Tan Kin Lian's Blog: Property bubble and Japan

Wednesday, October 20, 2010

Property bubble and Japan

Read what happened to Japan when the property bubble burst. Singapore should avoid the same risk.

“The U.S., the U.K., Spain, Ireland, they all are going through what Japan went through a decade or so ago,” said Richard Koo, chief economist at Nomura Securities who recently wrote a book about Japan’s lessons for the world. “Millions of individuals and companies see their balance sheets going underwater, so they are using their cash to pay down debt instead of borrowing and spending.”

Will Singapore be next?

http://www.nytimes.com/2010/10/17/world/asia/17japan.html?_r=1

7 comments:

Kenny said...: Difference between Japan and Singapore is that Singapore has alot of foreign buyers in our market. The foreign buyers jack up the prices.
Does Japan have alot of foreigners?; October 21, 2010 8:36 AM
C H Yak said...: The global economy is split into 2 ... half in inflation (China, India & Emerging countries) and half in deflation (USA, Japan, as EC sees more austerity measures) ... Singapore is caught in between.

Singapore's own policies are often "caught-in-between" and you see MAS's recent move to fight inflation by tigthening its ex-change rate policies. However, the Govt is still leaving the door wide open for foreign investors to come in and locked them in although new control mesaures are implemented.....and the PM may only realised it 5 or 10 years later retrospectively...LOL.; October 21, 2010 10:16 AM
Jamesneo said...: My view is that we cannot avoid the same bust but if the government implement correct measures during the initial correction, the impact on the economy(2-3yrs) will only be temporary instead of being a lost decade for Singapore.(Hope they do not try similar stimulus like japan and US which have been shown to be not working)

Nonetheless, i do not expect the market to burst within the next two years as the QE from USA has created too much liquidity in asia which will still flow into real estate. But beyond two years, things become murkier. The first sign of big trouble will be if our unemployment start to rise to above 5% and there is a prolonged decrease in housing sales. Another thing to look out for is if china finally succumb to its housing bust then suddenly all the chinese hot money will dry up.

The initial part of a property bust is stagnation or continuous decrease of sales(6mths to 1 year) due to buyers inability or unwillingness to buy property. Only then will the price start to decrease when the sellers realize nobody is buying and they will then reduce prices. However, this will start the avalanche since the buyers know that the price is decreasing and will hold off purchasing. This will cause the sellers to decrease the price further. Eventually this cycle will lead to price decreasing until it undershoot the normal afforability of 3.5-4x median salary.; October 21, 2010 11:37 AM
Redstar said...: For the record, our Great Leader said a while back that our property market is not inflated ie no bubble yet. I think our banks must raise interest rates instead of paying depositors negative real interest rates. Alan Greenspan had made the grave mistake of keeping interest rates too low for way too long. The Maestro of the US economy has lost touch with economic reality and his credibility. And in the process does harm to many innocent people.; October 21, 2010 12:13 PM
Unknown said...: There is too much cash flowing in and interest rate will remain low for 6 to 12 months or even longer if U.S start printing $ again. Banks need to move the money to gain profit so if interest goes up and no one take the loan and yet bank needs to pay interest to deposit it will eat into their profit. Interest rate will only go up when U.S is ready to recover. Property and rental will stabilise or increase gradually moving forward for next 6-12 months.; October 21, 2010 5:42 PM
yujuan said...: Property market in Singapore is different from that in Japan. Records here show there are cycles, just follow the cycles to invest, buy when there is a lull, stay away when it is hot. When you need a place to get married, buy a small HDB flat, and upgrade during this lull, you sell low, but you also buy low.
Always remember what the late Property King Ng Teng Fong said,
just look at the world map, zoom in on a place with a very big dot in relation to its small size area surrounding it, that will be your best property bet. Thus Singapore is in the same league as Hongkong, Macau, etc.
I f you want to flip property like any other commodities, it would be much easier to trade shares. Otherwise follow the dead King's advice, but watch out the trend first. Patience is the key.; October 22, 2010 1:58 PM
Redstar said...: Hi Steven,
The banks must be socially responsible and raise interest rates so that the real interest rate is higher than inflation. If they have done this in the past, we would not have crazy property prices and asset bubbles. Prices will be low enough that we do not need our wife to work and help with mortgage payment so that they can be full time housewife, helping to care our home, children and elderly so we do not require foreign maids. The higher interest rate is still way lower than what our banks charge for credit cards and ready/easi-credit loans. Also, retirees can adequately fund their retirements without working till age 62, and with inflation under control, we have lower cost of living and less stress too.

But this did not happen as I suspected all along the Gov wanted inflation, just like Ben Bernanke. Inflation is printing more money for circulation. Although foreign cash flow to Singapore may increase, it is not in Sing dollar, and need to be exchange for SGD. The amount of SGD in circulation is in the control of SG Gov, unless there is fake SGD in circulation undetected.; November 03, 2010 10:54 PM