What kind of ‘Year of Tiger’ will 2010 turn out to be? Will the TIGER roar or give out a cat’s ‘meow’? Will it be a Smiling Tiger, Toothless Tiger, or worst of all, a ‘Hello Kitty’?
| SCENARIO #1 – YEAR OF THE ROARING TIGER |
I have been told umpteen times in recent months that property prices will continue to go up because: ‘Singapore will have two casinos’. And many of them have reasoned that the two Integrated Resorts (IRs) will provide the sudden jolt to send property prices up another notch in Singapore.
The optimists believe we can throw all other factors out of the window for now – whether exports are rising or dropping, whether people are getting or losing jobs is not important.
In fact, I suspect such optimists comprise the vast majority of Singaporeans at this moment. It is little wonder that every other prospective property buyer is afraid that they might not be able to own their dream home.
To these optimists, the Tiger this year will be a symbol of awe and authority, and to them, the property market will continue to be a roaring seller’s market, regardless of what happens in the economy.
| SCENARIO #2 – YEAR OF THE WOUNDED TIGER |
But, for the optimists who think that the global financial tsunami is already behind them, they have failed to realise that while the developed economies may be the ones bearing the full brunt of the financial meltdown, small countries whose very survival depends on the purchasing powers of the richer nations cannot hope to be spared the aftermath of the meltdown.
It fact, all exporting countries in this world are caught in the intricate web of international trade and none of us can be insulated from the challenges faced by others in this long and tortuous road to full recovery.
For Singapore, the journey to a full recovery will likely be fraught with road bumps and challenges not unrelated to the dire situation in the United States and Europe.
Consequently, the Singapore government is right now running an unprecedented budget deficit to help alleviate the heavy burdens borne by the domestic exporters/employers with the massive $4.5 billion stimulus package.
But, the extension of the monetary incentives for another six months for the SPUR program and Jobs Credit Scheme, and for 12 months the Special Risk-Sharing Initiative, does little to quell the disquiet felt by the many who have been made redundant and are still without a job. How will the economy, which underpins the fundamental value of real estate, look like when the government’s generosity ends in July 2010? Will the disgruntles shift from the prospective home buyers to the home owners?
It seems the world has entered 2010 with a huge old excess baggage that has already delayed the economic take-offs.
Singapore economy shed 2.1% in a lean 2009
The GDP figure for the final quarter of 2009 might have lifted morale a little, but it certainly did not overturn the grim reality. The verdict is now out: Singapore economy shrank by 2.1% for the whole of last year. The figure seems mild but the implications are grave because we did fewer businesses in 2009 than a year ago which was also a recession year.
Singapore port and shipping business badly bruised in 2009
Other market indicators also did not bode well, starting with shipping – the lifeblood of international trade. According to Singapore Shipping Association (SSA), shipping rates were slashed desperately in response to the shocks caused by the drastic drop in demand for shipping services and the drying-up of letters of credit in 2009. On average, container volumes are believed to have dropped 20% to 30% on the main trades during 2009.
The Port of Singapore ended last year with overall throughput of between 25.5 million and 25.7 million twenty-foot equivalent units (TEUs) - about 15% down from 2008. This means that all the growth the port achieved in the bull-run year of 2007 was completely reversed.
One of the largest shipping lines, Maersk Line Asia-Pacific, suffered a half-year loss in 2009 which was its first loss in a century. In other words, shipping business had never been this bad before.
| SCENARIO #3 – YEAR OF THE TOOTHLESS TIGER |
US President Obama’s popularity has fallen sharply after only one year in the White House. His party has just lost by almost three to one the Senate seat in Massachusetts that the Democrats had held since 1953. Earlier, President Obama also lost two governors – one in New Jersey and the other in Virginia. Cumulatively, the successive defects were resounding as they were embarrassing.
And at this critical moment while the world needs a strong leader to rescue it from the worst economic recession, the man who is supposed to be wearing the biggest pair of shoes (it looks like a size 10) is fighting to retain his own supporters who are quitting his Facebook as quickly as they had joined it earlier.
And the economic restructuring works have barely begun.
President Obama now has no choice but to shift his policy stance towards the centre where he will be seen spanking the greedy investment bankers and top Wall Street executives to avoid antagonising more of his own main street supporters.
US appears to have lost its superpower swagger
And, on the world stage, much as we hate to admit, Uncle Sam appears to have lost a lot of his teeth.
As the largest debtor nation in the world, the US now needs to deal the right card with its opposite number, China – the largest creditor nation to the US. The Chinese are wasting no time in flaunting its new found influence and it has been seen throwing its weight around on a few high-profile occasions, for example, it sent a relatively junior official to meet President Obama in the recently concluded Copenhagen summit on climate changes.
Unfortunately, at this moment, China is far from being a suitable substitute to take over the global leadership position from the US; nor is China able to replace the US as the largest importer of consumer goods from the rest of the developing countries.
Quite the contrary, China is facing problems of a mammoth scale on its own and needs other major powers including the US and EU to continue to absorb its millions of ‘made in China’ products. In other words, neither China nor the US is able to offer much help to unravel the current financial mess.
The world economy is still in serious trouble and none of the major players have enough teeth to ensure consensus – a pre-requisite to identify the cause of the problems, let alone solving them.
As such, this year may turn out to be a year of the toothless tiger.
Nobody can lend you the money now
At this moment, many unknown factors are still lurking around every corner of the globe and nobody can be 100% sure that no other developed countries would suddenly ‘drop a bomb’ – so to speak - before going down the same slippery lane as Greece and Spain. Quite the contrary, everyone seems to be sure that more ‘bombs’ will go off in 2010 than last year – both factually and figuratively speaking.
It may well start with Singapore where a ‘time-bomb’ is ticking at the new home market where more than 10,000 quality condominium units will be ready for occupancy from this year onwards.
| SCENARIO #4 – YEAR OF THE SMILING TIGER |
Will the property sector in Singapore see a smiling tiger this year?
Should property buyers rush in before the official opening of the highly-hyped Integrated Resorts (IRs) or should the buyers wait for a little longer for better bargains?
To answer these questions, one has to be very certain of the economic fundamentals behind any country’s prosperity that underpins real estate value.
Will wage earners be smiling in 2010?
The symptom of the weak export and convalescent economy also shows up in the wages Singaporeans are getting from their bosses. It seems that 2010 may be a year of minimal wage growth, if at all.
This is because a Singapore Manpower Ministry survey published on 1 December 2009 showed that the median monthly income of full-time workers in Singapore had gone up only by $10 in one year to $2,600 in June 2009. This works out to a mere 0.5% rise.
The median income of all employed residents – Singaporeans and Permanent Residents – fell 1.2% from 2008 to $2,420 in June 2009. This is rather unusual because wage increases seemed to be a norm in Singapore. For example, even in the worst of years, wages still went up by 11% in 2008 and 7.7% in 2007 – but not in 2009.
The employment rate for prime working-age men (aged 25 to 54) has fallen in second straight year to 91.6%. It was lower than the 93% employment rate in 2008.
How much wages will go up in dollar term this year remains a mystery. And the political leadership is laying the ground for workers to subscribe to the notion of productivity, rather than growth. And the difference between the two notions is that with productivity, one has to produce better results with the same wage; while the ‘growth’ simply refers to bigger numbers.
| SCENARIO #5 – YEAR OF THE CAPTIVE TIGER |
The thermometer of the economic health is commercial and industrial rentals which together tell you whether sufficient production and business activities are creating sufficient legal wealth for the country. When rental prices for factory, warehouses, offices and shops come down, it can only mean there is lower demand than there is supply; or there is more empty space than there are users.
Simply put, there have not been enough wealth creation activities going on right now e.g. in factory production or office activities.
Office rents have fallen 53.4% from their peak in Q3 2008 to Q3 2009; and from Q3 to Q4 2009 office rents fell another 7.8%.
URA data released on 21 January 2010 showed that median rentals for office space in Downtown Core areas fell from $13.14 psf per month in Q4 2008 to $8.76 psf/pm in Q4 2009. That was a 33.33% fall.
Office vacancy rate has jumped in the same periods from 4.6% in Q4 2008 to 12.3% in Q4 2009; while occupancy cost - rent plus local taxes and service charges - is now US$63.89 (S$88.25) psf a year, down 23% from six months ago. That is down more than half from US$135.13 psf a year ago.
Overall, a net 223,397 sq ft of Grade A space was left unoccupied in the first nine months of this year, taking into account new space. And with more supply materialising, it will mean higher vacancy rate and more competitive rents.
And at this moment, commercial landlords are suffering from double vision.
| SCENARIO #6 – YEAR OF THE ‘HELLO KITTY!’ |
With the high profile absence of major investment banks from the United States and Europe as well as the Middle Eastern fund companies now appearing anaemic collective sale may turn out to be the ‘hello Kitty!’ in the year of the tiger.
With many redevelopment sites being left idle after the collective sale buyers have taken vacant possession, there is no real urgency for any developers to pay the king’s ransom for any sites right now.
Moreover, with President Obama whacking the investment banks back in the US, there won’t be any cowboy investment bankers shooting from the hip and pay wild prices for any en bloc site.
In fact, there multiple fold-ups of investment banks in the US have resulted in only one major investment deal in the residential segment in 2009 which was the $100.8 million collective sale of Dragon Mansion.
Background: more than a quarter of the 200-odd collective sales that were struck between 2006 and 2007 were funded by investment banks including Lehman Brothers, Wachovia, Morgan Stanley etc which are already history.
Two weeks ago, after losing another Senate seat, President Barack Obama proposed to reform the US financial sector by slicing the banking business away from proprietary stock trading, hedge funds and private equity
This may mean that US banks no longer be able to act like giant casinos, placing big bets on financial markets and should stick to good old-fashioned banking.
In other words, there may still be collective sales going on but not at the crazy level that we saw in 2007.
INFLATION – A MENACING TIGER ON THE LOOSE – A CHINESE EXPRESSION
Will there be high inflation this year?
Well, the economists from the United Nation (UN) and the HSBC research team certainly thought so.
In its paper released in mid-December last year, the HSBC team of economists stated that inflation in Singapore could hit a high of 4% in the first half of 2010 due to the surge in property prices which saw few signs of abating with a sustained environment of low interest rate and relatively low debt-to-income ratio of most Singaporean households.
The main determining factor of domestic inflation in Singapore is the prices of HDB flats which account for more than 85% of the residential properties.
Plus the fact that the price gap between HDB flats and private homes is close to the narrowest it has been since the 1990s, home buying activities appear to be well supported by good economic logic for many people.
According to the same mid-December 2009 HSBC paper, a 1% rise in private home prices leads to a 0.03% rise in consumer price inflation; while the same increase in HDB flat prices adds 0.13% to inflation. For example, with the recent revision in *Annual Values for HDB flats, the official estimate for inflation is between 2.5% and 3.5% for 2010 – up from the previous estimate of 1% to 2%.
*Annual value is the estimated rent a property can fetch if it were rented out. Every property has an AV regardless of whether it is an owner-occupied homes or other type of properties.
Inflation was described as a menacing Tiger by Mr Chiang Ching Kuo, former President of the Republic of China (Taiwan) when he was the Finance Minister in the old capital Nanking. Mr Chiang labelled the campaign to tame the hyper-inflation ‘Arresting the Tiger’.
Note: Chiang Ching Kuo’s father was Chiang Kai Shek.
The Dubai World debacle may repeat in Singapore
A top United Nations (UN) economist had on 1 December 2009 warned that asset bubbles may have re-appeared in Asia, citing Dubai as an example of how the financial crisis had not been solved.
In fact, according to the Monetary Authority of Singapore (MAS) the only loans that grew last year were consumer loans which were primarily driven by home loans. Loans to other businesses slumped 7.7% over a year in 2009.
In short, the banks may be lending too little to the business but too much to home buyers.
Such a phenomenon in Singapore is consistent with the worldwide trend where governments of developed economies, e.g. the US, UK, Japan, China, are making massive capital infusion to prevent deflation.
Such short term infusion of loose cash may have flown into Asia. And the money might quickly flow out again when the easy money policies are eventually reversed. And once the liquidity is withdrawn a situation similar to Dubai may reappear in other Asian countries.
If the economists from the UN and HSBC are both correct, there will be a menacing tiger on the loose in 2010. And the man-in-the-street will definitely not be smiling.
| SCENARIO #7 – YEAR OF THE CROUCHING TIGER |
In the final analysis, I believe 2010 will be a year of the ‘Crouching’ tiger where every one of us will have to go back to ‘basic fundamentals’ and start strengthening our base again.
Why is it a year of the ‘Crouching’ tiger?
This is because to crouch means to bend low with the limbs pulled up close together, especially (of an animal) in readiness to pounce. See picture of an athlete crouching.
A tiger crouches when it is taking aim at a prey – WAITING to pounce. How long it will crouch depends on its determination, strength of the limbs, and how hungry it is.
In 2010, there will be plenty of business opportunities both in the new home segment and HDB resale segment. But the opportunities will be hidden rather than displayed openly, hence the analogy ‘crouching tiger’.
And to crouch is to have good leg muscles.
A CROUCHING TIGER in business is someone with huge potential and will one day take the market by storm.
Property sellers at large will insist on high price and prefer to WAIT for the good time to materialise. Whether the good time will arrive at all and if it does, how long will it last begs an elusive answer. In the meantime, those without deep fundamental knowledge and skills in real estate brokerage will not be able to unlock the tremendous market potential.
Go back to basic
Taking together all the above factors, one can see property prices going sideways over the medium term of three to six months with no factors substantial enough to elevate the economy to the next height.
Hence I reckon what awaits us is a stagnant property market with unsustainable asking prices and gradually escalating risks. In other words, it is time for property seller to SELL whatever they do not intend to keep over a long term.
So what should real estate agents do in this year of the crouching tiger?
I suggest going back to ‘basics’ of sowing the seeds, farming, cultivating, following-up and harvesting.
Fast closing is the golden key to success.
