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Property
Low interest rates for decades?
By COLIN TAN
-
18 October
Surprised by the strength in September new private home sales, some market watchers were hard pressed to explain the size of the rebound, especially after having blamed the Total Debt Servicing Ratio (TDSR) framework introduced in June for the housing sector’s woes over the past few months.
They did find one plausible explanation for the 65-per-cent jump from August to 1,246 units sold last month, attributing this to the attractive pricing and aggressive marketing adopted by developers as the market adjusted to the TDSR.
Yes, the market is certainly showing improvement, but this is largely from events in America, where the Federal Reserve in mid-September backed off from its widely-announced intention to taper its US$85 billion (S$105.5 billion) monthly bond purchases.
Not much discussed in the local news was Pimco’s spot-on call that the Fed would not be moving too quickly on revising its low interest rate policy. Pimco is one of the world’s largest bond fund managers, with US$2 trillion under management and its views on Fed actions and global credit influence other investors because of the firm’s size in the marketplace. In his letter, entitled Survival of the Fittest?, Pimco founder Bill Gross said the global economy might be facing low policy rates for decades.
While I did not expect the Fed to start its tapering, I find his view that low interest rates would prevail for decades globally hard to swallow. Yes, it can happen to a country as the case of Japan has proven. But globally? And for decades?
If Pimco’s views are correct, how will the world — and we in Singapore — adjust to this? The widely-held view in Singapore by experts, official as well as those in the private sector, has always been that the existing low-rate environment is not sustainable.
In Singapore, low rates are into their fifth year now. If they continue to be so, and for decades, will investors keep on piling into the property market? Will there be more empty apartments, notwithstanding higher holding costs due to new tax rules on vacant properties?
At present, investors with a large-enough property portfolio have shown they are able to survive just by collecting rent on half their properties. Keeping half of them vacant has been no skin off their backs.
ABOUT THE AUTHOR: Colin Tan is the Head of Research and Consultancy at Suntec Real Estate.
phantom_opera
31-10-13, 16:54
Cooling Tan green eye monster?
With ultra low interest rates, coupled with MAS projection of
4% wage growth & full employment
3.5% GDP growth
3% inflation,
I think the Sg property outlook is getting brighter by the day.
Proven wrong again and again?
A broken clock will also be right twice a day! :eek:
Cooling Tan green eye monster?
no la interest rates will spike to 5% in a few years once US clears its trillions of $$$ debt....and singapore property market will crash big time DO NOT buy property PLEASE RENT:D:D:D
SPREAD THE WORD BRO AND SIS:cheers1::cheers1::cheers1:
so we LANDLORDS can HUAt BIG BIG
http://usdebtclock.org/
http://usdebtclock.org/
http://www.brillig.com/debt_clock/debtiv.gif
http://www.brillig.com/debt_clock/
Pimco is one of the world’s largest bond fund managers, with US$2 trillion under management and its views on Fed actions and global credit influence other investors because of the firm’s size in the marketplace.
can believe their words or not?
We got the Fed taper call wrong: DBS
CNBC.com**11/01/13 1:50 AM ET
By: Leslie Shaffer | Writer for CNBC.com
*** * *
Munshi Ahmed | Bloomberg | Getty Images
The Federal Reserve's September surprise, which postponed the tapering of its asset purchases, dented otherwise solid earnings at two of Singapore's banks.
OCBC and DBS, two of Singapore's banking trio, reported solid earnings Friday, beating analysts' expectations amid solid lending growth and resilient asset quality, but both noted taper-related dents to trading and Treasury income. UOB is due to report earnings on November 5.
"We basically got the call on Fed tapering wrong. We were quite sure that there would be Fed tapering in September and effectively positioned for that," said Piyush Gupta, CEO of DBS, at a press conference. "We put on hedges on some of our Treasury positions. Clearly, when the Fed didn't taper and rates went the wrong way, our hedges started going out of the money," he added.
"While we were conservative from a liquidity management standpoint, that also put some pressure on our income for the quarter," Gupta said.
While Gupta didn't say if DBS had reversed the trades, he said, "I don't think that the Fed is likely to taper anytime soon," noting "if you look at the (U.S.) data coming through, it's not that strong."
phantom_opera
01-11-13, 16:16
[BEIJING] China's property inflation quickened in October, two private surveys showed, a development that could reignite fears of a real estate bubble in the world's second largest economy.
Prices of new homes in 288 major cities rose 0.8 per cent in October from the previous month, accelerating from September's 0.4 per cent increase, a poll released on Friday by E-House China , a real estate services firm.
From a year ago, house prices jumped 10.5 per cent in October, quickening slightly from September's 10.4 per cent annual gains, E-House said.
Home prices hit record highs in many cities in September, official data previously showed, putting them well beyond the reach of ordinary people despite a nearly four-year long government effort to curb price rises.
Bernanke Signals Fed Target Rate to Stay Low Long After QE
By Jeff Kearns and Joshua Zumbrun - Nov 20, 2013
Federal Reserve Chairman Ben S. Bernanke (http://topics.bloomberg.com/ben-s.-bernanke/) said the Fed will probably hold down its target interest rate long after ending $85 billion in monthly bond buying, and possibly after unemployment falls below 6.5 percent.
“The target for the federal funds rate is likely to remain near zero for a considerable time after the asset purchases end, perhaps well after” the jobless rate breaches the Fed’s 6.5 percent threshold, Bernanke said yesterday in a speech to economists in Washington (http://topics.bloomberg.com/washington/). A “preponderance of data” will be needed to begin removing accommodation, he said.
In deciding when to wind down open-ended purchases of bonds, Fed officials are weighing both the “cumulative progress” since they began the program in September 2012 as well as “the prospect for continued gains,” Bernanke said. The labor market has shown “meaningful improvement” since the start of the program, although recent job reports have been“somewhat disappointing,” he said.
Policy makers are debating how to slow the pace of asset purchases without causing a surge in interest rates that could jeopardize the more than four-year economic expansion. Central bankers have sought to convince investors that tapering bond purchases wouldn’t signal that an increase in the benchmarkinterest rate (http://topics.bloomberg.com/interest-rate/) is any closer.
In response to audience questions, Bernanke said markets are doing a better job “differentiating” between the Fed’s plans to hold interest rates low even after it begins to slow bond purchases.
‘Progressed Sufficiently’
When the Fed does slow asset purchases, “it will likely be because the economy has progressed sufficiently” for central bankers (http://www.bloomberg.com/quote/TREFQE2:IND) to rely more on guidance about the outlook for the main interest rate, Bernanke said in his speech.
“He’s saying that they achieved improvement in labor market conditions, but they’re still uncertain whether that progress will be sustained without all their support,” said Laura Rosner, a U.S. economist at BNP Paribas SA in New York (http://topics.bloomberg.com/new-york/) and a former researcher at the Federal Reserve Bank of New York (http://topics.bloomberg.com/federal-reserve-bank-of-new-york/).
Bernanke said that the central bank’s policies are helping the American middle class by supporting housing, strengthening financial markets and shoring up consumers’ balance sheets.
“Our objectives are squarely tied to Main Street,” he said in response to questions at the dinner event for the National Economists Club. “The economy has been growing, jobs have been coming back and the Fed has been an important factor in maintaining that momentum.”
Wiped Out
Bernanke’s testimony to Congress in May that the Fed“could take a step down” in its bond purchases helped push Treasury 10-year yields and 30-year mortgage rates (http://topics.bloomberg.com/mortgage-rates/) to two-year highs and wiped out more than $5 trillion in market capitalization (http://www.bloomberg.com/quote/WCAUWRLD:IND) from global stocks.
The yield on the 10-year Treasury was 2.72 percent today, down from a two-year high of 3 percent in September. The average rate for a 30-year mortgage was 4.35 percent last week, declining from a two-year high in August, Freddie Mac data show.
The dollar held declines against major peers as Bernanke’s words echoed recent comments from other Fed officials including Janet Yellen, who has been nominated to succeed him.
The U.S. currency slipped 0.1 percent to $1.3552 per euro as of 2:17 p.m. in Tokyo (http://topics.bloomberg.com/tokyo/). The Bloomberg U.S. Dollar Index, which monitors the greenback against 10 major peers, was little changed at 1,014.96 after touching 1,013.11 yesterday, the lowest since Nov. 6.
Market ‘Surprise’
Bernanke said in his remarks that interest rates rose too high over the summer, due in part to “a perceived reduction in the Fed’s commitment to meeting its objectives.” That increase“was neither welcome nor warranted,” he said.
The Federal Open Market Committee’s decision in September to refrain from slowing its bond buying surprised investors who had forecast the first tapering of the program. The purchases have pumped up the Fed’s balance sheet to a record $3.91 trillion.
Bernanke said that “although the FOMC’s decision came as a surprise to some market participants, it appears to have strengthened the credibility of the committee’s forward rate guidance.” He said the decline in interest rates since September is “more consistent” with that guidance.
Labor Market
The FOMC last month renewed its pledge to press on with bond purchases until the outlook for the labor market has“improved substantially.” The Fed probably won’t taper purchases until its March 18-19 policy meeting, according to the median of 32 economist estimates in a Bloomberg News survey Nov. 8. Unemployment last month was 7.3 percent.
Bernanke’s term as chairman ends on Jan. 31, and Vice Chairman Yellen has been nominated to succeed him. Bernanke signaled that his views are similar to the ones she expressed in her confirmation hearing on Nov. 14 before the Senate Banking Committee.
“I agree with the sentiment, expressed by my colleagueJanet Yellen (http://topics.bloomberg.com/janet-yellen/) at her testimony last week, that the surest path to a more normal approach to monetary policy is to do all we can today to promote a more robust recovery,” he said.
Yellen told lawmakers last week that job-market gains would arise from stronger economic growth, which was running at a 2.8 percent rate last quarter. Fed officials forecast a 2 percent to 2.3 percent expansion for 2013, compared with a 1.7 percent estimate released yesterday by the Organization for Economic Cooperation and Development.
Fed Seen Tapering QE in $10B Steps in Next Seven Meetings
By Jeff Kearns and Catarina SaraivaDec 20, 2013 1:00 PM GMT+0800
The Federal Reserve (http://topics.bloomberg.com/federal-reserve/) will probably reduce its bond purchases in $10 billion increments over the next seven meetings before ending the program in December 2014, economists said.
The median forecast in a Bloomberg survey of 41 economists matches the $10 billion reduction announced two days ago as the Fed began to unwind the unprecedented stimulus that has definedBen S. Bernanke (http://topics.bloomberg.com/ben-s.-bernanke/)’s chairmanship.
The Federal Open Market Committee (http://topics.bloomberg.com/federal-open-market-committee/) said in a statement it will slow buying “in further measured steps at future meetings” if the economy improves as forecast. The Fed may taper its buying by about $10 billion per gathering, Bernanke said at a press conference in Washington.
“We’re going to take further modest steps subsequently, so that would be the general range,” Bernanke said. “We could stop purchases if the economy disappoints, we could pick them up somewhat if the economy is stronger.”
Such predictable increments would extend Bernanke’s push toward greater transparency and openness at the Fed, said Dana Saporta (http://topics.bloomberg.com/dana-saporta/), an economist at Credit Suisse Group AG in New York (http://topics.bloomberg.com/new-york/).
“Doing this would avoid the drama of having to come to a consensus at each meeting,” Saporta said. “It may have been difficult enough to agree on the timing, size and composition of the first taper, so maybe no one has the appetite to do that on an ongoing basis.”
Bernanke’s second four-year term ends Jan. 31, and Vice Chairman Janet Yellen (http://topics.bloomberg.com/janet-yellen/) is awaiting Senate confirmation to succeed him.
‘Modest Steps’
The Fed coupled its decision to taper bond purchases with a stronger commitment to keep its benchmark interest rate (http://topics.bloomberg.com/interest-rate/) low. Bernanke said the decision was intended to “keep the level of accommodation the same overall.”
Unemployment fell to a five-year low of 7 percent (http://www.bloomberg.com/quote/USURTOT:IND) in November as employers added 203,000 workers to payrolls. Inflation measured by the personal consumption expenditures index was 0.7 percent in October and has remained below the Fed’s 2 percent objective for almost a year and a half.
The Fed’s balance sheet rose to a record $4.01 trillion as of Dec. 18, up from $2.82 trillion when it began the third round of purchases. The FOMC began QE3, as the program is known, in September 2012 with monthly purchases of $40 billion in mortgage bonds and added $45 billion in Treasury purchases starting in December 2012.
The balance sheet will expand to about $4.4 trillion by the time the program ends, according to median estimates in the survey. Economists forecast purchases in the third round eventually will reach $800 billion in mortgage bonds and $789 billion in Treasuries.
NEW YORK: The dollar on Thursday continued to strengthen against major currencies the day after the US Federal Reserve scaled back its stimulus programme.
Near 2200 GMT, the euro fell to $1.3661 from $1.3680 Wednesday.
The dollar edged higher against the Japanese yen, trading at 104.22 from 104.20, while the euro fell to 142.41 yen from 142.56.
The dollar also rose against the British pound and the Swiss franc.
The dollar continued its course from Wednesday, when it rose against most major currencies after the Fed said it would reduce monthly asset purchases by $10 billion, to $75 billion.
"The US dollar is stronger after the Federal Reserve delivered its long-awaited policy shift at yesterday's announcement," said Nick Bennenbroek, head of currency strategy at Wells Fargo*Securities.
Although the US central bank also signalled it would keep it key interest rate ultra-low for longer than previously announced, the decision to taper stood in contrast to the policies of other central banks that show no sign of tightening anytime soon.
"The yen doesn't seem to stand much of a chance these days after the Fed tapered stimulus," said Joe Manimbo, senior market analyst at Western Union Business Solutions.
"With the Fed's most accommodative days likely in the rear-view mirror, Japanese authorities appear poised to ramp up stimulus next year to keep one of the world's biggest economies from unravelling."
Similarly, the European Central Bank is expected to "reach deeper into its monetary toolkit to keep the economy on the road to recovery," Manimbo said.
The British pound dipped to $1.6371 from $1.6381 on Wednesday.
The dollar advanced to 0.8979 Swiss franc from 0.8938.
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