THE NEXT ASIA CRISIS?

http://vantagepointtrading.com/archives/2586

The Next Asian Crisis

By Colin Twiggs
January 22, 2010 9:30 p.m. ET (1:30 p.m. AET)

These extracts from my trading diary are for educational purposes and should not be interpreted as investment or trading advice. Full terms and conditions can be found at Terms of Use.

China: Red Star About To Implode?
China's reaction to the global financial crisis was to stimulate domestic demand in an attempt to make up for the sharp contraction in export orders, primarily from the US. The strategy was twofold: a $586 billion stimulus plan and to stimulate private demand by quantitative easing. At a staggering 20 percent of GDP, the stimulus plan boasts a massive infrasture spending program including construction of new railways, environmental protection and investment in new technology. Aggressive quantative easing aimed to boost private borrowing by lowering finance costs and easing credit standards.

The resurgence, with GDP growth reaching 10.7 percent in the fourth quarter (WSJ) appears to vindicate the strategy, but the true cost of the plan lies ahead. Bank loans grew by $1.4 trillion in 2009, or 29 percent percent of GDP. That is madness — and likely to cause a massive speculative bubble in real estate, the stock market, and to some extent commodities. Inflation is also starting to bite, with the consumer price index up by 1.9 percent in the last month.

A sharp cut-back in bank lending, however, will cause a contraction in private demand, sending the manufacturing industry back to where they started — with a large hole in their order books. Welcome to the real world.

Japan: How To Turn A Financial Crisis Into A Total Disaster
Japan is a lot farther down the track than China. In an attempt to avoid the collapse of its banking system after the implosion of an enormous real estate and stock market bubble in the early 1990s, Japan embarked on a similar strategy to the one now pursued by China. Massive infrastructure spending and aggressive quantative easing, with the BOJ maintaining interest rates near zero for most of the last two decades failed to restore the economy to its former growth path. The new government now finds itself painted into a corner, inheriting massive public debt as a result of the failed stimulus program. The IMF expects Japan's gross public debt to reach 218pc of gross domestic product (GDP) this year, 227pc next year, and 246pc by 2014 (Daily Telegraph). With savings rates falling, further stimulus spending is no longer an option and the pigeons of the 1990s will finally come home to roost. Except they now closer resemble pterodactyls.

USA: The Dow Retreats
The Dow retreated by more than 5 percent after the voters of Massachusetts sent a clear message to the White House: either p... or get off the pot. The cosy relationship between Washington and Wall Street is coming to an end as elected leaders scramble to preserve their seats. Expect more legislation to curb the excesses of Wall Street, restricting remuneration and imposing taxes or levies to recover some of the cost of the financial collapse. Treasury has to raise taxes in order to restrict public debt growth and the obvious target is Wall Street.
Financial stocks are worst affected by the retreat, but sectors such as Energy and Materials also display a sharp fall — indicating that a contraction of financial stocks is likely to impact on the broader economy.

Avoiding Japan II
The voter backlash is likely to restrict the Fed's ability to pursue further quantitative easing. Re-election of Ben Bernanke as Fed Chairman is going to be a close-fought affair with even Democrat senators, like Barbara Boxer of California, whose seat is under threat, calling for a new candidate who represents "a clean break from the failed policies of the past". Also, expect increased reluctance from Congress to fund further deficits by increasing public debt — curtailing government spending and increasing pressure to raise taxes.

Hi Moby,

indeed, there has been a lot of focus on China of late.

Even before the sharp declines in the stock markets this week (attributed mostly to China's recent actions to apply the brakes on it's economy), there have been a lot of articles on China's impending "implosion". Some like Jim Chanos and Gary Shilling are bearish.

The link below is for Jim Chanos' take on China:

http://www.cnbc.com/id/34433626


There are, of course two sides to any argument. Here are other links countering Chanos' analysis (by none other than Jim Rogers the China Bull):

http://www.forbes.com/2010/01/11/chi...ging-rein.html

http://www.digitaljournal.com/article/285686


Personally, I think it's really hard to predict how this will all end. Both China Bulls & Bears make valid arguments. Me? I think the markets (especially the developed ones) are due for a correction soon, but your guess is as good as mine.

What do other posters on this board think? How do you guys & gals feel about the economy (both global and local), and how do you think events will affect property prices?

Quote:

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Originally Posted by The Business Times

http://bhtest.asia1.com.sg/mnt/stati...head_small.gif
China properties: bubble or no bubble?
Editorial
The Business Times
Thursday, 21 January 2010

The views are split almost right down the middle. Is there or is there not a bubble in China's property market? Cheung Kong, one of the largest property developers in Hong Kong, yesterday said that there are no bubbles in either Hong Kong's or mainland China's property markets. Said its executive director Justin Chiu: 'I don't really see a bubble. There shouldn't be too much concern about the governments trying to crush the market.'

The comments are in direct contrast with that of renowned investor Jim Rogers. Though a very vocal China bull, Mr Rogers cautioned on Tuesday that real estate prices in Hong Kong and Shanghai are in bubble territory and 'should decline'. Efforts to restrain lending underscore the government's attempt to take 'some of the heat out of the economy', he said in an interview with Bloomberg. The rest of the Chinese economy, however, is 'hardly in a bubble', he added.

Views differ among investment analysts and asset managers as well. Mark Mobius, who oversees US$34 billion of emerging market assets at Templeton Asset Management, said two weeks back that China's property market isn't about to crash. 'The Chinese will act rationally. They are not going to kill the market,' he said. By contrast, former Morgan Stanley chief Asian economist, and now an independent economist based in Shanghai, Andy Xie is unambiguously bearish, describing China's asset markets today as 'a big bubble'.

The numbers give us a clue as to what is going on. Record new loans fuelled a 75.5% jump in China's property sales last year. Property prices in 70 cities across China climbed 7.8% in December, the fastest pace in 18 months. But in places such as Shanghai and Beijing, prices of new apartments leapt by 50-60% during 2009.

One should certainly be circumspect when taking in the comments of politicians, stock analysts and fund managers. They may have their own agendas. A good judging yardstick, however, is perhaps the äctiöns (nöt wörds) of people in the property business. They seem to be of the opinion that there is genuine demand for properties. On Monday, CapitaLand announced it is buying over the real estate business of Hong Kong-listed Orient Overseas (International) for US$2.2 billion. The purchase includes 7 sites in Shanghai, Kunshan and Tianjin, with about 1.48 million sqm of floor space. Meanwhile, Hong Kong developers including Cheung Kong, Kerry Properties, Shui On and Hang Lung Properties are not slowing down their pace of development in China either. Even SOHO China, one of the leading private developers on the mainland, is not stepping back despite saying that it sees a lot of asset bubbles. Its strategy instead is to turn around its developments faster.

The good thing is that China's government is vigilant and has already imposed a number of measures to cool down the market. Actions from property developers seem to suggest that while the cooling measures may stall the market temporarily, in the longer term, the inevitable trend is up.

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It's always easy to talk. Talk is free.

I believe action speaks louder than words.

Hi Reporter,

thank you for the article posted above.

I agree that it is usually correct to surmise that everybody has their own agendas in making a press release. However, by the same token, property developers will also have their own agendas while making press statements.

While it is a popular method to follow the leaders in any industry while investing (e.g: buying stocks that W. Buffett buys, or in your example, following the developers), it is not fool-proof.

These industries exist to make money, it is natural for them to find opportunities to market their products (property & stocks, etc...); sustainability is another issue. The recent banking crisis was related in part to financiers making bad loans and selling the packages (CDO). Everybody thought there were always buyers for these vehicles, even banks bought into this belief, leading to a bubble. Why should property be different? Developers do what they do best by building and marketing properties, despite the checks and balances imposed by the government and developers, property boom-bust cycles still occur. While I admit that I do subscribe to "follow the leader" tactics in investing at times, I do appreciate independent analyses on occasion.

That said, your article may be correct in it's conclusion that property still has some way to run. My concern is the volume of money sloshing around due to governments' quantitative easing prompted by the banking crisis, as well as the low interest rate. Will that change anytime soon, and what will then happen?

Cheers!

Quote:

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Originally Posted by bernardy

Hi Reporter,

thank you for the article posted above.

I agree that it is usually correct to surmise that everybody has their own agendas in making a press release. However, by the same token, property developers will also have their own agendas while making press statements.

While it is a popular method to follow the leaders in any industry while investing (e.g: buying stocks that W. Buffett buys, or in your example, following the developers), it is not fool-proof.

These industries exist to make money, it is natural for them to find opportunities to market their products (property & stocks, etc...); sustainability is another issue. The recent banking crisis was related in part to financiers making bad loans and selling the packages (CDO). Everybody thought there were always buyers for these vehicles, even banks bought into this belief, leading to a bubble. Why should property be different? Developers do what they do best by building and marketing properties, despite the checks and balances imposed by the government and developers, property boom-bust cycles still occur. While I admit that I do subscribe to "follow the leader" tactics in investing at times, I do appreciate independent analyses on occasion.

That said, your article may be correct in it's conclusion that property still has some way to run. My concern is the volume of money sloshing around due to governments' quantitative easing prompted by the banking crisis, as well as the low interest rate. Will that change anytime soon, and what will then happen?

Cheers!

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talk to some real honest businessman .. ask them ..if it is true that in china .. alot of companies are making money, not from their core business, but from their diversification into property development. ..

it is frightening to know that any NON property based business, can allocate funds into developing properties..as it is the fastest money making avenue in this bull run ..

also .. devlelopers can say what they want .. if mkt crash .. can buyers hold them responsible ? and sell back what we buy from them ?

http://www.pbs.org/pov/utopia/

http://www.youtube.com/watch?v=0h7V3Twb-Qk

Trapped Inside A Property Bubble

When China's real estate bubble finally bursts while exports become less competitive, the consequences could be severe.

The next 10 years will be more challenging than the past decade. Indeed, unless economic policies are adjusted, China's inflated real estate market could suddenly shrivel while the decade is still young.

China's market share gains in global trade and foreign direct investment due to low costs and rising global demand drove the nation's success. But China is no longer the lowest of the low-cost producers, and it's unlikely to gain market share. Moreover, global demand isn't likely to rise as fast as before; expect economic development at one-third previous speeds.

The biggest risk to China's economy is the desire to maintain past economic growth rates by maximizing investments in property -- an unproductive asset. It supports short-term growth by sacrificing long-term growth as capital's average productivity declines over time.
Local government performance in China is measured according to GDP and fiscal revenue. Property development can achieve high numbers for both quickly. This is why property's share in China's capital allocation is rapidly rising as prices appreciate and volumes increase. This is a politically driven bubble -- and it's already massive. Unless the trend is reversed by reforming incentives for local governments, China's property bubble could mushroom in two years from what's now a dangerous level. The burst could happen in 2012, endangering social and political stability.

The first decade of the 21st century began when an IT bubble burst. It was laced with 9-11 and SARS, and ended with a global financial crisis. It was a horrible decade. Now, much of the world has stagnated or regressed. Western prosperity mid-decade turned out to be a mirage manufactured on Wall Street.

The West didn't accept the need for adjusting living standards as emerging economies caught up, which led to a delayed bubble that made the problem bigger. Now the West, particularly the United States and Britain, faces a terrible decade ahead.

Amid the horror, China has risen like no other. Its GDP in dollars has quadrupled while exports quintupled. Adjusting for dilution due to dollar's external depreciation and internal inflation, from outside looking in, China's economic strength has still more than doubled in real value. It is an unprecedented accomplishment for such a massive country. And the primary drivers of success were gains in global trade and investment market share.
Low base, reform and luck could explain China's success. When the Asian Financial Crisis hit more than a decade ago, China chose not to devalue to maintain competitiveness but lowered state sector costs. When the global economy normalized, China became more competitive. Joining the World Trade Organization was an insurance policy that maximized low-cost benefits, and China's global market share tripled. Internally, China built infrastructure for growth without inflation that could erode competitiveness. The policy mix was perfect.

Neither competitiveness nor winning share in a shrinking market can guarantee growth. But by increasing consumer debt, the United States sustained demand while losing in areas of global investment and income. The credit bubble maintained global demand while China's market share gained rapidly. It was a lucky break for China, but now it's run out. The 2008 financial crisis means the United States is likely to cut debt-financed consumption with half as much growth over the next decade, while Europe and Japan are likely to have zero growth.

Meanwhile, China over the past five years has seen rising prices for production factors such as labor, raw materials, land, environmental control and taxes. These prices had been stable previously. Now, wage costs for export factories have roughly doubled in yuan terms, as have raw material prices. Before the Asian Financial Crisis, China's wage costs were half of Southeast Asia's. Now they are twice as high. Bangladesh's wage costs are even lower. It's likely China will lose market share to these low-cost competitors.

Two of three factors for the past decade's success are gone, so China needs to depend more on improved efficiency for growth. But instead, the recent trend seems to be going the other way. Rising costs and weak demand are making manufacturing less profitable. Hence, capital investment is weak, as reflected in weak equipment import data.
Most local governments seem to embrace property development as a growth savior. But shifting surplus capital into property is likely to lower future growth by decreasing average capital efficiency. This deters consumption development by increasing property expenditure expectations, and threatens financial stability by increasing loan levels, using overvalued land as collateral.
Other Asian economies such as Japan, South Korea and Taiwan failed to shed export dependency and develop domestic growth. Periodic spikes in consumption are usually due to asset inflation. Once a country loses export market share on rising costs, it stagnates because property bubbles during high growth periods deter consumption while overwhelming the middle class with housing expenses. China may be following the same path: Despite a decade of talking about promoting consumption, that share of GDP has been declining year in, year out.

Japan stagnated roughly at per capita income of US$ 40,000 over the past two decades. Hong Kong, South Korea, Singapore and Taiwan have stagnated at about US$ 20,000 for the past decade. Stagnation at such high income levels doesn't seem bad. However, China's size means its exports face challenges at much lower per capita income levels. Unless China changes its growth model, it could stagnate at a much lower level.
The overwhelming desire for getting rich quick dominates every nook, fissure and strata of Chinese society. Such desires cannot be fulfilled; the terrible logic of economics is that money must circulate. Creating bubbles can temporarily blind people to this logic, as overvalued assets substitute for money to fill psychological needs. This is why, whenever conditions permit, China seems to have asset bubbles.

Bubbles exaggerate reality but are not formed out of thin air. Cheap money and strong growth are the usual ingredients for bubble-making. Both existed over the past five years. But now, China depends entirely on cheap money to support overvalued assets. Cheap money came from past exports and was warehoused in banks. Cash also came from hot money inflows due to the yuan's peg to the dollar and weak Fed dollar policy.
Neither money source is sustainable. The dollar has bottomed. The Fed will begin raising interest rates in 2010. The combination of China's strong loan and weak export growth is reducing bank liquidity, but inflation soon may force China to tighten anyway. The cheap money may not last long.
China's exports are recovering from a low base – a trend that may last through 2010. But one should not confuse low base recovery with a revival of past trends.

The high export growth era is over for three reasons. China's market share in global trade is twice as big as its GDP share. The odds are low that China could continue to expand its market share. Second, the tide won't rise as fast as before. The Greenspan era saw a credit bubble supercharge western consumption, but the bubble has burst. Odds are that future trade growth will be half or less as in the past. Finally, a western employment crisis will lead to protectionism targeting China. Other developing countries may gain market share at China's expense.
One possible way to prolong the bubble is to appreciate the currency, as Japan did after the Plaza Accord, to contain inflation and attract hot money. Such a strategy will not work in China. Japan's businesses were already at the cutting edge in production technologies and had pricing power during currency appreciation. They could raise export prices to partly offset currency appreciation. Chinese companies don't have such advantages but rely on low costs to compete.

After export-led growth peaks, consumption is the alternative to sustaining growth at a lower rate. This transition would require a wholesale change in the political economy. The key is to increase middle class disposable income and lower consumption costs. No East Asian economy has made this transition.

China has been trying to promote consumption for a decade. However, consumption's share of GDP has declined annually. The reason is the policy environment has been squeezing China's nascent middle class through high property and auto prices along with high income tax rates. China's disproportionate dependency on exports and withering consumption components are results of national policies, not the peculiar characteristics of Chinese households.

A large, vibrant middle class is the foundation of a stable, modern society. China's policies rightfully care for the lower class. Yet the semi-market economy offers a few spectacular gains from arbitrage and speculation. Society is drifting toward a small, super-rich minority along with a small -- possibly less than 20 percent of the population – yet heavily burdened middle class, and a vast, low-income majority. Such an income structure cannot support a balanced economy, forcing export dependence.
China's rapid economic growth has spawned millions of white-collar jobs: managers, engineers, accountants and bankers. Such jobs should provide middle class income for buying property, cars and vacations. However, property prices have increased more rapidly than middle class income, increasing fear of the future.

China's property market is creating winners and losers based on timing. All other factors – including education and experience -- have been marginalized as the economy rewards speculators. And as more play the game, the speculator ranks rise and fewer people work, perhaps contributing to a labor shortage.

In the previous decade, the West refused to acknowledge its competitiveness problem and created a bubble to hide it. I am afraid China could try the same in the next decade, and the consequences could be serious. Fear of consequences could lead many to argue for sustaining the bubble, but that worsens the problem.

During a bubble period, most people think nothing will bring it down. But bubbles always burst, and the longer one is prolonged, the more severe the consequences. Oversupply or rising interest rates will bring down China's property bubble. The former brought down the U.S. bubble, and later Hong Kong's.

China's banks always seem ready to roll over credit lines for developers during market downturns. Hence, supplies tend to dry up during market downturns, preventing price adjustments. Such manipulation has created a speculative psychology that theorizes the government would never let prices fall. When speculators think prices won't fall, speculative demand lasts as long as banks have the liquidity.

The liquidity environment, however, is likely to turn against the bubble soon. The killer is inflation driven by a surge in money printing. The average lag between currency creation and inflation is 18 months in the United States. China's lag could be two years since the government uses subsidies to suppress inflation. By 2012, China could experience 1990s-like inflation. And that's when the property bubble will probably burst.

PM Lee cautions S’poreans against getting carried away with economic recovery

http://172.31.254.241/sg.yimg.comm/i...OuJZpSlj4ZJA-- Channel NewsAsia - Sunday, January 24


SINGAPORE : Singapore’s economy may be picking up, but Prime Minister Lee Hsien Loong has said Singapore is not expecting the recovery to be very vibrant and strong.

And he cautioned Singaporeans against getting too carried away with the recent economic recovery.

Mr Lee said: "There is a fine balance; you want people to feel that they can make things better, but at the same time, do not assume that all the problems have passed."

Mr Lee was speaking to reporters after taking part in the Lunar New Year light—up ceremony in Chinatown on Saturday.

On the buoyant property market, he said that Singaporeans cannot assume it will continue going up.

:scared-1: :banghead: :scared-2: :confused: :scared-3: :money-faced1: :doh:

He added that the government is confident that things are under control.

And as to whether Singapore will achieve 3 or 4 per cent economic growth this year, Mr Lee said it will depend on how well things turn out.

Mr Lee also revealed that Finance Minister Tharman Shanmugaratnam will release the Economic Strategies Committee report on February 1.

— CNA/ms

Quote:

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Originally Posted by Moby, 24 January 2010 3.31 pm

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The liquidity environment, however, is likely to turn against the bubble soon. The killer is inflation driven by a surge in money printing. The average lag between currency creation and inflation is 18 months in the United States. China's lag could be two years since the government uses subsidies to suppress inflation. By 2012, China could experience 1990s-like inflation. And that's when the property bubble will probably burst.

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How did Andy Xie (谢国忠) came up with 2012 in his 2-week-old article (dated 10 January 2010)?
It is because 2012 is 6 years after he was fired by Morgan Stanley in 2006?
Fired, fired lor! Why wanna take revenge?


Or is it the same reason why JPMorgan came up with 2012?

Anyway, I like his number - 2012. Nice!

Quote:

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Originally Posted by bigbird72, SkyscraperCity, 21 January 2010 11.19 am

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JPM büll property; say upturn could last through 1H2012


This sector report highlights Christopher Gee's views that:

1. The Singapore property sector is in an upturn that could last through to 1H 2012;

2. Singapore property developers like City Developments and Wing Tai provide the best leverage to this upturn;

3. The Singapore property developer stocks should outperform the S-REITs.
Upgrade Wing Tai to Overweight from Neutral. Downgrade A-REIT, CapitaRetail, China Trust to Neutral from Overweight.
Top Picks: City Devs, Capitaland, Fraser Centrepoint Trust, CDL Hospitality Trusts, and CapitaMall Trust. Raise TPs CDL Hosp, City Devs, Guocoland, WP.


Property developers to move on RNAV upgrades: Singapore property developers' share prices tend to close the gap (and may even trade at a premium) to RNAV estimates during market up-turns on the expectation of sustained increases in underlying property prices. We expect the Singapore property developers to deliver a blended 13% price return in 2010.

S-REITs to deliver single-digit total returns in 2010: We expect the S-REITs will begin to trade like REITs normally trade in 2010 and generate aggregate 7% total returns this year, dominated by the yield.

Key sector risks: A reversal in the currently buoyant liquidity conditions
and a sudden, unanticipated rise in risk-free rates across the curve would
dampen sentiment towards the sector. Lowered physical property price growth expectations would be a de-rating catalyst for the stocks in the sector.

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Quote:

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Originally Posted by proud owner

talk to some real honest businessman .. ask them ..if it is true that in china .. alot of companies are making money, not from their core business, but from their diversification into property development. ..

it is frightening to know that any NON property based business, can allocate funds into developing properties..as it is the fastest money making avenue in this bull run ..

also .. devlelopers can say what they want .. if mkt crash .. can buyers hold them responsible ? and sell back what we buy from them ?

---

Hi proud owner,

thanks for the heads-up. I shall follow-up on that with some people I know with businesses in China.

Property is a relatively illiquid asset that requires a significant financial commitment. It would be prudent for potential buyers to do their own due diligence before signing on the dotted line, caveat emptor. Nobody else can be responsible.

Regards.

Hi Moby,

thanks for the article by Andy Xie. I had missed that article.

I have always found Mr. Xie's articles to be well thought out, informative, and eloquently written. I have to say that the leakage of e-mail (which was critical of Singapore) that lead to his dismissal from Morgan Stanley was a severe lapse of discretion on his part; some things are just not meant to be put in writing. However, that does not change my opinion of his analytical skills.

The only point that I take issue with in his article was the timeline 2012. Reporter has also highlighted this point. Although he did qualify that by stating the time lag between currency creation and inflation.

The old saw goes, " The market can remain irrational longer than you can remain solvent". In this case, "China can subsidize their economy longer than you can remain solvent" may be more apt. The Chinese have deep pockets, and it is imperative for them to keep the economy going in order to maintain social cohesion. Certainly, all this must come to an end. The question is when (2012 or otherwise), and how will it all end?

:2cents:

Before we look at the Next Asia Crisis, let's look at a Past Asia Crisis, and how strong faith in the Propertism religion will help one overcome a crisis.

During my sermon in the Property market sentiments 2010, I highlighted the plight of 34 unfortunate families who bought Pin Tjoe Park back in 1984, shortly before Singapore's first recession in 1985.

http://i305.photobucket.com/albums/n...k28Oct1984.jpg

The recession of 1985 hit sharp and hard!!!

The market plunged 38%. Each apartment at Pin Tjoe Park plunged from an average of $882,000 to $547,000, a whopping loss of $335,000 !!!

The recession of 1985 was so bad that even the Godfather of Propertism, FEO, had to suspend bonuses for the entire year of 1985, due to the "serious recession and glut" !!! :scared-4:

http://i305.photobucket.com/albums/n...sBonus1986.jpg

As usual, when the sun is down, the Hungry Ghosts SEE BLOOD and come out to romp. In those days, the Straits Times forum complainers did not have to provide their real name. So this one called "Pro Market Forces" wrote gleefully "It is my view that people have been gazing at the crystal ball through rose-tinted glasses ... the property companies have made money. They have continued to push up prices because of their buoyed expectations. They tendered for projects, outbid each other, and pushed up prices ... " Hmmm ... does this sound familiar? Somehow I have a sense of deja vu here.

http://i305.photobucket.com/albums/n...Market1985.jpg

Can you imagine the despair of our brethren at Pin Tjoe Park?

The sky was dark and the future was bleak. There was no light at the end of the tunnel. :scared-3: :scared-3: :scared-3:

Fortunately, a Saint descended from Heaven at this moment to give some words of encouragement.

http://i305.photobucket.com/albums/n...ceBack1985.jpg

Saint Hu said, "The property market must bounce back if the economy continues to grow. If you assume the economy as a whole is going to continue to grow, property must recover because we have limited land."

With these words of reassurance, our brethren's faith in Propertism was greatly strengthened.

They realised that properties should only be bought. Not sold. Unless through en bloc, then quickly buy a replacement property.

Business Times – 22 Sep 2006
Pontiac Land Group buys Pin Tjoe Court for $201m
(SINGAPORE) The existing Pin Tjoe Court comprises 32 apartments and two penthouses. The apartment owners will receive $5.5 million per unit and the penthouse owners $11 million per unit. These sums are about 75 per cent more than the units could fetch had they been sold individually.

Pin Tjoe Park Prologue

Lesson in Propertism: Why properties should only be bought. Not sold.

The total cost to developer was $27 million.

http://i305.photobucket.com/albums/n...er19821227.jpg

Total sales (excluding two penthouses) was 32 x $900,000 per unit (average) = $28.8 million. Barely covered costs. The developer retained the two penthouses for itself (luckily for the developer).

http://i305.photobucket.com/albums/n...le19841109.jpg

Assuming the developers had kept the two penthouses till en bloc, the two penthouses (2 x $11 million = $22 million) represented all the profit for the developer. :scared-5:

On the other hand, if the developer had not sold the 32 units but kept them for itself (as investment properties for rental income), it would have collected the entire $201 million from the en bloc. :scared-4:

Moral of the Story

Propertism rule No. 1: Properties should not only be bought. Not sold.

Over the past few decades, in fact, developers had been the fools to sell their properties to investors. All the capital appreciation, en bloc or otherwise, would have accrued to the developers if they had kept the properties for themselves instead of selling them.

Propertism rule No. 2: Do not panic.

Why did the developer sell at such low price that it barely covered its costs?

The launch preceded the 1985 recession and the economy was already sputtering. When times were bad, the doomsayers would come out to scare people.

The 1985 recession was touted as "the end of the Singapore story". :scared-3:

Do not panic. :tsk-tsk:

Remember Propertism Rule No. 1: Properties should only be bought. Not sold.

Property prices will always go up in the long term, simply because paper money will return to its eventual value of ZERO.

When in doubt, refer to the Saints of Propertism.

“The modern banking process manufactures currency out of nothing.”.
- Lord Josiah Stemp, Former Director of the Bank of England (1937)

“At the end fiat money returns to its inner value—zero.”
- Voltaire (21 November 1694 – 30 May 1778)

Pin Tjoe Park Epilogue

Lesson in Propertism: Why properties should only be bought. Not sold. Unless through en bloc, then quickly buy a replacement property.

After Pin Tjoe Park's en bloc in Sep 2006, whereby each owner collected $5.5 million, what should they have done with the money?

Scenario A

Quickly buy a replacement property.

e.g. Ardmore Park #23-01, 2,885 sq ft at $2,045 psf transacted $5,900,000 on 20 Oct 2006.

Today, this same unit was sold for:

Ardmore Park #23-01, 2,885 sq ft at $3,051 psf transacted $8,800,000 on 18 Nov 2009.

The owner would have earned another $2,900,000 (although I don't recommend properties to be sold, in the first place).

Scenario B

Use $500,000 to downgrade to a HDB 5-room flat in Marine Parade and keep the balance of $5 million in the bank. (could this be what focus have done? :confused: )

Today, the price of an HDB 5-room flat in Marine Parade has increased to $700,000. A gain of only $200,000 versus $2,900,000 for Ardmore Park.

Moral of the Story

Stay invested.

Let me reproduce part of the Business Times article today by Christopher Tan, CEO of Providend, Singapore's only fee-only independent private wealth management firm.

Business Times - 30 Jan 2010

The importance of staying invested

Many investors who exited market during the financial crisis and waited for the right time to enter are still sitting on cash

By Christopher Tan
CEO, Providend

THE last 12 months have been a humbling process for all in the investment advisory and management business. When the markets came tumbling down, most didn't see the storm coming. And when everyone predicted it to last for a long time, the financial markets recovered just six months later. :scared-4:

During the depth of the crisis, many 'experts' appeared and slammed the buy-and-hold strategy, advising investors to move to cash and wait for the right time to enter. Many who exited are still sitting on cash today.

Staying invested now seems to be a better idea. Those who suggested timing the markets seem to have disappeared overnight. Of course, there are a few who successfully exited and entered the markets again. But how many times can they be so lucky? For we all know that no one can be right most of the time. It remains to be seen what their investment results will be in the next 10 years by guessing the best time to invest. But going by history and plenty of research, I am not the least hopeful.

Having spent more than a decade in financial planning and wealth management across three crises (the Asian financial crisis, the tech bubble and the current crisis), I have concluded that the key to successful investing for most of us is to stay invested and keep investing.

Using time to ride through the volatility and using the average long-term returns of the market to get compounded returns is the best way to reach our goals. :cheers1:

But investors find it hard to believe that it is really so simple :scared-4: . We prefer to believe that there must be someone really smart out there :confused: who has a crystal ball, and can tell the future with great accuracy. Hopefully, the last 12 months have shown us that this is a fallacy. :p

The markets have generally risen over the past 10 months :scared-4: . Gauging by the crazy prices :doh: of properties in Singapore, everyone seems to be bullish again :hell-hath-no-fury: . But please do not let what we have gone through in the last 12 months go to waste. :tsk-tsk:

Quote:

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Originally Posted by jlrx

Scenario B

Use $500,000 to downgrade to a HDB 5-room flat in Marine Parade and keep the balance of $5 million in the bank. (could this be what focus have done? :confused: )

Today, the price of an HDB 5-room flat in Marine Parade has increased to $700,000. A gain of only $200,000 versus $2,900,000 for Ardmore Park.

:tsk-tsk:

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Truly .. Properties should be bought and never sold. I regret it now.. A commercial property I sold at $6.8mil could possibly be worth >$10mil at the current bank loan rate..

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Originally Posted by focus

Truly .. Properties should be bought and never sold. I regret it now.. A commercial property I sold at $6.8mil could possibly be worth >$10mil at the current bank loan rate..

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Hmmm... 6.8m... Who is this guy? :scared-3:

Quote:

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Originally Posted by focus

Truly .. Properties should be bought and never sold. I regret it now.. A commercial property I sold at $6.8mil could possibly be worth >$10mil at the current bank loan rate..

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focus is only 36 years old and already has so much money that he has retired ... a really high flyer! :cheers1:

If not for Reporter's expose, I would have thought that a retiree should be at least 60+. Reporter is really good at snooping! :scared-5: Lives up to the name "Reporter"! :p

Quote:

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Originally Posted by Reporter

... 1984 ... 6 years your senior
... 1986 ...
... OVA ...


You at 36 years old is a retiree with $6M?
Cool!

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Talking about commercial properties. Let me deliver a sermon on "Commercial Propertism".

Today, we shall look at a farsighted Propertist, Mr. Syed Abdullah bin Salim Alhabshee.

http://i305.photobucket.com/albums/n...es19300821.jpg

http://i305.photobucket.com/albums/n...Shophouses.jpg
The orange shophouse on the left is 220, River Valley Road; the blue shophouse on the right is 218, River Valley Road.

Both were available in 1930 for a total princely sum of $3,800. :scared-4:

“The modern banking process manufactures currency out of nothing.”.
- Lord Josiah Stamp, Former Director of the Bank of England (1937)

“At the end fiat money returns to its inner value—zero.”
- Voltaire (21 November 1694 – 30 May 1778)

Supreme Irony

Lesson in Propertism: Properties should only be bought. Not sold.

For those who like to blast Hong Leong / CDL Group boss Kwek Leng Beng everytime he is bullish about the property market, the following advertisements will bring tears to your eyes.

You will realise that property developers are like our parents who give us money. Criticising a property developer is like biting the very hands that feed us.

The ad on the left read "A Masterpiece in Ultimate Living Pleasure, apartments from $79,000 upwards".

http://i305.photobucket.com/albums/n...um19790507.jpghttp://i305.photobucket.com/albums/n...ns19771105.jpg

http://i305.photobucket.com/albums/n...ds19771113.jpg

The ad on the right read "Future Secure ... In times like these, there's no better investment than in a home :scared-4: of your own. The scarcity of land alone is a good reason :scared-4: :scared-4: to put your money in it. Not to mention the fast shrinking buying power of the dollar :scared-4: :scared-4: :scared-4:. Hong Leong Gardens offer you the perfect hedge against inflation :scared-4: :scared-4: :scared-4: :scared-4:".

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Originally Posted by Business Times - 8 Mar 2007

CDL buys Hong Leong Garden for $131.5m


Announcing its second land acquisition this week, City Developments, the listed property arm of Singapore’s Hong Leong Group, said yesterday it has bought Hong Leong Garden Condominium in the West Coast area through a $131.5 million collective sale.

The 25-year-old Hong Leong Garden Condominium site was originally developed in the 1980s by the Hong Leong Group. It currently houses 180 residential units in six blocks.

While this phenomenon of developers buying back a project they developed years ago with the aim of redeveloping the site is still relatively uncommon in Singapore, it may gather pace going ahead, say some industry players.

Such a trend would reflect developers’ ’sentimental attachment’ to projects they developed years ago, as well as their confidence in the particular location. ‘They’ve tasted success during the first round of developing the site, so they may have the inclination to embark on redeveloping the site,’ Ms Tang added.

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$131.5 million divided by 180 units = $730,000 per unit (average).

Hong Leong / CDL Group sold their apartments at $79,000 per unit and then bought them back at $730,000 per unit.

Who else in Singapore will give you so much money, other than our beloved property developers? :p

http://www.gtp.com.sg/ProjectImagesU...dredtrees2.jpg
http://1.bp.blogspot.com/_Aucit-XSgA...s400/logo2.jpg

Talking about our beloved property developers who have given us so much money over the past few decades, let's pay tribute to Mr. Ng who developed 72 terrace houses at Jalan Pacheli in 1962.

http://i305.photobucket.com/albums/n...lanPacheli.jpg

Business Times - 03 Feb 2010

OBITUARY: NG TENG FONG

Mr Ng's first property project back in 1962 was a 72-unit terrace housing development at Jalan Pachelli in the Serangoon Gardens area.

The Straits Times - 3 Feb 2010

By 1962, he had saved enough money to develop a small housing estate behind Serangoon Gardens - 72 single-storey terrace houses which he sold at $20,000 apiece. :scared-4:

9 May 2007
25B Jalan Pacheli transacted $1,920,000 apiece. :scared-4:

Each household had benefited $1,900,000 apiece. :scared-4:

(By the way, the total he collected from the 72 terrace houses at $20,000 apiece was only $1,440,000, which was even less the price of one terrace house today).

Biggest Bubble in History Is Growing Every Day: William Pesek Commentary by William Pesek


Feb. 4 (Bloomberg) --

Real estate, stocks, credit. China sure has its share of bubbles. Oddly, little attention is paid to the biggest one of all.

China’s currency reserves grew by more than the gross domestic product of Norway in 2009. Its $2.4 trillion of reserves is a bubble all its own, one growing before our eyes with nary a peep out of those searching for the next big one.

The reserve bubble is actually an Asia-wide phenomenon. And we should stop viewing this monetary arms race as a source of strength. Here are three reasons why it’s fast becoming a bigger liability than policy makers say publicly.

One, it’s a massive and growing pyramid scheme. The issue has reached new levels of absurdity with traders buzzing about crisis-plagued Greece seeking a Chinese bailout. After all, if economies were for sale, China could use the $453 billion of reserves it amassed last year to buy Greece and Vietnam and have enough left over for Mongolia.

Countries such as the U.S. used to woo the Bill Gross’s of the world to buy their debt. Now they are wooing governments. Gross, who runs the world’s biggest mutual fund at Pacific Investment Management Co., is still plenty important to officials in Washington. He’s just not as vital as the continued patronage of state asset managers in places like Beijing.

Next Step

You have to wonder what folks at the International Monetary Fund are thinking these days. Their aid packages tend to come with messy requirements, such as “get your economy in order.” China’s are merely about scoring resources or geopolitical points. We have already seen China throw lifelines to Wall Street giants, including Morgan Stanley. Entire countries seem like the natural next step.

China’s huge arsenal of reserves is increasing its global influence. The trouble is, China is trapped in an arrangement of its own making. As China and other Asian nations buy more and more U.S. Treasuries, it becomes harder to unload them without causing huge capital losses. And so they keep adding to them.

“This is a titanically large foreign-exchange trade,” says David Simmonds, London-based analyst at Royal Bank of Scotland Group Plc. “It’s the biggest one history has ever seen and there’s nowhere for these reserves to go.”

China aims to diversify out of U.S. Treasuries into other assets and commodities. The question that governments are grappling with is which markets are deep enough to absorb China’s riches? Gold? Oil? Euro-area debt? The Madoff family’s next Ponzi scheme?

Ending Badly

The challenge for China alone is like trying to park an Airbus A-380 super-jumbo in a Volkswagen.

Like all pyramid schemes, there’s no easy end in sight and things could end badly. If the dollar collapses, panicked selling by central banks looking to limit losses would shake global markets more than the U.S. credit crisis has.

Two, reserves are dead money. The wisdom of currency stockpiling came from the chaos of 1997.

Speculators sensed authorities in Thailand were sitting on few reserves, and they were right. Their attack on the Thai baht set the stage for an Asian meltdown. Governments spent the 2000s determined not to repeat the mistake.

Asian economies have too much of a good thing on their hands.

In July 2007, on the 10th anniversary of Thailand’s devaluation, Asian Development Bank President Haruhiko Kuroda said the accelerating accumulation of reserves was a major concern for the region.

Too bad nobody listened to him.

Vast Sums

These huge sums of money could be used to improve infrastructure, education, health care and reducing carbon emissions. Never before have we seen such a misallocation of such vast resources. Asia can do better with its money.

Three, reserves add to overheating risks. When policy makers buy dollars, they need to sell local currency, increasing its availability and boosting the money supply. Next they sell bonds to mop up excess money in economies.

It’s an imprecise science that often leads to accelerating inflation. The strategy works out to be an expensive one.

The stakes are rising fast.

The risks in Asia are skewed firmly in the direction of inflation.

The focus is now on central banks to see if they will pull liquidity out of economies with higher interest rates.

More attention should be on how reserve management is working at odds with that goal.

Central banks face a difficult task. They must withdraw excess liquidity without devastating their economies and running afoul of politicians.

Only now is Asia finding out how some of its economic-protection tactics are amplifying the challenge.

Asia has been holding down currencies to support exports for more than a decade. It’s silly to ignore the side effects of that strategy for the region’s economies.

Think about how Dubai shook the global economy, or how the mere hint that Chinese growth may dip below 8 percent inspires panic.

These disappointments pale in comparison with the turbulence that may come from Asia’s biggest bubble popping.


(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

For the past decade, we saw a trend where by some "country" was envy about the growth in Asia Pacific Region.

During 1990s when Asian countries was doing so well, someone had to destroy it because "they" were afraid that the Asian Dragons will surpass them. But unfortunately "they" fail to do so, only certain Asian countries were effected.

Result: Certain institution came in to "rescue" , but in return they were messing with others' countries internal politics.

During early 2000, when "their" country were having a bullish property market and stock market, nobody commented whether there were bubbles or the market was going to crash. Almost everyone were caught by surprised on the collapes of property market, financial , insurance industries worst were they were so many fauld on their financial system.

Result: "They" print their money like nobody business, but " their " currency is still graded as "safe heaven" Just image if other countries are doing the same thing.

When "their" currency is worth less than before resulting in depreciation, "they" try to use political situation and trade regulation to let these so call "undervalue" currecy to appreciate so that "they" could buy commedities in a cheaper price.

Now when "they" saw the Asian Dragons growing and surpasses "their" country, these peoples are trying to raise issues and rumous to effect others.

Summary: These "peoples" are afraid that the Asian will replace their position as so call "Big Brother" and they are still proud of the core values and their slogan of " XXXXXXX DREAM"


FAIR ?


*Sorry for the racist/bias comments, but when you think again, the fact is there .....

Quote:

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Originally Posted by ppty

Biggest Bubble in History Is Growing Every Day: William Pesek Commentary by William Pesek


Feb. 4 (Bloomberg) --

Like all pyramid schemes, there’s no easy end in sight and things could end badly. If the dollar collapses, panicked selling by central banks looking to limit losses would shake global markets more than the U.S. credit crisis has.

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Wise men had already predicted 300 years ago that the dollar will collapse.

“At the end fiat money returns to its inner value—zero.”
- Voltaire (21 November 1694 – 30 May 1778)
And you want to be holding something valuable, like properties, rather than dollar notes.

I foresee that there is a reasonable chance that everyone here will soon become a billionaire - but only if you hold on tightly to your properties.

Remember Propertism Rule No. 1 - Properties should only be bought. Not sold.

Before you laugh at the second article below on Zimbabwe, please read the first article.

The Straits Times - 3 Feb 2010

By 1962, he (Mr. Ng Teng Fong) had saved enough money to develop a small housing estate behind Serangoon Gardens - 72 single-storey terrace houses which he sold at $20,000 apiece. :scared-4:

NewsZimbabwe - 11 Dec 2009

Zimbabwe's trillion dollar house and billion dollar bed

By MacDonald Dzirutwe

A TRILLION dollar house, billion dollar bed and a million dollar beer. That and a severe cash squeeze are the latest sign of runaway inflation that has vexed consumers in President Robert Mugabe's Zimbabwe.

A newspaper advertisement shows a four-bedroom house with a pool and tennis court in Harare's leafy Glen Lorne suburb selling for just under ZW$1 trillion.

An identical property cost half the price a month ago. :scared-4:

"Prices are increasing but my salary is not :doh: and that is a very big problem because it's now difficult to settle my bills," Humphrey Chitovhoro, a trainee with a Harare accounting firm said, a line now recounted many times by Zimbabweans.

http://yeinjee.com/wp-content/upload...ion-dollar.jpg

http://www.nytimes.com/images/blogs/...Zimdollars.jpg

http://i305.photobucket.com/albums/n...hGovtCanDo.jpg

In 1994, during the market bullrun, Mr. Goh Chok Tong said "People are prepared to pay such high prices for the private properties. I will find it difficult to pay these prices myself".

Instead of grumbling about skyhigh property prices in 1994, he should have bought some bungalows at Bukit Timah, like what this smart guy below had done.

http://www.asiaone.com/A1MEDIA/busin...boydau_350.jpg

Businessman used to guard eggs in a coop

Tue, Jan 12, 2010
The Straits Times
http://www.asiaone.com/a1media/site/common/blank.gifBy Lorna Tan, Senior Correspondent

Entrepreneur Boyd Au could easily have retired in 2007 when he pocketed a few million dollars from selling off his 60 per cent shareholding in his business.

Q What property do you own?

I own a two-storey, 9,000 sq ft bungalow in Bukit Timah, with a built-up area of 5,000 sq ft. I do not wish to disclose the exact purchase price, but it was bought in 1996 at a lower price than the current $900 per sq ft.

Prior to the bungalow, I owned a 5,600 sq ft semi-detached house in Bukit Timah. It had a built-up area of 4,500 sq ft.

I bought it in 1994 in excess of $900,000 and sold it in 1996 for $3.1 million.

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Let's retrace his steps.

1. Bought Bukit Timah 5,600 sf Semi-Detached at $900,000 in 1994.

2. Sold Bukit Timah 5,600 sf Semi-Detached at $3.1 million in 1996.

3. Bought Bukit Timah 9,000 sf Bungalow at "undisclosed price" in 1996 (we can estimate by (9,000/5,600) x $3.1 million = $5 million).

4. Today the Bukit Timah 9,000 sf Bungalow is worth $900 psf or $8.1 million.

This is despite the 1997 Asian Financial Crisis, 2000 Dot Com Bust, 2001 September 11, 2003 SARS, 2008 Lehman Brothers.

Propertism Rule No. 1 - Properties should only be bought. Not sold.

Unless it's en bloc or like this guy, upgrading to a larger bungalow. Better be fast.

Don't leave a gap in between. Never, never downgrade to HDB :tsk-tsk: or be tempted to keep the money in the bank in order to "feel rich" and try to "time the market".

Otherwise you will end up complaining about "high prices for the private properties. I will find it difficult to pay these prices myself".

“The modern banking process manufactures currency out of nothing.”.
- Lord Josiah Stamp, Former Director of the Bank of England (1937)

“At the end fiat money returns to its inner value—zero.”
- Voltaire (21 November 1694 – 30 May 1778)