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30/04/2007
Singapore - Island sits in an ocean of economic turbulence
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Recommended by an anonymous emailer who I would like to thank for drawing my attention to the article. It is from the Sydney Morning Herald on the April 30, 2007.
Eric Ellis looks for explanations for Singapore's booming property market.
SINGAPORE'S property market is roaring. And why I know that is because the lease on our apartment will soon expire and our landlady wants 70 per cent more rent than she did in 2004.
No matter that the place leaks like a Canberra cabinet and that its 1970s-wired electricity trips at least once a week: these are details too far for our poco-curante proprietrix. But she has noticed that a private banker from Tokyo has signed, sight unseen, for a same-sized unimproved flat downstairs at 150 per cent more than the vacating lessee paid, and she reckons we are getting a bargain for $6000 a month.
It's all very puzzling as there's no textbook rationale to the sudden real estate boom here. The economy's growing at an unremarkable-for-Asia 6 per cent, much the same as it has for years, save the difficult "Asian Contagion" period of the late 1990s. There's no more government pump-priming than usual, none of the official withholding of land to get prices artificially moving that's much loved in Singapore's rival for city-state hothouse, Hong Kong. And though wealthy enough, with just 4.5 million people Singapore is still 2.4 billion consumers short of being "Chindia", Asia's neologism du jour.
From Sotheby's to shares, Singapore has no shortage of places to park cash. But new luxury apartment blocks are sprouting among the frangipani, touting all manner of metropolitan arcadia - infinity pools, gyms, private clubs. They sport funky names such as Trillium and Botanika, fashioned on hoardings in designer fonts usually seen in Wallpaper magazine. My favourite promises that the elysian towers rising behind it will be "Home to 46 of the Most Luminous Families" - which will presumably take care of electricity bills, also on the rise.
The reasons why it's suddenly salad days for Singapore developers seem to reside in neighbouring Indonesia, a country rated by the graft watchdog Transparency International at 130th of the 163 nations it tracks in its annual corruption survey. TI's first place, ie, the world's least corrupt place, is occupied by Finland, Iceland and New Zealand. Australia ranks joint ninth with The Netherlands.
Jakarta's dubious tycoons and officials have long regarded Singapore as the region's Switzerland - a handy place to stash cash, few questions asked. Mostly Chinese Singapore has also been a friendly place for Indonesia's own ethnic Chinese community to park cash and assets, lest they be seized in the periodic pogroms visited on them in the all-too-frequent times of turmoil in Indonesia. A Merrill Lynch study last year noted that a third of Singapore's 55,000 millionaires were Indonesian nationals. They control $US87 billion ($105 billion) in assets, making Singapore an affluent northern suburb of Jakarta. Which helps explain why I've got a private banker for a neighbour.
Some analysts here who know Indonesia well (read: had their fingers burnt there) point to the coincidence that Singapore's boom follows the Boxing Day tsunami of 2004. The worst of that calamity was experienced just an island away from Singapore in Aceh. After the waters came another tsunami, of aid and donations, your money. But the aid effort has been plagued by massive corruption.
Indonesia's President Susilo Bambang Yudhoyono landslid to office in 2004 on a ticket to clean up graft in his sprawling archipelago. He suspects that too much of Indonesia's wealth is secreted away in Singapore and wants to winkle miscreants - and their money - back to justice in Jakarta. Brussels too wants Singapore to co-operate with its efforts to crack down on tax shelters. But the boom in private banking has been a nice little earner for Singapore and it's all very tricky for a regional financial centre ranked an impressive 5th on the TI index and which trades off a global reputation for transparency, good governance and intolerance of corruption.
Andy Xie attended last year's World Bank summit in the city-state as Morgan Stanley's oft-quoted chief Asia economist. In a bank email, he wrote that he found it an odd location for such an important meeting. "Singapore was so far from any action or the hot topic of China and India," Xie wrote. "Mumbai or Shanghai would have been a lot more appropriate. ASEAN has been a failure. Its GDP in nominal dollar terms has not changed for 10 years. Singapore's per capita income has not changed either at $25,000. China's GDP in dollar terms has tripled during the same period."
Singapore's success, Xie claimed, "came mainly from being the money laundering centre for corrupt Indonesian businessmen and government officials. Indonesia has no money. So Singapore isn't doing well. To sustain its economy, Singapore is building casinos to attract corrupt money from China." Singapore authorities were not pleased. Xie left Morgan Stanley soon after his email was leaked to the press.
Jakarta has been at Singapore for years to sign an extradition treaty. Indonesia, a poor country but by dint of its size and population the regional superpower, has gently reminded Singapore who is boss in South-East Asia by banning sand exports from neighbouring Indonesian islands to Singapore, depriving it of an essential building material for all those new towers to be developed and populated by Indonesian tycoons. This week Singapore acquiesced.
The junta in Burma helpfully offered to step into Jakarta's shoes and supply Singapore's sand. But with such fractious and - the truth that dare not speak its name in Singaporean diplomacy - mostly Muslim neighbours like Malaysia and Indonesia, sometimes Singapore's leaders seem to want nothing more than to attach tugboats to their mostly Chinese-inhabited dot and tow it northwards, anchoring somewhere off the coast of China equidistant from Japan, Taiwan and South Korea, where Asia's economic action really is.
Take tetchy Thailand. Last year Singapore Inc, in the form of the government investment agency Temasek, bought the then Thai Prime Minister Thaksin Shinawatra out of his family's telecom-to-TV conglomerate Shin Corp. The $US4 billion deal, the biggest in Thai history, was also the biggest done while Madame Ho Ching has run Temasek. She happens to be the wife of Singapore's Prime Minister Lee Hsien Loong, himself the first son of Singapore's elder statesman Lee Kuan Yew, the man who undiplomatically dubbed Australians Asia's "white trash".
The Shin transaction was anything but transparent. Thaksin and his family didn't pay any tax and there were mysterious nominee companies entangled in the deal. Outraged Thais hit the streets in protest. Temasek's deal-making suddenly plunged Singapore's ASEAN neighbour into turmoil and, by last September, Thaskin was toppled in a bloodless military coup.
Shin has been a major misjudgment for Temasek, a $US80 billion enterprise that frequently compliments itself on its investment perspicacity. It ultimately controls major assets around the region, such as Optus in Australia. A year later, Shin is worth about half what Temasek paid and many Singaporeans, the ultimate owners of Temasek, are outraged. Last month things got worse when the Thai junta seized a Shin-owned TV station in lieu of an unpaid $3 billion fine.
Yet more instability. What an area to do business.
Eric Ellis is South-East Asia correspondent of Fortune magazine.
09:10 Permalink | Comments (9) | Email this | Tags: Singapore, Market, Indonesia, Thailand, Burma, Temasek
Comments
Whilst Temasek and the raft of GLCs are market players, no one group can dominate the ENTIRE market — i.e. there is still virtually infinite opportunity for the opportunity and profit seeking privateer, rugged individualist entrepreneur and greedy capitalist pig.
Why have property prices jumped? If you look at the RATE the money supply as grown — 20%!! in the last year, that should give you some clue. http://www.singstat.gov.sg/Keystats/annual/indicators.html
Actually the report in the smh is a bit late. People were already paying astronomical amounts for OPTIONS to buy property (off the plan) i.e. to "ensure a place at the front of the queue" more than a year ago. People were trading their options back then, because the mere "idea" of owning the specific properties had value in them — and the concrete hadn't even been poured yet.
MAS, Singapore's "defacto" central bank (who are secretive about their operations) *usually* constrains the annual growth of the money supply to about 3%, which is close to the amount the money supply would increase under a GOLD STANDARD, for example, thus keeping inflation LOW and preserving the PURCHASING POWER of the currency.
But from personal experience, I have noticed a general across the board increase in prices over the last year or so. I seem to be paying more for everything, thus every dollar I earn buys LESS.
20% increase in the money supply is, IMO a real economic danger (danger for some, opportunity in waiting for others). Property is probably the scarcest resource in a tiny place like S'pore, so when there's more money than usual sloshing around, it'll tend to end up in real estate (or the stock market) and bid up prices.
God Bless The Speculators! They do humanity a service by bringing some action to the market!
Posted by: Matilah_Singapura | 01/05/2007
The economy today is like the bubble of the Japanese economy in the 80s. The Japanese have still not come out of that recession.
The property market is like what it was pre-1996, before the govt imposed the capital gains tax.
Who really benefits from the over-priced properties ?
I personally know of expats and some companies who are now thinking of re-locating elsewhere. They plan to cut down on the manpower to reduce the need for too much office space.
Posted by: Citizen | 01/05/2007
The spiralling rise in housing is due to the removal of the 'capital gains tax' that was applicable if the owner sells his property within 3 years of his purchase. This tax is on a graduating scale. Less tax for properties sold later. No tax for properties if sold after 3 years.
This was imposed in 1996 to prevent excessing speculation.
Who benefits: banks, developers, speculators, etc...
Who suffers as they will ultimately have to bear the brunt of these exorbitant housing prices ? The common man
What are the other effects: Not much left in their retirement account (CPF) as most of it will be used to pay for the speculative element of the price hike of houses; leaving much less for their medical expenses and retirement needs.
Posted by: robert | 04/05/2007
robert: You are assuming that all speculators will make money ALL the time. This is not the case. We have seen in history, wild speculation bids up prices of real estate (due to economic causes of credit creation and money supply inflation) only to crash to rock bottom later on.
This benefits the "common man" for he is able to pick up real estate at under-valued prices because speculators and (hopefully) some of the naughty banks which supported them have gone bust.
A steady rise in the price of real estate in a place like Singapore is inevitable because land is in fixed supply and the demand for land increases as the population and economic activity grows. However wild swings in the prices of real estate are due mainly to money supply and loose credit causes.
As I've mentioned before, S'pore's money supply has increased by 20% in the last year, so we could be seeing the beginning of a credit-fueled boom — which eventually has to "correct".
As long as you have big state intervention in the market, you are going to get cycles and wild swings.
CPF is a TAX. Anyone who believes in the ILLUSION that it is some kind of "retirement fund" or "social insurance" is welcome to the consequences of holding such an illusion.
Everyone is entitled to be WRONG :)
Posted by: Matilah_Singapura | 06/05/2007
You are right, Matilah-Singapura.
A number of speculators in the mid-90s got themselves burnt once the capital tax was imposed in 1996. Many others benefited as they got out in time.
Unfortunately, the damage had already been done as many genuine buyers at that time were left to pay very high home prices (mainly brought about by speculators). The buzz word in the 90s was 'asset enhancement' or 'asset inflation', basically meaning raising property prices without any rationale.
Yes, I agree about the money supply increase.
( ONE of the reasons is that --- a lot of the money came from overseas as we strive to be the Switzerland of the East, with RELATIVELY less controls on money laundering compared to even Switzerland, who had to tighten anti-money laundering due to pressure from EU over the last few years).
There are numerous reports of laundered money reaching our shores, in spite of our checks, as reported in the world press and other international agencies (eg Merryl Lynch); etc.
So, it is obvious where the money will go TO from Switzerland,etc....?
The main report above mentioned that about 1/3 of the
55, 000 Millionaires are from Indonesia. These facts are from no other than Merryl Lynch.
The crux of my reasoning for the high costs of property is that the capital gains tax was removed recently, encouraging again the speculators to come back to the market.
Hence the frustration of a typical Singaporean or the PR.
Otherwise, as the main report mentioned, that there is 'no textbook rationale for the current boom.'
And as you explained too these large swings are due to state intervention. :-)
Posted by: robert | 06/05/2007
You are right, Matilah-Singapura.
A number of speculators in the mid-90s got themselves burnt once the capital tax was imposed in 1996. Many others benefited as they got out in time.
Unfortunately, the damage had already been done as many genuine buyers at that time were left to pay very high home prices (mainly brought about by speculators). The buzz word in the 90s was 'asset enhancement' or 'asset inflation', basically meaning raising property prices without any rationale.
Yes, I agree about the money supply increase.
( ONE of the reasons is that --- a lot of the money came from overseas as we strive to be the Switzerland of the East, with RELATIVELY less controls on money laundering compared to even Switzerland, who had to tighten anti-money laundering due to pressure from EU over the last few years).
There are numerous reports of laundered money reaching our shores, in spite of our checks, as reported in the world press and other international agencies (eg Merryl Lynch); etc.
So, it is obvious where the money will go TO from Switzerland,etc....?
The main report above mentioned that about 1/3 of the
55, 000 Millionaires are from Indonesia. These facts are from no other than Merryl Lynch.
The crux of my reasoning for the high costs of property is that the capital gains tax was removed recently, encouraging again the speculators to come back to the market.
Hence the frustration of a typical Singaporean or the PR.
Otherwise, as the main report mentioned, that there is 'no textbook rationale for the current boom.'
And as you explained too these large swings are due to state intervention. :-)
Posted by: robert | 06/05/2007
robert: I take issue with the term "genuine buyer". Who is to say that a speculator is not a "genuine buyer"? In fact, buying any asset *is* to some degree a speculation — no one would buy an asset hoping that it will DECREASE in value.
Before a speculator can bid up the prices of assets, he has to get his money from somewhere. Perhaps he uses his own. But that would be limited to varying degrees. But if the BANKS get greedy they can always create "credit money" by lending out other peoples money. Banks are a CARTEL, protected by the state. There are HUGE barriers for entry (no free market here) to any "newcomers" who would bring competition into the loan market. If you don't believe me, just try to start lending out money in your neighbourhood— you will find the cops paying you a visit very soon :-)
If you look at the profit announcements from the banks in todays papers, you will conclude that they've indeed been "busy" and "productive" — (which means they are lending out money like nobody's business). Land and real estate being extremely SCARCE goods in this island are bound to look "attractive" to those with "good relationships" with their friendly, smiling bankers.
Notice too that it is the "top end" of the market which has experienced the most spectacular rises. $4000 per sq foot is not far away. Of course tends to lift the prices of the low and middle ends too. But I don't hear too many owners of property complaining. It is only those who don't own property who tend to make the noises.
Switzerland in fact, has consistently held to keeping its currency as solid as possible (Sound Money Principle) i.e. preserving the PURCHASING POWER of the currency, and are very wary of inflating their money supply. Singapore, which is — whether you support the govt or not — a reasonably well-run (with room for improvement — removal of govt interference) financial center has been "well behaved" in keeping the rate of money supply growth to low single digits.
In the year 2003 for example, Singapore's money supply increased by 0.3%, scoring 9.9 out of a maximum 10 in the index of "Access to Sound Money" in the "Economic Freedom of the World: 2005 Annual Report" — see "6. Chapter 3 - Country Data Tables (Alphabetically) Latvia - Zimbabwe(pdf 525KB)" and look for "Singapore", Access to Sound money.
This accords well with LKY's claim of "preserving the purchasing power of the Singapore Dollar". Inflation of the currency is an "invisible tax" as it ROBS purchasing power especially from those who are on wages or fixed incomes. For e.g. your kopi-o increases by 10¢ but your wage stay the same, in other words your dollar buys less through no fault of your own.
Singapore, along with many other countries, have an influx of foreign capital. However, that in itself does not increase the money supply of the country — unless of course the banks get naughty and use their fractional reserve mechanism and create "credit money" out of those deposits (and very few banks can resist the temptation as banks make lots of money lending out other people's money).
So IMO "rationale" for the increase of (top end) real estate is the increase in the money supply and the increase in "credit money" created by our bankers.
Singapore, despite its faults on the political front, and curtailment of certain individual liberties which are more "annoying" than a full-frontal assault on freedom, remains in second place when rated fro economic freedom.
http://www.heritage.org/research/features/index/country.cfm?ID=Singapore
Top spot goes once again to Hong Kong,
http://www.heritage.org/research/features/index/topten.cfm
...and you will see from the Heritage Foundation's report itself that the Singapore financial system is too bogged down by government intervention, tinkering and regulation. (look under "Financial Freedom")
BTW, IMO whether the govt makes it "policy" or not, s'pore will realise its 6-7 million population. Why? Because HK is already "at the limit". Where are freedom loving capitalists to go? Singapore, of course — ok, they will have to put up with the annoyances of the Singapore govt with its censorship, homophobia, belligerence toward dissent and criticism, but so what... ALL freedom begins with economic freedom and the protection of PRIVATE PROPERTY RIGHTS under as Rule of Law.
One look at Indonesia, and the comments on protection of property rights, and one can understand WHY wealthy Indonesians come to Singapore to protect their wealth.
http://www.heritage.org/research/features/index/country.cfm?id=Indonesia
I think it is SHAMEFUL to broad brush the Indonesians who stash their cash in S'pore as "corrupt". The determination of criminality is a matter of justice, not public opinion. If Indonesia's justice system is somewhat "flawed", that is a problem for them to fix.
Posted by: Matilah_Singapura | 09/05/2007
What happened to the website 'escapetoparadise.com'? It used to be a website where the true facts of Singapore seen from the perspective of the common man was shown (Because you never get to read the perspectives of the common man from the Straits Times- you only hear it from the Government's point of view), but now its been changed to some travel company website. Anyone knows where the original website has shifted to? Thanks.
Posted by: ANTI roadhog ANTI CTE JAM | 20/06/2007
I think you mean escapeFROMparadise dot com.
It's still there. It is also accessible from yeocheowtong.com
Posted by: Matilah_Singapura | 20/06/2007