Official: Singapore property bubble burst

RPI

It is official: Singapore property bubble has burst.

According to the Singapore Real Estate Exchange, 3 out of 10 HDB flats are sold below valuation price. 8 areas particularly affected are Bishan, Geylang, Jurong West, Punggol, Sengkang, Sembawang, Woodlands and Yishun. This news signal the beginning of the property bubble burst which have seen the resale price index hitting 200 in 4Q 2012 [Source]. The current resale price index registered 2 consecutive quarters of falling, with the third fall expected in 1Q 2014.

This fall is in sync with Forbes financial columnist Jesse Colombo who recently published a technical analysis predicting that Singapore is heading for a financial crisis like Iceland [Source]. The PAP, through the Monetary Authority of Singapore, however refuted the renowned financial analyst who rose to fame for correctly predicting the 2008 global financial meltdown, to which Jesse published a follow-up article accusing the PAP government of being in denial mode [Source].

Given that more than 25% of the mortgage loan in Singapore is based on floating interest rate [Source] – a loan scheme which guarantees interests as low as 1.8% or way below HDB concessionary loaning rate for 2 or 3 years, after which the homeowner will need to get a new loan package called “refinancing”. The question lies with what happens when these private banks started raising loan interest rates.

When mortgage interest rate is going to increase, we will start to see more people starting to sell off their house in a bid to downgrade. Housing prices will plunge further to the point where we see some homeowners servicing a mortgage loan that is below valuation price i.e. a $300K mortgage loan on a house worth only $250K. When that disparity happens, we will start to see more people defaulting on their home loans. In 2008, the HDB announced there were 33,000 homeowners or 8% defaulting on HDB loans when the resale price index was only around 139, way much more affordable than today’s resale price index of 201. As the PAP do not want to declare the number of HDB loans on default today, the default rate is definitely much higher given that prices are more expensive today. With an increasing default rate, there will be more foreclosures and direct sales made by banks.

However, owning a number of properties recovered from foreclosures is useless to banks. These are mere paper value, albeit a depreciating one, and they will be short on cash. Singapore local banks will start to see diminishing profits as the paper value of these properties see lower valuation. It will only a matter of time these diminishing profits turn into losses. And there we go: a full blown financial crisis.

Gone are the days of cheap credit. Brace yourself, the shit has only started to hit the fan.

2011 survey results – Nothing has changed since then

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Top 5 Singaporean grievances in 2011 survey:

1) Influx of foreigners
As the PAP government loosened immigration policies, foreigner population increased to 36% of the 5.1 million in 2011 from 20% of the 4 million population in 2001. The influx have caused congestion, overcrowding and the shortage of jobs and housing.

2) Cost of living
Inflation rate went past 5% in 2011 and the consumer price index continued to soar consistently every year despite the savings in salaries from the lack of Minimum Wage and the strengthening of currency.

3) Widening income gap
In 2010, Singapore’s GDP growth hit 14.5%. However low income earners and the poor have not benefited from the economic growth. Real salaries of the bottom 10 percentile income earners continue to stagnate at USD$1400/mth in 2011 after factoring inflation. On the other hand, the salaries of the top 10 percentile income earners soared faster than inflation rate drawing USD$23,684/mth in 2011.

4) Unaffordable HDB flats
Despite boasting a 87% home ownership rate, Singaporean young are not able to afford a public housing. This is largely due to PAP’s immigration policies which have seen a record 20,000 new citizenship and an undisclosed amount of Permanent Residency given out to foreigners each year. Most PRs and new citizens were formerly rich foreigners who came to Singapore to take advantage of the tax haven status that gives generous tax rebates and low income tax to rich individuals in Singapore. The Opposition Worker’s Party have proposed for a 20 year mortgage loan instead of the current 30 year mortgage loan period.

5) Authoritarianism of the PAP government
There is only one media company in Singapore, the SPH, and the accuracy and independence of Singapore mainstream media remains one of the most biased news agencies in the world, scoring 149th place in terms of press freedom during 2013. Just in 2013 too, popular satirist Leslie Chew made headlines when he was arrested for fabricating cartoons that embarrassed the PAP leaders. Over the past few years, there have also been letters of demand and defamation threats issued by the PAP leaders to former Opposition members and writers of socio-political sites. Democratically speaking, Singapore remains a hybrid regime with electoral rules unheard of in other democratic countries like cooling off day, Group Representation Constituencies system and having the Election Commission under the direct charge of the PAP Prime Minister who is an election candidate himself.

Fast forward 3 years later today in 2014, the above 5 concerns of Singaporeans remain valid, if not, more urgent than ever. The PAP government have instead grown more aggressive in their push for propagandas, tendency to sue, intake of foreigners (current population stands at 5.5 million) and the relentless pursuit of GDP growth through the latest billion dollar retail mall, Project Jewel. Despite having performed the worst result in GE2011, the PAP remains unfazed with PAP Minister Lim Swee Say calling his government to ignore the vocal minority and focus on the silent majority. PAP MP Baey Yam Keng have also recently claimed that his party has scored a 6 out of 10 [Source] and did not response to widespread criticisms of his party’s unpopular policies and the strewn of unprecedented breakdowns in infrastructures like the train network and shortage of hospital beds. The PR director claimed that PAP just need to work more on its relations with the people and that the PAP is largely misunderstood.

The PAP government has also been reluctant in addressing the issue of widening income gap claiming that taxing the rich will drive away businesses and foreign investments. As such, there is no Minimum Wage and the middle class who earns more than $2000 a month are denied employment protection from the Ministry of Manpower. Singaporeans continue to see wages depressed by cheap foreign labor taking up both middle and low income jobs, of which the PAP and mainstream media likes to claim that Singaporeans are picky and having unrealistic expectations. Salaries of the low income earners continue to stagnate as it has been for the past decade under Prime Minister Lee Hsien Loong.

Statistically, it is unlikely Singaporeans will be able to vote out the PAP government because of the steady stream of at least 20,000 new citizens converted into Singaporeans each year. Almost all of the new citizens are supporters of the PAP because their choice of residency is testimonial enough. New citizens do not have to serve National Service so long they are older than 18 years old, while Singaporeans have to serve NS until the age of 45. NS is largely seen as a burden to Singaporeans because of its lengthy yearly commitment in terms of in-camp trainings and mandatory physical trainings. PAP MP Lim Wee Kiak however claimed that serving NS is a privilege for Singaporeans and that foreigners do not get to enjoy such privilege. The lawyer’s twisted reasoning however do not gel well with readers of unregulated socio-political sites like The Real Singapore. But except for the occasional little storms made at the TRS Facebook, there are little reactions from the general populace who are largely ignorant and apathetic to current affairs.