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PRIVATE PROPERTY PRICES IN SINGAPORE - GUESSTIMATES
quote: "Success is a thought process"
Merrill Lynch & Co., Inc. Sells Collateralized Debt Obligations For Lone Star-The New York Times
Tuesday, 29 Jul 2008 07:20am EDT
The New York Times reported that Merrill Lynch & Co., Inc. has sold Lone Star almost all of its troublesome collateralized debt obligations, once valued at nearly $31 billion, for the fire-sale price of $0.22 on the dollar. (Source Google finance/Reuters)
Collaterised Debt Obligations are debt that are mixed with Sub-prime debt and packaged and sold as grade AAA debt/bonds. Obviously these bonds (CDOs) are not as safe as they seemed. I am puzzled by why Merrill Lynch sells their CDOs at S$0.22 to the S$1 dollar. Why such fire sale? It could indicate that they know something that we don't, it's much worst than we think it is.
Which is which?
Merrill thinks CDOs are worth 0.22 for the dollar
Blackrock thinks Sub-prime, Alt-A and some prime debt are worth 0.68 for the dollar.
If we use Blackrock as a benchmark, they have bought at a discounted 32% rate for US property loans which are backed by "in-troubled" property assets, then Singapore's case is no where as worse.
1. Property Supply and demand in Singapore is still fairly balanced (supply is still tight, equilibrium will likely be reached in 2011).
2. There is a lot of liquidity in the market, measured by M3 money supply.
3. The cost of financing a property has been reduced, marked by reduced Sibor, SOR rate.
4. While the economy is expected to slow down quite a bit due to the bleak US economic outlook, it is no where near dire.
5. The major banks are all well capitalized.
If someone holds me at gun-point to make a prediction, I would say private property prices will drop no more than 20% from current 2008 Q3 levels.
Your thoughts?
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2 comments:
20% is a significant drop! 20% of a one million dollar property is $200,000.
My analysis is that the price drop will be different for different market segment. For details of my analysis, ps refer to:
http://smartpropertybuyer.blogspot.com/2008/05/making-forecast-for-singapore-property.html
Dear Sir,
Thank you very much for your feedback.
I concur with you that the drop will be uneven. Perhaps I have not been very clear, I am referring to a generic drop in Private Residential Index of 20%. I should be more clear in the future. Thanks for pointing it out.
Private property prices will not likely drop more than 20% and the government will try their best to regulate a smooth and orderly decline. A >20% drop will render newer purchases into the negative equity position given the 20% down-payment requirement.
Thanks once again,
Paul
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