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.
Monday, January 16, 2012
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