FIRST POSTED IN MARCH 2008 (1 YEAR BACK)
What can be done to solve the housing crisis in USA? Some measures being proposed include the following:
a) Government to take over the mortgages
b) Help for borrowers to repay their debts
c) Incentives to encourage new buyers of houses
What is the solution? Singapore faced a similar crisis between 1996 to 2003, when the property market dropped by 30% for private and HDB properties. An effective measure was introduced by MAS, which stablilised the market and led to a recovery in 2007.
What is this measure? Perhaps a similar measure can be introduced in USA ?
HERE IS THE ANSWER:
The MAS allowed a borrower to refinance a mortgage loan with the CPF savings taking lower priority. The lender does not have to worry that the property price has fallen below the purchase price leading to negative equity, as the CPF savings is exposed first. This allows the lender to take a long term view and give time for the housing price to recover (which happened subsequently).
4 comments:
However there's a discussion that such actions will only benefit speculators that bet on such bad credit to earn profit.
Actually, I think there was no big specific measure on housing. Remember they approved the casinos (or IR) in 2005? This started to have a spillover effect on properties in the Marina area. Prices started to rise with high end condos and also there is a great influx of foreign money into Singapore as a haven for private banking and parking of funds from ultra HNW individuals due to favourable govt policies. And they also greatly liberalise the intake of FTs into Singapore which create a demand for housing and businesses.
So through the above property and rental prices rise across the board. And it helps that Singapore is small so the impact of foreigners and foreign funds on local property can be huge because there is limited land and time to build.
However the problem is whether this is sustainable or even crash given the current uncertainties in the US and funds and people can move either way due to changing external conditions.
No. of Sub-prime House: US$5m
Change of Unit Price: from US$6m to US$4m or 33% cheaper
Sub-Prime House Value After Crisis: US$1.2 trillion less 33% or more
Measure:
- Creditors (Bank & Finance Co.)write down US$90-100b
- Federal Bank reduce interest rate
- Depreciate US$
- Federal Bank increase short-term loan to cash crunch finance company
- Selling more government bond to China, EU, Arab
- Import Sovereign Investment Fund (e.g. Tamesek, China, UAE)
- Reduce consumption as a result of inflation
- Export increase (cheaper US$)
Conclusion: The world subsidise the American poor! American is a winner again in a long-term!! The loser is under developed nation who has to buy oil at sky high cost!!! The outcome is more social unrest due to inflation.
The Issue: Singapore is a winner or loser ?
Number of sub-prime house should read "5 million" (take away dollar sign. Sorry for error.
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