Zeng Han Jun
30-08-08, 00:48
By: Zeng Han Jun, CPCG, Singapore
Ever wonder how the property prices in Singapore are going to move from Q3 2008 onwards? No one can really sure about this matter. A few optimists are saying that the credit crunch has more or less come to an end. Times are going to be better ahead. On the other hand, there are those that firmly believe that we have barely reached the trough of the wave.
Some argue that the decoupling effect that Asia has on the U.S.A market will stabilize the situation. I for one do not believe in this theory at all. Due to the globalization efforts for the past few decades, almost all economies are intricately linked to each other now. Ever heard of “A flap of a butterfly’s wing causes a hurricane on the other side of the world” theory? U.S.A will be able to affect our side of the world to a certain extent.
By the end of year 2008 and 2009, many bonds issued by major U.S. banks, lenders and financial institutions are going to be matured. The payouts are valued at about US$871 billions. I made sure I typed “billions” not “millions”. Where are they going to find this sum of money for the maturity? They could shut down some unprofitable overseas operations, layout off workers, recall back foreign investments or sell off some assets. Just today, Citigroup has announced that they are going to layoff 2000 staff world wide. The estimated number of staff to be laid off in Singapore will be at about 10%, which means 200 staffs will be preparing to leave soon. This is the effect that I am talking about. U.S.A gets hit; we get some of that “hit” as well. Citibank, thought to be well diversified between different kinds of financial services, ranging from consumer to investment banking, are not spared at all. What about those banks that focus purely on investment banking? Investment banking is well known to be highly volatile in their earnings, and banks that focus on that area are definitely in for a rough ride.
We are just talking about the bonds that are maturing in 2008 and 2009. We have not even started on the car loans, credit cards, personal loans and study loans. Banks gets burnt from credit crunch. Banks wise up, and tighten lending criteria, layoff people and drums up credit collection operations. People lose jobs, lose ability to pay off debts and fail to clear their debts. Banks gets burnt from credit cru…so on and so on. You get the idea. This is an iterative process that repeats itself. This is a huge fever that requires a lot of rest and medications.
As all these companies withdraw their foreign investments, we are bound to be affected. Singaporeans are a conservative lot. Just look at the property market now. Nobody is buying any properties since the start of the credit crunch. Worst of all, the ones that will be badly hit, will be the property developers. With so many projects waiting to be sold, and yet none are buying. Where can they find the money to pay off their project financing loans? If they are unable to find the money to pay off the debts, plus on – going projects are getting more expensive to carry out. They will definitely sell off their properties at a much lower price. The on – going projects are another problem as well. The construction material costs are rising steadily. Plus the market for civil engineers is pretty tight. There are already so few civil engineers and companies are resorting to poaching each other’s staff, resulting in a steadily rising paycheck for them. I could go on at length about the problems faced by the construction industry. All these add onto the problem of eroding profit margins, because the operations are getting more expensive. They need to sell off the properties now to pay for the operations in the pipelines and the debts. There are so many pitfalls swarming in this industry that might cause a trigger a fall in the prices of properties.
A report by Institutional Risk Analytics estimates that about 100 banks will fail from 2008 to 2009. The values of these combined assets held by these companies are valued at US$850billion. If they fail, Federal Deposit Insurance Corporation {FDIC} will have to bail them out. For your information, FDIC has only about US$50 billions worth of funds. Till date, they have used up to 40% of this fund to help out Indy Mac. That leaves about US$30billion worth of funds in the FDIC. The combined assets of those “going to fail” banks are 28.3% higher than the FDIC’s funds. In other words, they are going to need 30 FDIC {plus safety factors} to bail out all those banks. U.S.A has to brace themselves for the tough going in the coming months. The real thing has only just begun.
The maturity of bonds plus the failing of those banks are going to be critical issues to us. Not forgetting all those car loans, credit cards, personal loans and etc. Withdrawals of foreign investments will cause investors to be cautious. When investors turn cautious, we will expect to see little volume in the properties transactions. With all these issues compounding onto what the construction industry is experiencing right now, we can expect to see a gradual fall in the prices of properties. Hold on tight to your property, it’s gonna be a helluva ride…
This article from CPCG is currently being protected by Singapore and International Copyright Laws. However please feel free to republish this article, provided that you include working links to our website: www.cpcgonline.com and www.cpcgonline.blogspot.com. We appreciate your kind gesture. For any enquiries, please email us at [email protected].
Ever wonder how the property prices in Singapore are going to move from Q3 2008 onwards? No one can really sure about this matter. A few optimists are saying that the credit crunch has more or less come to an end. Times are going to be better ahead. On the other hand, there are those that firmly believe that we have barely reached the trough of the wave.
Some argue that the decoupling effect that Asia has on the U.S.A market will stabilize the situation. I for one do not believe in this theory at all. Due to the globalization efforts for the past few decades, almost all economies are intricately linked to each other now. Ever heard of “A flap of a butterfly’s wing causes a hurricane on the other side of the world” theory? U.S.A will be able to affect our side of the world to a certain extent.
By the end of year 2008 and 2009, many bonds issued by major U.S. banks, lenders and financial institutions are going to be matured. The payouts are valued at about US$871 billions. I made sure I typed “billions” not “millions”. Where are they going to find this sum of money for the maturity? They could shut down some unprofitable overseas operations, layout off workers, recall back foreign investments or sell off some assets. Just today, Citigroup has announced that they are going to layoff 2000 staff world wide. The estimated number of staff to be laid off in Singapore will be at about 10%, which means 200 staffs will be preparing to leave soon. This is the effect that I am talking about. U.S.A gets hit; we get some of that “hit” as well. Citibank, thought to be well diversified between different kinds of financial services, ranging from consumer to investment banking, are not spared at all. What about those banks that focus purely on investment banking? Investment banking is well known to be highly volatile in their earnings, and banks that focus on that area are definitely in for a rough ride.
We are just talking about the bonds that are maturing in 2008 and 2009. We have not even started on the car loans, credit cards, personal loans and study loans. Banks gets burnt from credit crunch. Banks wise up, and tighten lending criteria, layoff people and drums up credit collection operations. People lose jobs, lose ability to pay off debts and fail to clear their debts. Banks gets burnt from credit cru…so on and so on. You get the idea. This is an iterative process that repeats itself. This is a huge fever that requires a lot of rest and medications.
As all these companies withdraw their foreign investments, we are bound to be affected. Singaporeans are a conservative lot. Just look at the property market now. Nobody is buying any properties since the start of the credit crunch. Worst of all, the ones that will be badly hit, will be the property developers. With so many projects waiting to be sold, and yet none are buying. Where can they find the money to pay off their project financing loans? If they are unable to find the money to pay off the debts, plus on – going projects are getting more expensive to carry out. They will definitely sell off their properties at a much lower price. The on – going projects are another problem as well. The construction material costs are rising steadily. Plus the market for civil engineers is pretty tight. There are already so few civil engineers and companies are resorting to poaching each other’s staff, resulting in a steadily rising paycheck for them. I could go on at length about the problems faced by the construction industry. All these add onto the problem of eroding profit margins, because the operations are getting more expensive. They need to sell off the properties now to pay for the operations in the pipelines and the debts. There are so many pitfalls swarming in this industry that might cause a trigger a fall in the prices of properties.
A report by Institutional Risk Analytics estimates that about 100 banks will fail from 2008 to 2009. The values of these combined assets held by these companies are valued at US$850billion. If they fail, Federal Deposit Insurance Corporation {FDIC} will have to bail them out. For your information, FDIC has only about US$50 billions worth of funds. Till date, they have used up to 40% of this fund to help out Indy Mac. That leaves about US$30billion worth of funds in the FDIC. The combined assets of those “going to fail” banks are 28.3% higher than the FDIC’s funds. In other words, they are going to need 30 FDIC {plus safety factors} to bail out all those banks. U.S.A has to brace themselves for the tough going in the coming months. The real thing has only just begun.
The maturity of bonds plus the failing of those banks are going to be critical issues to us. Not forgetting all those car loans, credit cards, personal loans and etc. Withdrawals of foreign investments will cause investors to be cautious. When investors turn cautious, we will expect to see little volume in the properties transactions. With all these issues compounding onto what the construction industry is experiencing right now, we can expect to see a gradual fall in the prices of properties. Hold on tight to your property, it’s gonna be a helluva ride…
This article from CPCG is currently being protected by Singapore and International Copyright Laws. However please feel free to republish this article, provided that you include working links to our website: www.cpcgonline.com and www.cpcgonline.blogspot.com. We appreciate your kind gesture. For any enquiries, please email us at [email protected].