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Singapore’s estate bubble pops

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A consequence of relying on wealthy foreign investors for economic growth and development instead of home-grown industries is that these people are the first to pack up and leave in a downturn.  Coupled with a depressed consumer consumption rate in Singapore relative to most other countries, the end result is a recession which threatens to degenerate into a depression (if it isn’t one already).  The Wall Street Journal reported yesterday on Singapore’s very own housing and estate bubble:

 
[Singapore Slump]Residential property prices rose 60% between 2005 and the middle of 2008, fueled by a massive influx of U.S., European and Asian expatriates drawn by Singapore’s goal of reinventing itself as a financial and entertainment hub like Dubai or Monte Carlo.

 The global financial crisis has shattered that vision. Many of those foreign bankers and lawyers — now without work amid Singapore’s sharpest economic contraction ever — are returning home, weighing on demand just as a slew of new luxury properties are nearing completion.

Half a million foreigners moved to Singapore between 2003 and 2008, many of them wealthy. Boston Consulting Group found in a recent study that 10% of Singapore’s residents have investible assets of $1 million or more, the densest concentration of millionaires in the world, and more than twice the ratio in the U.S.

Residential-property developers started a flurry of new construction. The government stoked the boom by allowing investors to make down payments of only 20%, paying the remainder upon a project’s completion. In a soaring market, speculators with no intention of completing their purchases were able to sell for a profit without organizing any financing. Amid signs that a speculative bubble was building, the government banned these so-called deferred payments in late 2007. But by then, the market was already overheating.

An additional problem with the influx of rich foreigners and their funds has been that property and commercial land prices have been driven up, which makes it difficult for SMEs (read: local entrepreneurial startup firms) to establish a foothold, especially when they have to compete with MNCs.  The combination of all these factors have resulted in an economy which is arguably over-reliant on foreign MNCs and foreign investors, and is further exacerbated by the financial incentives extended to them such as subsidies, banking secrecy laws negotiated wages etc.

Singaporeans end up having to compete for property against rich foreign investors.  It’s a foregone conclusion as to which side feels more of the pinch.  The rich foreigner has no obligation to Singapore; his invested funds which had helped fuel the property bubble, and which has made property unaffordable to most Singaporeans, can be withdrawn and he may easily depart this country easily and settle for another when the bubble finally bursts.

Where exactly is Singapore headed?  Do we want to remain a country whose growth is pioneered largely by the influx of foreign funds and foreign MNCs who have no obligation to Singapore, or do we want to gravitate in the direction of a more sustainable and more locally-dependent economy?

Written by defennder

March 26, 2009 at 7:25 PM

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