300,000
- Loan Tenure : 20 years
- Monthly principle repayment : $1,250/mth (being, $300k / 20yrs / 12mths)
- Monthly interest assuming at 2.5% : $625/mth (being, $300k x 2.5% /12mths)
- Total monthly repayment : $1,875/mth
- Principle / Interest Ratio : 66.67% / 33.33%
If the tenure is stretched to 30 years:
- Monthly principle repayment : $833.33 (being, $300k / 30yrs / 12mths)
- Monthly interest assuming at 2.5% : $625/mth
- Total monthly repayment : $1,458.33
- Principle / Interest ratio : 57.14% / 42.86%
It is not advisible to reduce the loan tenure for everyone. It is important to work back on to the DSR as well as, checking how much is available from CPF funds to be used towards repaying the monthly installment.
For those intending to reduce tenure using cash every month, there is a need to reconsider if these money can be put to better use, investment and getting better returns. A conservative investment can give a returns of 4-7%pa while home loan interest rates are currently hovering around 2-3%.
CPF Maximum Withdrawal Limit
This is another factor wew must pay close attention to. For those who bought their property on 1 Jan 2008 onwards, they are only able to use up to 120% Valuation Limit. This means, if the valuation is $500,000, the maximum withdrawal limit will be $600,000.
The maximum withdrawal limit includes, downpayment, legal and stamp fee, monthly installment (principle and interest), till it reaches 120%.
For a 30 years loan tenure, the borrower will reach the limit sometime on the 23 year. The remaining 7 odd years will involve full cash.
Take an average young couple for illustration. Assuming, the couple have their first child 2 years after marriage (and owning their property) and second child another 2 years later. If the maximum withdrawal limit is reached on the 23th year, the first child would be about 21 years old while second child is about 19 years old.
At 21 years old, the child may be receiving his/her tetiary education while the second child is reaching tetiary education soon. Cash would be very important then.
Types of Loan Package
Loan packages works around five main loan types as follows:
- Fixed Rate package
- Variable Rate package
- Combo package
- Current Link Account
- SIBOR Rate package
A mortgage bank officer or mortgage consultant will be able to advise further on that.
It is important to look at the economy direction, financial planning, property holding, etc, before deciding on what is a suitable package. The decision will eventually be for the borrower to make.
Other important information for borrowers
1. Mortgage Insurance and Fire Insurance
Mortgage insurance protects the co-borrower in the event one borrower is rendered invalid (death or permenant disability). The insurance will take care of the outstanding loan that they are insured for.
Fire insurance provided by the banks are insufficient. It convers mainly, structure and fittings, with minimal coverage. It is important to also take care of 3rd party liability, which an additional fire insurance can take care of. Such insurance policy cost as little as $150 per year.
2. Refinance
Refinancing upon the lapse of a Lock-in period helps keep the loan interest rate current. Refering back to the Principle/Interest calculation, a lower interest means more repayment towards Principle.
Lastly
It is important to seek the help of a Mortgage Consultant or Financial Planner to help you assess where you stand, how much loan you can secure, before proceeding on your purchase.
This year, since second quarter (2009), as the recession dust starts to settle, the property bubble starts forming right till September. Property sales seems to have started slowing down in October and November. This can be a sign that the property market has overheated and is now cooling off.
This is time where the average buyers are looking at buying their first property.
Property purchase is usually the biggest ticket item in our life. As such, there are things that buyers need to take into consideration.
What is the best way for an individual to gauge if they can afford to buy a property?
It is important to do financial planning. The banks use a bench mark of 40% to 50% Debt Servicing Ratio (DSR). This means, there should not be more than 40% - 50% of the combined income, being commited to financial outlays.
For example, if the combined gross income is $5,000, the maximum financial commitment should not be more than $2,500 per month. Financial commitment includes home loan, car loan, credit card debt, etc.
Financial planning includes being conservative in the outlook. Would be property buyers should not take potential future income in their calculation as this will cause a large proble when income falls.
What are some important factors in securing a bank loan?
Largely, a lender are concern of the ability of a borrower to repay the loan. As such, good financial rating and being free from litigation helps ease banks concern.
Few common reasons why loan application are rejected, is usually due to bad credit history or outstanding litigation which could affect a person's financial standing. Other reasons could be due to inconsistency of income (frequent change of job).
What is the consideration on loan tenure?
Many people believes that they should pay off their loans within the shortest time. That is not totally wrong but not suitable for all senarios.
Shorter loan tenure means lesser interest paid. Loans repayment usually takes principle divided by duration. A simple calculation as follows (taking a small loan size for calculation).
- Loan Principle : $300,000
- Loan Tenure : 20 years
- Monthly principle repayment : $1,250/mth (being, $300k / 20yrs / 12mths)
- Monthly interest assuming at 2.5% : $625/mth (being, $300k x 2.5% /12mths)
- Total monthly repayment : $1,875/mth
- Principle / Interest Ratio : 66.67% / 33.33%
If the tenure is stretched to 30 years:
- Monthly principle repayment : $833.33 (being, $300k / 30yrs / 12mths)
- Monthly interest assuming at 2.5% : $625/mth
- Total monthly repayment : $1,458.33
- Principle / Interest ratio : 57.14% / 42.86%
It is not advisible to reduce the loan tenure for everyone. It is important to work back on to the DSR as well as, checking how much is available from CPF funds to be used towards repaying the monthly installment.
For those intending to reduce tenure using cash every month, there is a need to reconsider if these money can be put to better use, investment and getting better returns. A conservative investment can give a returns of 4-7%pa while home loan interest rates are currently hovering around 2-3%.
CPF Maximum Withdrawal Limit
This is another factor wew must pay close attention to. For those who bought their property on 1 Jan 2008 onwards, they are only able to use up to 120% Valuation Limit. This means, if the valuation is $500,000, the maximum withdrawal limit will be $600,000.
The maximum withdrawal limit includes, downpayment, legal and stamp fee, monthly installment (principle and interest), till it reaches 120%.
For a 30 years loan tenure, the borrower will reach the limit sometime on the 23 year. The remaining 7 odd years will involve full cash.
Take an average young couple for illustration. Assuming, the couple have their first child 2 years after marriage (and owning their property) and second child another 2 years later. If the maximum withdrawal limit is reached on the 23th year, the first child would be about 21 years old while second child is about 19 years old.
At 21 years old, the child may be receiving his/her tetiary education while the second child is reaching tetiary education soon. Cash would be very important then.
Types of Loan Package
Loan packages works around five main loan types as follows:
- Fixed Rate package
- Variable Rate package
- Combo package
- Current Link Account
- SIBOR Rate package
A mortgage bank officer or mortgage consultant will be able to advise further on that.
It is important to look at the economy direction, financial planning, property holding, etc, before deciding on what is a suitable package. The decision will eventually be for the borrower to make.
Other important information for borrowers
1. Mortgage Insurance and Fire Insurance
Mortgage insurance protects the co-borrower in the event one borrower is rendered invalid (death or permenant disability). The insurance will take care of the outstanding loan that they are insured for.
Fire insurance provided by the banks are insufficient. It convers mainly, structure and fittings, with minimal coverage. It is important to also take care of 3rd party liability, which an additional fire insurance can take care of. Such insurance policy cost as little as $150 per year.
2. Refinance
Refinancing upon the lapse of a Lock-in period helps keep the loan interest rate current. Refering back to the Principle/Interest calculation, a lower interest means more repayment towards Principle.
Lastly
It is important to seek the help of a Mortgage Consultant or Financial Planner to help you assess where you stand, how much loan you can secure, before proceeding on your purchase.
Friday, October 2, 2009
Property Prices Rose by 15.9% in Q3 of 2009
The Urban Redevelopment Authority (URA)'s latest news release (1 Oct 09) doesn't surprise many, 3rd Quarter 2009 property prices gone up by about 15.9% from 2nd Quarter (decline 4.7% in 2nd Quarter).
The increase breakdown as follows:
- 16.2% Core Central Region
- 19.1% Rest of Central Region
- 15.4% Outside Central Region
Property prices have started to rise since May 2009 since the market hit a bull run. What is the supporting factor of the property price escalation? Apart from the stock market, the economy has not recovered as significantly and fundamental is not strong.
IMF may have released news saying global economy is expected to recover in year 2010 and have adjusted global growth forecast to 3.5% (China being 9% growth next year). The expected grow does not justify a 15.9% increase in local property prices, at least for now.
If surge is not supported, it is hanging in thin air. There is a danger of a property bubble that may just break without much warning. This happened in year 2008, but of course situation were different back then. Back in 2008, the global economy were ruin by the US Financial Crisis.
Where will the property market lead to in the coming one to two years?
The increase breakdown as follows:
- 16.2% Core Central Region
- 19.1% Rest of Central Region
- 15.4% Outside Central Region
Property prices have started to rise since May 2009 since the market hit a bull run. What is the supporting factor of the property price escalation? Apart from the stock market, the economy has not recovered as significantly and fundamental is not strong.
IMF may have released news saying global economy is expected to recover in year 2010 and have adjusted global growth forecast to 3.5% (China being 9% growth next year). The expected grow does not justify a 15.9% increase in local property prices, at least for now.
If surge is not supported, it is hanging in thin air. There is a danger of a property bubble that may just break without much warning. This happened in year 2008, but of course situation were different back then. Back in 2008, the global economy were ruin by the US Financial Crisis.
Where will the property market lead to in the coming one to two years?
Saturday, September 12, 2009
Further Financial Crisis 'Inevitable'
Former Federal Reserve chief Alan Greenspan said human nature made another global financial crisis inevitable.
"They (financial crises) are all different, but they have one fundamental source, that is, the unquenchable capability of human beings when confronted with long periods of prosperity to presume that it will continue."
The believe that markets would continue to rise led people to take speculative excesses with the consequences that have dotted history.
"No two crises have anything in common except human nature."
The current crisis was triggered by the trade in US sub-prime mortgages, any factor could have been the catalyst. If it were not the problem of these toxic debts caused by people's failure to repay the loans that were granted to homebuyers with bad credit histories, something sooner or later would have emerged.
It's human nature, unless somebody can find a way to change human nature, we will have more crises and none of them will look like this because no two crises have anything in common, except human nature.
To avoid a repeat of the situation, financiers and governments should look to clamp down on fraud and force banks to hold more capital to cushion themselves against financial shocks.
---
Humans are forgetful. When we go through a crisis, many people suffered and some will remind themselves not to make the same mistakes again. Others who have not suffered tremendiously, but just by the economy, would not realise the actual difficulties during the crisis.
When the crisis is over, economy will face boom and prosperity. People will start to forget what happened after a short while, and starts to spend and over-commit themselves. Before they realise it, the next crisis arrived sooner than thought, leaving these lot of people suffering.
In 2007 and early 2008, Asia was facing a boom. Many people were too ready, too soon, to change luxury items. Some luxury items cost an arm and a leg, but people forgotten the crisis S-E Asia underwent, namely Asian Financial Crisis (1998), 911 (2001) and SARS (2003). The economy stablized in 2004 and only starts showing promising signs of recovery in 2005.
As Singapore's economy crawls out of the 8 years on-and-off recession, people starts spending. US Sub-prime started showing it's fiery in August 2007 but many believes the storm won't reach our shores.
Now that the economy is showing signs of recovery, there will be some who will start spending.
Will people ever learn to take precaution? Unlikely! There will be the same patterns soon.
"They (financial crises) are all different, but they have one fundamental source, that is, the unquenchable capability of human beings when confronted with long periods of prosperity to presume that it will continue."
The believe that markets would continue to rise led people to take speculative excesses with the consequences that have dotted history.
"No two crises have anything in common except human nature."
The current crisis was triggered by the trade in US sub-prime mortgages, any factor could have been the catalyst. If it were not the problem of these toxic debts caused by people's failure to repay the loans that were granted to homebuyers with bad credit histories, something sooner or later would have emerged.
It's human nature, unless somebody can find a way to change human nature, we will have more crises and none of them will look like this because no two crises have anything in common, except human nature.
To avoid a repeat of the situation, financiers and governments should look to clamp down on fraud and force banks to hold more capital to cushion themselves against financial shocks.
---
Humans are forgetful. When we go through a crisis, many people suffered and some will remind themselves not to make the same mistakes again. Others who have not suffered tremendiously, but just by the economy, would not realise the actual difficulties during the crisis.
When the crisis is over, economy will face boom and prosperity. People will start to forget what happened after a short while, and starts to spend and over-commit themselves. Before they realise it, the next crisis arrived sooner than thought, leaving these lot of people suffering.
In 2007 and early 2008, Asia was facing a boom. Many people were too ready, too soon, to change luxury items. Some luxury items cost an arm and a leg, but people forgotten the crisis S-E Asia underwent, namely Asian Financial Crisis (1998), 911 (2001) and SARS (2003). The economy stablized in 2004 and only starts showing promising signs of recovery in 2005.
As Singapore's economy crawls out of the 8 years on-and-off recession, people starts spending. US Sub-prime started showing it's fiery in August 2007 but many believes the storm won't reach our shores.
Now that the economy is showing signs of recovery, there will be some who will start spending.
Will people ever learn to take precaution? Unlikely! There will be the same patterns soon.
Sunday, August 2, 2009
Developers Are Dumping
Refering to Saturday (1 Aug 09) newspaper (The Straits Times), there were many new property developments for sale (by developers). I could easily spot more 5 such advertisements, some taking more than one full page.
Over the couple of months, there were a lot of talks about properties being snapped up by buyers. Some new developments were even sold out in one day, some even sold out before the actual launch.
Buyers goes out viewing new developments with cheques in hand, more than ready to issue the 1% deposit. I even learned of a buyer who had to pay 5% deposit to developer.
Buy Low, Sell High!
This doesn't seems to apply now. Buyers are buying high, thinking property prices will not come down. This was the same mindset in the 1990s, that Singapore is land scarse and with huge population for this island country with only 687 square kilometers of land.
During the Asian Financial Crisis, 911 terrorist attack in 2001 and SARS in 2003, our economy almost collapse to its knees, and property prices dropped down to 60% value of their all time high. People have forgotten the lesson.
Developers knows the economy better than commoners do. Developers are in the business of making money. If they can sell their properties at a much higher price, why would they rush to dump their developments all at once?
When developers dump properties , it is time to be wary. When developers even demanded 5% deposit, the signs are even more worrying.
Is a property market correction on it's way?
Over the couple of months, there were a lot of talks about properties being snapped up by buyers. Some new developments were even sold out in one day, some even sold out before the actual launch.
Buyers goes out viewing new developments with cheques in hand, more than ready to issue the 1% deposit. I even learned of a buyer who had to pay 5% deposit to developer.
Buy Low, Sell High!
This doesn't seems to apply now. Buyers are buying high, thinking property prices will not come down. This was the same mindset in the 1990s, that Singapore is land scarse and with huge population for this island country with only 687 square kilometers of land.
During the Asian Financial Crisis, 911 terrorist attack in 2001 and SARS in 2003, our economy almost collapse to its knees, and property prices dropped down to 60% value of their all time high. People have forgotten the lesson.
Developers knows the economy better than commoners do. Developers are in the business of making money. If they can sell their properties at a much higher price, why would they rush to dump their developments all at once?
When developers dump properties , it is time to be wary. When developers even demanded 5% deposit, the signs are even more worrying.
Is a property market correction on it's way?
Monday, May 25, 2009
Obama And His Magic Wand
Since US President Barack Obama came into office in January 2009, he had extingished a lot of Bush fire that went out of control by his predecessor.
Credit reform had taken place. Cost cutting on military operations, strengthening of bilateral ties with many countries. Taking a strict rule on money handouts by government to rescue institutions in this Financial Crisis. Improving consumer confidence, etc.
The latest sweep came in the form of Credit Card Reform, aiming to shield consumers from predatory fees and shock rate hikes. Even though over protecting consumers can lead to another case of overspending, but a timely reform can help debtors handle their existing debts better.
The new bill includes:
- forbids rate increases on existing balances unless consumers are at least 60 days late paying their bill or the initial rate was a promotional rate that has expired,
- requires 45 days' notice to raise rates.
- bans fees for payment processing -- such as surcharges for paying by telephone
- imposes steep restrictions on issuing cards to people under 21 years of age
- requires that promotional interest rates on new cards stay valid for six months
When a person faces financial difficulties, they will start delaying repayment, default on payments, further extending their financial woes with credit card, etc, before they go bust.
At a time where economy is still not on a recovery route, such credit reforms are good to help debtors manage their existing debt, allowing them to start repaying. On the other hand, it will help those who are not in debt, to start spending with more confidence.
More financial reforms must be done in America, including housing loan reform as the current financial crsis originated from the Sub-Prime problem.
Let's hope the global economy will start seeing the storm clear up by year's end. Signs are already there, that depressing economies are starting to see smaller GDP decline.
Credit reform had taken place. Cost cutting on military operations, strengthening of bilateral ties with many countries. Taking a strict rule on money handouts by government to rescue institutions in this Financial Crisis. Improving consumer confidence, etc.
The latest sweep came in the form of Credit Card Reform, aiming to shield consumers from predatory fees and shock rate hikes. Even though over protecting consumers can lead to another case of overspending, but a timely reform can help debtors handle their existing debts better.
The new bill includes:
- forbids rate increases on existing balances unless consumers are at least 60 days late paying their bill or the initial rate was a promotional rate that has expired,
- requires 45 days' notice to raise rates.
- bans fees for payment processing -- such as surcharges for paying by telephone
- imposes steep restrictions on issuing cards to people under 21 years of age
- requires that promotional interest rates on new cards stay valid for six months
When a person faces financial difficulties, they will start delaying repayment, default on payments, further extending their financial woes with credit card, etc, before they go bust.
At a time where economy is still not on a recovery route, such credit reforms are good to help debtors manage their existing debt, allowing them to start repaying. On the other hand, it will help those who are not in debt, to start spending with more confidence.
More financial reforms must be done in America, including housing loan reform as the current financial crsis originated from the Sub-Prime problem.
Let's hope the global economy will start seeing the storm clear up by year's end. Signs are already there, that depressing economies are starting to see smaller GDP decline.
Wednesday, April 1, 2009
Global Recession Pushing Millions Into Poverty
The World Bank forecast record declines in 2009 global output and trade as the economic crisis bites, and warned a slowdown in the developing world is pushing millions into poverty.
The global economy is expected to shrink by 1.7 percent in 2009, "the first decline in world output since World War II,". The sharp contraction marks a dramatic 2.6 point downward revision from the 0.9 percent growth in 2009 forecast only last November.
The update "reflects the rapid deterioration in financial and economic conditions -- and the increasingly negative interaction between weakening economies and fragile financial systems -- that have come to the fore since late 2008 for virtually every country in the world," the 185-nation development lender said.
World Bank president Robert Zoellick said the recession was expected to trap 53 million more people in poverty this year, defined as subsistence living on less than 1.25 dollars a day.
"This comes after soaring food and fuel prices of recent years, which pushed 130 to 155 million people into extreme poverty, many of whom have still not recovered," Zoellick said in a speech in London.
Poor people in developing countries have little buffer to protect them against the effects of the crisis. "In London, Washington, and Paris people talk of bonuses or no bonuses. In parts of Africa, South Asia, and Latin America, the struggle is for food or no food," he said.
According to the latest GDP projections, high-income economies would shrink 2.9 percent this year, a notch more than the prior estimate of 2.8 percent.
The Washington-based bank projected trade volumes would drop a record 6.1 percent from 2008, led by a steep decline in manufactured goods trade.
A "modest" recovery in 2010 was possible but highly uncertain, the bank said."Continued banking problems or even new waves of tension in financial markets could lead to stagnation in global GDP or even to another year of decline in 2010."
-----
Reasons why most reports refers to this Global Crisis as being the worst since World War II, has much to do with, the last Great Depression started in 1929 and lasted into World War II. After WWII, economies went into a boom.
This global crisis may not develop into a Great Depression as communication and advance economical relationships of the world market have evolved in recent history, thus global efforts can help prevent the global economy from slipping into despair.
Monday, March 16, 2009
US Economy Recovery On The Way
US Federal Reserve Chairman Ben Bernanke predicted that America's worst recession in decades will likely end this year and recover would gather steam next year.
As Bernanke said the "green shoots" of economic revival were already evident. He further said that no more big banks will fail. The US banking system needs to be stabilised in order for an end of the recession, which he predict to be by end of this year while recovery should begain next year.
Tough regulatory reform is needed on the financial system and to avoid the risk of an institution becoming too big to fail. The banks now are being subjected to a "stress test" by Treasury Secretary Timothy Geithner and his team to ensure they have enough money put aside to ward off new crises, the Fed chairman noted.
The world's biggest economy may have cited they are out of the woods soon, but we have yet to hear much of the Worlds No 2 economy, Japan, and upcoming star, South Korea. We can only hope no bad news are dished out by both countries.
As Bernanke said the "green shoots" of economic revival were already evident. He further said that no more big banks will fail. The US banking system needs to be stabilised in order for an end of the recession, which he predict to be by end of this year while recovery should begain next year.
Tough regulatory reform is needed on the financial system and to avoid the risk of an institution becoming too big to fail. The banks now are being subjected to a "stress test" by Treasury Secretary Timothy Geithner and his team to ensure they have enough money put aside to ward off new crises, the Fed chairman noted.
The world's biggest economy may have cited they are out of the woods soon, but we have yet to hear much of the Worlds No 2 economy, Japan, and upcoming star, South Korea. We can only hope no bad news are dished out by both countries.
Monday, February 23, 2009
The US$787 Billion Stimulus Plan
The Stimulus Plan has been approved and US President Obama had signed the bill on 17 Feb 09.
How will the new stimulus bill of U$787 billion help turn the crisis around? By large, it is targeting to stimulate the economy by helping business restart their engines, banks to start lending, job creation and empower consumers with spending power.
A quick look at where the budget aims to help tackle the economical cancer tumor below.
1. Taxes
The recovery package has tax breaks for families that send a child to college, purchase a new car, buy a first home or make the ones they own more energy efficient.
By reducing taxes, people will have more disposable income, to slowly returning cashflow back to the economy.
2. Health insurance
Many workers who lose their health insurance when they lose their jobs will find it cheaper to keep that coverage while they look for work.
Such insurance are costly, often over $1,000 a month. The government will pick up 65% of the total cost of the premium for the first nine months.
3. Infrastructure
Highways repaved for the first time in decades. Century-old waterlines dug up and replaced with new pipes. Aging bridges, stressed under the weight of today's SUVs, reinforced with fresh steel and concrete.
These will help with job creation, which in turn stimulate the economy.
4. Energy
Homeowners looking to save energy, makers of solar panels and wind turbines and companies hoping to bring the electric grid into the computer age all stand to reap major benefits.
5. Schools
A main goal of education spending in the stimulus bill is to help keep teachers on the job.
6. National debt:
One thing about the president's $790 billion stimulus package is certain: It will jack up the federal debt. Whether or not it succeeds in producing jobs and taming the recession, tomorrow's taxpayers will end up footing the bill. The expected deficit will be $1.6 trillion (including $800 billion by the ex-president).
The US national debt — the sum of all annual budget deficits — stands at $10.7 trillion. Or about $36,000 for every man, woman and child in the U.S.
7. Environment
The package includes $9.2 billion for environmental projects at the Interior Department and the Environmental Protection Agency. The money would be used to shutter abandoned mines on public lands, to help local governments protect drinking water supplies, and to erect energy-efficient visitor centers at wildlife refuges and national parks.
The Interior Department estimates that its portion of the work would generate about 100,000 jobs over the next two years.
8. Police
The compromise bill doles out more than $3.7 billion for police programs, much of which is set aside for hiring new officers. There will also be budget to fund drug task forces, prisoner rehabilitation and after-school programs among others.
9. Higher Education
The maximum Pell Grant, which helps the lowest-income students attend college, would increase from $4,731 currently to $5,350 starting July 1 and $5,550 in 2010-2011. That would cover three-quarters of the average cost of a four-year college. An extra 800,000 students, or about 7 million, would now get Pell funding.
Other target areas in Education includes school building projects, tuition fees, computer expenses, research facilities, etc.
10. The Poor
More than 37 million Americans live in poverty, and the vast majority of them are in line for extra help under the giant stimulus package. Millions more could be kept from slipping into poverty by the economic lifeline.
Taken together, the various credits are expected to keep more than 2 million Americans from falling into poverty, including more than 800,000 children, according to the private Center on Budget and Policy Priorities.
(source : http://news.yahoo.com/s/ap/stimulus_stakes_who_gets_what)
A Good President Solves Problem. A Lousy President Creates Problems (goes to war and cause runaway inflation).
How will the new stimulus bill of U$787 billion help turn the crisis around? By large, it is targeting to stimulate the economy by helping business restart their engines, banks to start lending, job creation and empower consumers with spending power.
A quick look at where the budget aims to help tackle the economical cancer tumor below.
1. Taxes
The recovery package has tax breaks for families that send a child to college, purchase a new car, buy a first home or make the ones they own more energy efficient.
By reducing taxes, people will have more disposable income, to slowly returning cashflow back to the economy.
2. Health insurance
Many workers who lose their health insurance when they lose their jobs will find it cheaper to keep that coverage while they look for work.
Such insurance are costly, often over $1,000 a month. The government will pick up 65% of the total cost of the premium for the first nine months.
3. Infrastructure
Highways repaved for the first time in decades. Century-old waterlines dug up and replaced with new pipes. Aging bridges, stressed under the weight of today's SUVs, reinforced with fresh steel and concrete.
These will help with job creation, which in turn stimulate the economy.
4. Energy
Homeowners looking to save energy, makers of solar panels and wind turbines and companies hoping to bring the electric grid into the computer age all stand to reap major benefits.
5. Schools
A main goal of education spending in the stimulus bill is to help keep teachers on the job.
6. National debt:
One thing about the president's $790 billion stimulus package is certain: It will jack up the federal debt. Whether or not it succeeds in producing jobs and taming the recession, tomorrow's taxpayers will end up footing the bill. The expected deficit will be $1.6 trillion (including $800 billion by the ex-president).
The US national debt — the sum of all annual budget deficits — stands at $10.7 trillion. Or about $36,000 for every man, woman and child in the U.S.
7. Environment
The package includes $9.2 billion for environmental projects at the Interior Department and the Environmental Protection Agency. The money would be used to shutter abandoned mines on public lands, to help local governments protect drinking water supplies, and to erect energy-efficient visitor centers at wildlife refuges and national parks.
The Interior Department estimates that its portion of the work would generate about 100,000 jobs over the next two years.
8. Police
The compromise bill doles out more than $3.7 billion for police programs, much of which is set aside for hiring new officers. There will also be budget to fund drug task forces, prisoner rehabilitation and after-school programs among others.
9. Higher Education
The maximum Pell Grant, which helps the lowest-income students attend college, would increase from $4,731 currently to $5,350 starting July 1 and $5,550 in 2010-2011. That would cover three-quarters of the average cost of a four-year college. An extra 800,000 students, or about 7 million, would now get Pell funding.
Other target areas in Education includes school building projects, tuition fees, computer expenses, research facilities, etc.
10. The Poor
More than 37 million Americans live in poverty, and the vast majority of them are in line for extra help under the giant stimulus package. Millions more could be kept from slipping into poverty by the economic lifeline.
Taken together, the various credits are expected to keep more than 2 million Americans from falling into poverty, including more than 800,000 children, according to the private Center on Budget and Policy Priorities.
(source : http://news.yahoo.com/s/ap/stimulus_stakes_who_gets_what)
A Good President Solves Problem. A Lousy President Creates Problems (goes to war and cause runaway inflation).
Singapore Growth (GDP) Forecast
When the Ministry of Trade and Industry announced (on 21 Jan 09) the growth forecast for 2009 to be between -2% to -5%, I joked that "Wah, such a wide range of percentage, sure hit one. Anyone can also project that, it's idiot proof". With all those Elites working on their analysis, they come out with such vast ranging figures? It was indeed a big joke.
Now I'm wondering if I have to eat my words because the Prime Minister just dealt us with another knee jerking announcement.
"Our GDP growth is forecast to be between -2 and -5 percent. It could be worse if the global economy worsens, even lower than -5 percent is possible," Lee was quoted as saying at a government function on Sunday.
(source : http://sg.news.yahoo.com/rtrs/20090223/tap-singapore-economy-c3bb44c.html)
I also have a lot of doubts of the government's foresight these days. Where's the wisdom they used to brag? The economical problem the world is facing, was foreseeable. People were too complacent, too oblivious of the signs.
Now I'm wondering if I have to eat my words because the Prime Minister just dealt us with another knee jerking announcement.
"Our GDP growth is forecast to be between -2 and -5 percent. It could be worse if the global economy worsens, even lower than -5 percent is possible," Lee was quoted as saying at a government function on Sunday.
(source : http://sg.news.yahoo.com/rtrs/20090223/tap-singapore-economy-c3bb44c.html)
I also have a lot of doubts of the government's foresight these days. Where's the wisdom they used to brag? The economical problem the world is facing, was foreseeable. People were too complacent, too oblivious of the signs.
Sunday, February 15, 2009
World's Priciest Cities To Own A Home
It was reported recently, in Globalpropertyguide.com the top 10 cities to own a home. The report is based on apartments in the city-centre, with about 120sqm built-in area. This list was compute out of a total of 110 cities around the world.
Most Costly Cities
1. Monte Carlo, Monaco - average prices of $4,420 psf
2. Moscow, Russia - average prices of $1,937 psf (rental yield 4.61%)
3. London, UK - average prices of $1,928 psf (rental yield 4.12%)
4. Toyko, Japan - average prices of $1,672 psf (rental yield 4.86%)
5. Hong Kong - average prices of $1,498 psf (rental yield 3.73%)
6. New York, USA - average prices of $1,384 psf (rental yield 4.37%)
7. Paris, France - average prices of $1,126 psf (rental yield 4.26%)
8. Singapore - average prices of $901 psf (rental yield 3.97%)
9. Rome, Italy - average prices of $851 psf (rental yield 3.62%)
10. Mumbai, India - average prices of $851 psf (rental yield 4.21%)
High property price is usually associated to shortage of space.
On the opposite, the least expensive cities (it's so cheap I've to use 2 decimal points) based on the same property type above as follows:
Singapore is one the few countries in Asia with low rental yield. The list of top rental yields are (against property price/position) :
Before anyone jumps to conclusion that since rental yield is low for any selected country, it reflects that the property is over-valued and not worth buying, let is also look at mortgage rates.
How does Mortgage Interest Rate affect ROI? Interest is part of ownership cost. If interest rates are high, it will errode Rental Yield. Example
- Jarkata, Indonesia - Rental Yield 11.27%, Mortgage Interest Rate above 10% (heard up to 15%)
- Singapore - Rental Yield 3.97%, Mortgage Interest Rate 2.5% (SIBOR package)
Thus if the Mortgage Interest is higher than rental yield, there is barely any returns if we require loans to finance the property. All the rental yield will go towards interest payment.
The consolation is, with the recession, property price will continue to weaken. Property prices in Singapore has saw weakening since late 2008 and has continue erroding. At this rate, property price will soon be reasonably valued (not over-valued nor under-valued).
Note : All prices in US Dollars. PSF refers to Per Square Feet. SIBOR refers to Singapore Interbank Offered Rate (or Central Bank Rate).
Most Costly Cities
1. Monte Carlo, Monaco - average prices of $4,420 psf
2. Moscow, Russia - average prices of $1,937 psf (rental yield 4.61%)
3. London, UK - average prices of $1,928 psf (rental yield 4.12%)
4. Toyko, Japan - average prices of $1,672 psf (rental yield 4.86%)
5. Hong Kong - average prices of $1,498 psf (rental yield 3.73%)
6. New York, USA - average prices of $1,384 psf (rental yield 4.37%)
7. Paris, France - average prices of $1,126 psf (rental yield 4.26%)
8. Singapore - average prices of $901 psf (rental yield 3.97%)
9. Rome, Italy - average prices of $851 psf (rental yield 3.62%)
10. Mumbai, India - average prices of $851 psf (rental yield 4.21%)
High property price is usually associated to shortage of space.
On the opposite, the least expensive cities (it's so cheap I've to use 2 decimal points) based on the same property type above as follows:
Lease Costly Cities
1. Cairo, Egypt - average prices of $53.33 psf
2. Bangalore, India - average prices of $61.04 psf
3. Concepción, Chile - average prices of $62.15 psf
4. Quito, Ecuador - average prices of $76.18 psf
5. Chengdu, China - average prices of $92.81 psf
6. Managua, Nicaragua - average prices of $100.33 psf
7. Jakarta, Indonesia - average prices of $102.34 psf
8. Amman, Jordan - average prices of $106.84 psf
9. Lima, Peru - average prices of $107.21 psf
10. Santiago, Chile - average prices of $113.43 psf
However, high property price must be supported by high gross rental yields. Rental yield below 5% suggest that the property is overvalued. The historical average rental yield is between 5.5% to 8.0%.
Singapore is one the few countries in Asia with low rental yield. The list of top rental yields are (against property price/position) :
Highest Rental Yield
1. Chisinau, Moldova - 14.17% (100 placed, $122.26 psf)
2. Cairo, Egypt - 12.0% (112 placed, $53.33 psf)
3. Jakarta, Indonesia - 11.27% (106 placed, $102.34 psf)
4. Manila, Philippines - 10.99% (87 placed, $177.81 psf)
5. Skopje, Macedonia - 10.11% (101 placed, $121.05 psf)
6. Lima, Peru - 10.09% (104 placed, $107.21 psf)
7. Panama City, Panama - 9.98% (92 placed, $161.65 psf)
8. Amman, Jordan - 9.73% (105 placed, $106.84 psf)
9. Kuala Lumpur, Malaysia - 9.22% (99 placed, $125.14 psf)
10. Bogota, Colombia - 9.19% (98 placed, $130.25 psf)
Before anyone jumps to conclusion that since rental yield is low for any selected country, it reflects that the property is over-valued and not worth buying, let is also look at mortgage rates.
How does Mortgage Interest Rate affect ROI? Interest is part of ownership cost. If interest rates are high, it will errode Rental Yield. Example
- Jarkata, Indonesia - Rental Yield 11.27%, Mortgage Interest Rate above 10% (heard up to 15%)
- Singapore - Rental Yield 3.97%, Mortgage Interest Rate 2.5% (SIBOR package)
Thus if the Mortgage Interest is higher than rental yield, there is barely any returns if we require loans to finance the property. All the rental yield will go towards interest payment.
The consolation is, with the recession, property price will continue to weaken. Property prices in Singapore has saw weakening since late 2008 and has continue erroding. At this rate, property price will soon be reasonably valued (not over-valued nor under-valued).
Note : All prices in US Dollars. PSF refers to Per Square Feet. SIBOR refers to Singapore Interbank Offered Rate (or Central Bank Rate).
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