Singapore MBA: MBA graduates increasingly out of work

quote: "Success is a thought process"

MBA students these days are no longer guaranteed work. The recession has taken it's toll on many people. Senior executives along with middle management has been hit hard.

An MBA is an MBA. It does not confer additional value. But without an MBA, it is a detriment.

There are many MBA programs in Singapore, some more than 80 MBA programs. Macquarie Graduate School of management's MBA program with it's rigourous training and extensive number of subjects are one of the most demanding programs. The Singapore Campus is also welcomed by seasoned senior executives as the cohort of students all bring with them ample experience and have much to contribute to the learning of each other.

Such a rigourous program such as MGSM MBA should carry on as the skills learnt are very useful for helping it's graduates find out, start a business or perform well in their careers.

It is very sad that MGSM has chosen to slow down enrollment in Singapore and instead focus on HK and Sydney.

We do hope that MGSM in Singapore decides to re-start their engines.

Appointments: Professor Richard Petty gets elected as President of CPA (Australia)

quote: "Success is a thought process"

CONGRATULATIONS to Professor Richard Petty on his appointment as President of CPA (Australia).

Professor Petty is also the associate dean of Macquarie Graduate school of Management as well as the chairman of an investment company.

Let us all congratulate Professor Petty in this new role.

FIREFLY MISSION: Rebuilding Schools and Disaster Relief

quote: "Success is a thought process"



Bringing you an update from Firefly Mission.

Firefly is a non-profit organisation. We had wanted to give back to the society

but we never had the time. We always give ourselves one excuse after

another. Seeing a dying child, we shed a tear, but we did not do anything,

there were no follow up.

What does it take for us to do something? We are ashamed to say that we

have yet to do anything.

But if you could do contribute your time, effort or money or all of the above,

do contact them.

This is the least we could do since we have yet to contribute anything.

http://www.fireflymission.org

enquire@fireflymission.org


LOCAL PROJECTS


FireFly Mission Updates & Announcements (28-February-09) Greetings

in peace!


2008 has been an extremely busy & most fulfilling year for the Firefly

Mission. In addition to all our regular missions, we had been touched by the

plights of thousands and millions in the Irrawady Delta, Myanmar when

deathly Cyclone Nargis swept through the southern tip on 2-May-2008. More

than 200,000 lost their lives and another two million suffered lost of homes,

farms, schools etc in varying degrees. The natural disaster had given us the

opportunity to witness the nature of “impermanence”, intense “sufferings”

and of course the “non-self” nature of all conditioned existence. At the same

time, we also witnessed the positive aspects of unconditional love and

compassion from people like you. With all your support, encouragement,

generous donations and most importantly faith in us in carrying out such

heavy task of reliving sufferings of thousands, we are happy to share with

you that our relief and rehabilitation work had been carried out successfully,

benefiting thousands directly and tens of thousands indirectly in more than

20 villages located in the worst hit townships of Bogale, Moulmeingyun,

Dedaye and Pyapon.


Below is the Table showing the list of schools, clinics,

hostels and bridge, their locations and expected completion dates of our

rehabilitation effort. Schools & Rural Clinics for Reconstructions:


Shauk Chaung Village School Mawlemyine Gyun Completed

The Pye Chaung Village School Mawlemyine Gyun Completed

Gyo Phyu Upper Village School Mawlemyine Gyun Completed

Tasay Chaung Village School Mawlemyine Gyun Target completion 15

March

Kanaso Chaung Lay Village School Mawlemyine Gyun Target
completion 15 March

Phoe Chit Village School Mawlemyine Gyun Target completion 15

March

Nyein Oo Village Middle School Mawlemyine Gyun Target completion
early March

Gyo Phyu Lower Village School Mawlemyine Gyun Mid May

Kyonthin Village School Pyapon Target completion 15 March

Gwe Kone Village School Dedaye End May
Khayandi Chaung Village School Bogale Mid May

Taman Chaung Village Clinic Bogale Target completion early March

Byaingisi Village Clinic Pyapon Target completion early March

Nyein Oo Village Clinic Mawlemyine Gyun Early May

Shwegyin Girls Hostel Bago Division Completed

Shwegyin Boys Hostel Bago Division Target completion end June

Nyein Oo Bridge Mawlemyine Gyun Early May

To better relay the message of work done last year, we had compiled and

composed a short video, please click on to the web-address below


For 2009:

We started off by organising the Chinese New Year Celebration with Wat

Ananda Youth (WAY). We celebrated with more than 200 special guests

from: Metta Welfare Home, Moral Welfare Home, Institute of Mental Health,

Children Cancer Foundation and celebrities from the Mediacorp's "Life

Transformers".

During the celebration, we had also soft-launched the “Children Sponsorship

Programme”. In brief, this is to support 54 children in Shwegyin Children’s

Home. These children are either orphans from the Nargis or children from

very poor in the border areas of Myanmar. Due to your generosity and

compassion, all the sponsorships of S$30/month/child had been fully

subscribed within 2-3 weeks. However, we expect an increase in intakes of

children to the home, once the 2 blocks of hostels are completed by end of

June 2009.


Other On-going/New Projects:


Visakha School, Chitagong Hill Tract, Bangladesh

2 Hostels in Thai-Border @ Maesot

Middle School @ Yathar Village, Myanmar

School @ Lashio, Myanmar (new)

To provide 15 sets of computers to Buddhist Institutions in Semarang,
Indonesia

Vocational School @ Htantabin (almost completed)

New School Block @ Fang, Thailand (almost completed)

We had also taken great effort in planning the following trips and missions for you:
Semarang-Borobudur Trip 2009 (26 to 31 May 2009)
Thai Border Mission @ FANG & MAE HONG SON (June 2009)
Meditation Retreat @ Sasanarakkha Retreat Centre (26 June to 4
July 2009)
Kathina @ Sasanarakkha Buddhist Sanctuary (October 2007)
Humanitarian Mission @ Myanmar (5 to 13 December 2009)
Pha Pa @ Maesot, Thailand (25 December 2008 to 1 January 2009)

For registration & more information on the trips, please visit our

http://www.fireflymission.org

enquire@fireflymission.org


For all the above projects to succeed, we would need your continual

support.

Thanks again for your encouragement, support and patience.


May All the Merits Accrued Brings Much Joy, Happiness, Good Health,

Peace and Wisdom to You & Loved Ones

May All Beings Rejoiced in All Our Merits

May All Beings be Well, Happy and Peaceful

… together we light up the world


With Much Gratitude & Metta

Yee Kong and All Exco Members

for firefly mission
Website: www.fireflymission.org
Email: enquire@fireflymission.org

ROS Ref. No.: 1062/2005

Supply and Demand Made Easy - PART 1 and 2

PART 1



quote: "Success is a thought process"

I particularly like this video as it is very simple to understand for beginners.

PART 2

MGSM - 985T - Strategic Finance (Real Option Considerations in Property Investing)

quote: "Success is a thought process"

REAL OPTION CONSIDERATIONS IN PROPERTY INVESTING
Strategic Finance (MGSM 985T)
by: Paul Ho Kang Sang

Tel: 6100-0608

Paul Ho is available for Consulting or Permanent Roles.

Executive Summary

HardUp Pte Ltd, a property holding company is caught unprepared in the sudden economic downturn and needs to let go of one of their priced asset to raise $1m dollars, in order to move the property, they have promised to buy-back the property at a price of at least $800,000 anytime from the 3rd to 5th year. The property’s plot ratio is not optimized as the current cost to build another storey is not justified based on the current price per square feet.

Opportunist Pte Ltd evaluated the various investment scenarios and by using URA’s Price index as a proxy for calculating annual asset price volatility.

As Opportunist Pte Ltd is given the 1st right of refusal, it represents itself as an option. A series of scenarios were analyzed.

• NPV analysis
o The decision is not clear cut as asset price valuation is uncertain
• Purchasing the investment with Buy-back option
o This option is valued at $126,341, while cost is $230,000
o The buy back option is only worth $1,405, not as valuable as the impression it gives.
• The expansion option
o This option in only worth $35,330.
o The option including rental cash flow is $160,672.
• American Perpetual Option – Held into perpetuity
o As the option (down-payment) has no expiry date, some assumptions were made, and it returns a value of $1,513,135.

The bulk of the returns came from the rental cash flow and the option has very little value due to the low volatility because URA’s price index is already an aggregate weighted value. This probably reduces the volatility and option value of the investment. However due to the nature of the landed property, transaction volumes are low, URA index best represents a broad spectrum.

As the Option does not have an expiry date, the $200,000 downpayment used to buy the property becomes equity while $30,000 is transaction costs. So the true option price is around $30,000. The Investment is $230,000, the possible returns based on expansion or buy-back options range from $126,341 and $160,672 (at risk free rate), this represents a very good investment return which is amplified by a 5 times leverage.

Although the value of American perpetual option value seems arbitrary and high, Opportunist Pte Ltd can use the figure as a guide and get around the Optimal Stop time by using a Time-bounded way to re-evaluate the investment after the 5 years is up, whether it meets their internal Selling criteria. However there are also risks of Opportunity cost if asset values falls. This means that the company would then be “forced” to hold on to the option.

Overall, the management of Opportunist Pte Ltd recommends the Board to INVEST.
Introduction
The investment scenario involves a property investment scenario.

With the recent turn of economic events, HardUp Pte Ltd, a property holding company is looking to sell one of their many properties in the open market to raise cash for operational needs. As the market condition is not favourable, HardUp Pte Ltd has to make the investment attractive.

HardUp Pte Ltd put up their priced asset, for sale for at valuation of S$1 million dollars in District 15, a well-known enclave for Expatriate living. HardUp Pte Ltd has received a 5 year lease commitment with no diplomatic clause nor exit clause, therefore rental income is virtually guaranteed, but paid in arrears of 12th months. This is of not much use to HardUP as they really need to raise S$1 million dollars NOW. So HardUp Pte Ltd approached Opportunist Pte Ltd with an offer to sell the house at S$1 million, with rental contract transferred to Opportunist Pte Ltd and a buy-back guarantee option of S$800,00 anytime after 2 years, up to end of year 5 in case Opportunist Pte Ltd wants to offload the property and there is no risk of default of HardUP Pte Ltd.

The property description is: -



As HardUP Pte Ltd provides a buy-back guarantee at S$800,000 after the end of 2 years up to end of year 5. The proposition seems attractive and therefore wants to evaluate whether to go ahead with this investment.

Net Present Value Calculation



Net Present Value of investment if asset value remains at S$1m. Based on this scenario, Opportunist Pte. Ltd. should invest, based on the Risk Free hurdle rate.



However, if the asset price falls to S$921,800, NPV almost equals ZERO.



At a minimum Hurdle rate of 10% (required by Opportunist Pte. Ltd. and assuming asset value stays at S$1,000,000 the NPV just made it). It seems that the investment is borderline.
Given that this opportunity is not deferrable, the worst case that will happen is a loss of S$101,000 at a Risk Free rate of 3.8%. The buy-back guarantee only limits the loss, in the event of a loss and Opportunist Pte. Ltd loss is capped at S$101,000.



The sensitivity analysis is unable to help the management make up it’s mind. There are many un-factored variables such as Asset Price fluctuation.

METHODOLOGY

The management evaluated a few methodologies, including Monte-Carlo simulation of a large number of outcomes for multiple variables to have a better gauge of investment risk.

However, landed housing supply is lumpy and transaction volume is low, therefore obtaining these large number of relevant samples are hard. There is also time-factor uncertainty as the large number of samples would have to be obtained over ten years of record, meaning that there could be potentially data which were not comparable over the years. Other factors such as political risks, policy risks and various changes cannot be adequately factored. In other words, the analysis would only be as good as the data that you put in.

Therefore the management of Opportunist Pte Ltd decided to use the aggregated Urban Redevelopment Authority (URA) residential price index as a proxy for private property asset values. As the data is already an aggregated and weighted average index and aggregated over the whole of Singapore, this data would have less volatility than the actual investment and the management recognizes this characteristic.


Volatility Using a Lognormal Returns Table




The management have arrived at a volatility of 9.9% based on 10 years of price data and in the calculation uses a round-up figure of 10%. However it is recognized that actual price volatility in the investment property would likely be higher.

ANALYSIS OF INVESTMENT OPTION ON IT’S OWN AND WITH BUY-BACK OPTION AT $800,000

Management of Opportunist Pte. Ltd. thinks that there is another way to value this option to invest. As the investment presents itself now and has to be decided now, there is no option to defer. Management can however value the option to take up the BUY-BACK option from HardUP Pte Ltd to abandon the house at S$800,000 at a loss anytime from year 3 to year 5.




Using a Risk-neutral approach, based on volatility of 10%, the asset price varies from 606,530 to 1,648,720.




We replaced the lower value with the guaranteed buy back in year 4 and year 5.

The buy-back option is only worth 1,405 dollars (1126,745 – 1125,35), however the asset (in cash flow) that can be had from this investment cash flow alone would be worth S$126,341.

If $230,000 down-payment has to be made for this house, $126,745 is definitely not a viable investment.

The next investment scenario is to look at construction of another storey and add 1000 square feet to the build-up area at a cost of $600,000. For ease of calculation, we will assume that the project can be completed very fast and completed in negligible time.

CONSTRUCT AN ADDITIONAL FLOOR (BUILT-UP INCREASE FROM 2000 to 3000 SQUARE FEET)

The expansion option is first evaluated. The Cash flow from rental is added back into asset value during the backward induction process. The rental alone gives $125,341 value. It is still smaller than the required down-payment “option” of $230,000. Even with Expansion option, the expansion option only gives an extra $35,330, raising the asset value to $160, 672.



It is assumed that the construction continues without intrusion to the current lessee for simplicity of calculation.

ANALYSIS OF INVESTMENT

Both the buy-back option and the expansion option do not significantly increase the option value given the low volatility of the property market based on URA residential price index.

DOWN-PAYMENT = $230,000

WORST CASE ~ -$100,000
BEST CASE (With Expansion option) ~ $160,672
ASSET VALUE UNCHANGED ~ $125,341
PERPETUAL OPTION ~ $1,513,135

None of the above cases support going ahead with the Investment.

However, the investment should not be viewed purely as a Real Option with a time-limit of 5 years although that is the investment time-horizon of the investment company. The down-payment more resembles that of a Perpetual American Option.




Reference: http://finance.bi.no/~bernt/gcc_prog/recipes/recipes/node9.html, Norwegian School of Management (BI), Department of Financial economics.



This is because since the house is rental guaranteed for 5 years and at the end of year 5, Opportunist Pte Ltd could sell the house back into the open market and make a return of $125,341 (With a 3.8% hurdle rate). Based on that scenario, due to leveraging, the management would still make ~ 10% per annum on this property investment.

In the worst case scenario, if the property drops in value, opportunist Pte Ltd could opt to keep the investment option. If the net rental yield of 2.9% (Average of rental of 5 years) could be maintained, the Perpetual Option Price would be worth S$1,513,135.

Valuing a perpetual option is really hard, there are many methodologies and calculation out there. If it is perpetual, then when would be the optimal stop time? (Geoffrey Poitras, Risk Management, Speculation, and Derivative Securities) One way for Opportunist Pte Ltd to get around this issue is to evaluate the property investment in 5 years and every year thereafter. If it meets an internal hurdle rate of returns, then the company can decide to offload the investment, assuming there are better opportunities out there.

Opportunist Pte Ltd also considered to forego this opportunity and wait 1 year for another opportunity to come by. However, based on the locked in net rental yield average of around 2.9%, waiting represents leakage, the worst case scenario would likely be an asset value of $929,840.

So the key decision really lies on the holding power of Opportunist Pte Ltd. The option for holding the property perpetually, although the value is clear cut, if the property stays below the price they paid for the investment, it represents an opportunity cost of holding the property as $230,000 less $30,000 cost = $200,000 down payment is locked in perpetually until such time that accumulated rental returns exceed $200,000 at net present value plus required investment hurdle rate or if capital value re-bounds.

The company recognizes the opportunity cost of holding the property as well as the potential value of the perpetual option. As the company is cash rich, it recommends to the board to invest in the property.

References
1. Norwegian School of Management (BI), Department of Financial Economics, http://finance.bi.no/~bernt/gcc_prog/recipes/recipes/node9.html
2. Urban Redevelopment Authority (URA), Realis time-series data.
3. Risk Management, Speculation, and Derivative Securities, Geoffrey Poitras, pg 525

Paul Ho is available for Consulting work. The range of services provided: -
1) Equity analysis (Buy side research)
2) Doing a feasibility Study for business ideas. (Individuals with an idea and not sure whether they should make the plunge, should contact me. I can analyze the business idea and prepare a business plan with go to market strategy)

3) Corporate management consulting or projects.

Call me at 6100-0608

Links to Singapore Property Books

BANKS TURNED THE TABLES ON HOME OWNERS

quote: "Success is a thought process"

Just looking at some time ago...

BANKS WERE EAGER
The process of sourcing for Financing for your New Home, under construction home or refinancing is fairly easy. Banks are falling over themselves to lend out money. Anything can be considered.

CUSTOMERS WERE BOSS
Customers would shop for the cheapest package, the best loan, etc. You find the best loan then you submit into the bank for approval.

and compare it with NOW...

BANKS ARE NOW WARY
Now banks view anything that walks as a sub-prime risk. With properties valuation dropping, many banks have tightened credit. Some banks have stop Term Loans Outright.

CUSTOMERS ARE SQUEEZED
Now, customers are increasingly not in a position to obtain the best possible packages. The old method of finding the best package and then applying for a loan does not work anymore unless you have millions of dollars and a stable income. Now it is, "which bank dare to lend you money." If you pass their Credit ACID tests, then you choose from the packages that they have and you optimise the mix and match of packages.

It is amazing how quickly the tide turns. When that happens, many people inevitably get burnt.

What is sad is, most banks are flushed with cash during the good times. Banks will try to lend money to you when you least need it. Cheap credit leads to asset price inflation, many people end up over-paying for properties.

When the tide turns, property prices start to fall, the bank's Loan to Valuation (LTV) increases. This causes the banks pain, if the fall is severe enough (i.e. >20%), that will typically wipe out the most recent Home Loans which were borrowed at 80% financing. Banks will start to tighten.

During this time, many people will need money for various reasons. And Banks, instead of lending out money to smooth out the economic decline for a soft landing, further tighten their credit, exacerbating the severity of economic slowdown.

It is a typical of a boom and bust cycle. So don't let this BOOM and BUST economic Chameleon catch you... It could be painful.

US GOVERNMENT KNEW ABOUT THE FINANCIAL CRISIS IN 2006

quote: "Success is a thought process"

The fundamentals of the economy is strong, John McCain the US presidential candidate said in 2008.

I think the US companies are probably one of the most competitive on earth. BUT the US economy is fundamentally strong?

US Trade secretary Hank Paulson visited China in 2006 at the behest of George Bush. During the visit to China, he addresses issues such as trade imbalance, and lectures China on over-saving and pressures China to re-value China's currency.

One of the issues was that China used it's massive savings to buy US treasury bonds. This in effect finances the US trade deficits, but on the other hand, it keeps China's Yuan artificially low as the reserves/surplus was immediately shipped out of China.

I remember (though I can't find the article, someone who has it, please send it to me) that Hank Paulson was asking China to diversify it's reserves. He was actively Touting Freddie Mac and Fannie Mae bonds to China, in that visit.

China said, thanks but NO Thanks.

Hank Paulson was the ex-CEO of Goldman Sachs, he has enough knowledge to know that Freddie Mac and Fannie Mae were time-bombs waiting to blow up. The US government was smart enough to ask China to buy those useless bonds as early as 2006.

In fact the problems of Sub-prime dated back to the early 2000, but over-leveraging, off-balance sheet risks and derivatives were probably started much earlier.

What I could not understand is that, what the US government saw was the "train" running out of tracks, but did not do anything to stop the Financial Train from crashing. Neither did it do anything to slow down the train.

Had China bought Freddie Mac and Fannie Mae bonds in large amounts (like Hank Paulson suggested China should do), these 2 over-leveraged companies would have been able to delay facing the "music" and continue to lend irresponsibly. The US government bail-out would not have been necessary and in case they go bankrupt, China would have been burnt the most.

So the key thing to do is, read more, learn more. Do not despair when it seemed hopeless (for hope is around the corner) and do not GREED when everything seemed perfect (Doom often follows greed). So many of these BOOM and BUST cycles are timed almost to perfection for the well-informed to get more wealthy while the rest gets burnt.

If you think that following the crowd is safe, then you would be happy to know that in the USA, 5% of the people control 90% of the wealth. If the crowd is right, then wealth would be distributed more evenly.

Now that things are very bad and it is set to get worst. But do not despair, people like Warren Buffet has begun to take biggest stakes in well run companies whose share prices have been beaten down. So controlling the emotions is the key to maintaining your wealth in this volatile market.

Is it usually good idea to stretch a home loan as long as possible?

quote: "Success is a thought process"


20 years Interbank Interest rate chart (1988 - 2008) - Adapted from MAS, by Paul Ho Kang Sang, www.propertybuyer.com.sg (info@propertybuyer.com.sg)

Recently i was also offered a 3-month sibor package where the monthly installments are fixed, but the principal paid varies with the interest rate.

I think it sounds like a good package as there is some certainty in the amt of monthly installments paid, but any potential pitfalls from this? And the equity accumulation is quite slow due to the length of loan.

Dear Home Buyer/Owner,

To answer your first question. It is important to understand whether you treat the property as a single home, an investment property or simply a property in which you can use as a collateral for your business.

Different people may react differently as a property can be an emotional issue/decision.

AFFORDABILITY
For some it is an affordability issue, therefore stretching the home loan will allow you to stretch your budget to buy the home of your dreams.

COST / FINANCIAL CONCERNS

Stretching the home loan incurs higher total interest cost. However some investors have been known to stretch the home loan as long as possible to maximize their return on invested capital (If this area is of interest to you, I can elaborate more). Longer term loans tend to be more costly because all loans are structured in such a way that mostly interests are paid during the earlier years. So you will see that your outstanding loan amount seems to be standing still.

On the other hand, some people may opt instead of 30 years, to take a loan of 20 years and at the end of every 2 years, they take another 20 years loan, such that the total repayment may still be 30 years, but they end up paying lesser interest. But it is rather troublesome and few people are inclined to do it.

3-Months Sibor with Fixed repayment structured. In this case, the total interests are variable and re-priced every 3 months, higher Sibor means you pay more interests and less principle. But you have some peace of mind such that you don't have to worry about how much to pay, though you are deferring the cost till later to smooth over short term financial flexibility. Over a 20 year period, interbank rates (Sibor) Singapore dollar Sibor has approached reached about 9% in around 1990. If you are paying Sibor + 0.9%, that would mean you are paying almost 10% interests. Fed overnight rates has gone as high as 20% during the recent financial crisis in which banks stop lending to each other or tightened credit drastically. So markets such as the Libor (London), Sibor (Singapore) are technically not immune to fluctuations in the market and liquidity crunch. And as a rule of thumb, a 3-months Sibor fluctuates more than a 6-months Sibor. While the 1-month Sibor is more volatile than the 3-month Sibor

There are quite a few fine prints which you need to note, it could be a Legal fee clawback or lock-in period penalty. Or other forms of administration fees.

If the loan has no lock-in period, then you are largely open to interest rates shocks (if any). Though Singapore market is generally flushed with liquidity and hence low GDP (economic growth) tends have also have low interest rates, but that cannot be taken for granted. We have seen first hand in the US, whose markets have much more depth and yet the funds dried up when banks tightened credit, leading to sky high interest rates. In fact, the Federal Reserve (FED) has to intervene to pump money into the market to reduce the interest rates as seen in the Sub-prime fiasco.

Where is Interest headed?
There is likelihood that interest rates may stay low (same as 2002 to 2005), but this time, there is some marked differences, the M1 money supply is much higher in Singapore. In fact the money supply has grown much faster than the economy in Singapore since around Dec 2006. From 2003, to 2008, money supply M1 doubled. Surely this money will absorbed into the economy over time if they are not being brought outside of the country, hence this is one of the many possible reasons that the Singapore market is rather resilient.

There is also some risks that US bail-out of private enterprises and banks to the tune of almost 1 trillion (1000 Billion USD), plus US annual trade deficit of over 500 Billion (http://www.census.gov/indicator/www/ustrade.html), the USA cannot afford it.

Even China with the largest reserves on earth to the tune of US$1+ trillion cannot afford to bail USA out (considering that much of this research is already in US government bonds and other financial instruments). Collectively USA corporations are very rich, but there is no way the USA government can make them come out with any money.

There is a real risk that USA might expand money supply (aka print more money), there may be elevated inflation risks and therefore interest rate hikes possibilities. Because money supply takes time to filter down, there is usually a time lag effect. Right now, it's anybody's guess. But within 6 months to 1 year my personal opinion is that it will stay at current levels, perhaps with a little room for slight drop.

The reason why USA is important is because the US market accounts for ~14 Trillion USD in GDP, or about 25% of the world's total output. THe link on GDP, http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)

You can ask me more at info@propertybuyer.com.sg or to the site: -

www.propertybuyer.com.sg

BANKS TIGHTENING CREDIT CAUSES HOME OWNERS PAIN

quote: "Success is a thought process"

CNN money reported that Credit Crunch has begun to hit small businesses. Banks are tightening credit discriminately or indiscriminately. That means, on the balance, the small businesses and individuals refinancing their homes will suffer. For existing home loans, banks may be able to lock users in for longer period of time (not by contract, but by lack of alternative options) as home owners are unable to refinance for a cheaper rate elsewhere.

This will significantly hurt home owner's disposable income. As if the problem is NOT BAD enough, over 70% of the US GDP depended on consumption and may directly cause the US economy to slip.

This must be one of those over-shoots and under-shoot moments where all bad things converge at the same time.

And if you lose your job, banks will certainly NOT ENTERTAIN you. While you are stuck with a higher repayment interest rate, you have no option to refinance because banks generally scorn on "ZERO INCOME" unless you have large equity in your home based on the most ULTRA conservative estimates.

email me at loans@propertybuyer.com.sg for a free un-biased mortgage health check (Singapore only).
www.propertybuyer.com.sg

Below CNN Money (By Emily Maltby - 15th Sep 2008)
Credit crunch hits small businesses
If the inability to land a bank loan is preventing you from expanding, you're not alone.

Shock and awe on Wall Street

More Videos

GE tumbles as investors fret over financial stocks
Paulson: Banking system is 'sound'
Credit crunch hits small businesses
Credit card debt, delinquencies rise
Output dives 4x more than forecast
Issue #1: America's Money - Everyday on CNN

More Videos

(CNNMoney.com) -- Stephani Smith's Maui-based healthy meals delivery company had been thriving since 2004, but needed financial assistance to expand its marketing efforts and Web exposure.

"I was the type of business that in times like this people have to cut out," she explains. "More and more people had to let go of the convenience we offered to save money and instead make their own dinners, pack their own kid's lunches, do their own grocery shopping and eat less organically."

Smith approached Leili McKinley of Haiku, Hawaii, business consultancy Soaring Phoenix in February 2007 to get advice on procuring a bank loan that she believed would help her boost business in a tough economy. With a good credit score and a business partner who had connections with a corporate officer at American Savings Bank, Smith would be a shoo-in for a loan, McKinley thought. So Smith reached out to ASB and Central Pacific Bank (CPF) for help.

"But the banks stalled on her," McKinley said. "Every time we called, it was something different - lost paperwork or required documents that had never been asked for. It seemed that their tactic was to see for how long she could survive without the loan before considering her."

She couldn't. After months of holding on, Smith folded her business.

Around 65% of domestic banks say they have tightened their lending standards for commercial and industrial loans to small firms over the past three months, according to the July 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices, released in August from the Federal Reserve System. That's up sharply from the 50% of banks reporting tighter credit in the April edition of the quarterly survey.

The National Federation of Independent Businesses' most recent Small Business Economic Trends report sings a different tune, saying that that the credit crunch is a Wall Street-only issue. Thirty-four percent of the survey's August respondents, a selection of NFIB members, reported regular borrowing activity. That's in line with historical trends, although 10% said loans are getting harder to land. Only 2% of the owners polled cited the cost and availability of credit as their number-one business problem, far from the record 37% in 1982.

Bill Dunkelberg, chief economist for the NFIB criticized the Bank Lending Practices report's findings, noting that the 52 banks surveyed represent the largest banks in the nation. As chairman of Liberty Bell Bank, a small bank in southern New Jersey, Dunkelberg believes that smaller banks, which cater more to small businesses than to large ones, are doing just fine.

"As a small bank, we're not borrowing deposits to lend out or any of that fancy schmancy stuff," he said. "We have the savings accounts of the little people and we're lending out to them."

But Maria Coyne, executive vice president of community banking for KeyBank (KEY, Fortune 500), a nationwide midsized lending institution, sees banks everywhere clamping down. Even smaller banks that avoided the risky gambles that have decimated Wall Street are hit by the ripple effects of major crashes like Bear Sterns and Lehman Brothers (LEH, Fortune 500).

"Most banks are safe and sound, but these unprecedented times are affecting everything that has to do with banking," she said. "Stock prices have depressed, capital costs have increased, and regulators are more focused on capital adequacy ratios -- even for banks that didn't do sub prime mortgage lending." Banks still want new clients, but Coyne sees them being ultra-cautious.

iReport: How's your business faring?
Credit availability is a mixed story right now, according to Ray Keating, chief economist for the Small Business and Entrepreneurship Council, a small-business advocacy group in Oakton, Va.

"If you are dealing with a bank that isn't in trouble and you have a good track record and relationship with that bank, you'll have less of a problem getting a loan," he said. "But it's only expected that they will want more information to prove to regulators and investors that the loan is worth it. That means that it's a heck of lot tougher for startups and small businesses without track records to get loans."

Entrepreneur Delphine Humphrey, founder of the Mikado Kids Drop Inn childcare center in Arlington, Texas, found financial institutions reluctant to loan her start-up capital despite her great personal credit and a strong business plan developed with the help of experts at her local small-business development center.

"I cried myself to sleep several times," she said, recalling the past year. "We tried four banks and after getting rejected from all four, we decided to get creative." After three months of searching, Humphrey secured a loan from microloan organization Accion Texas. She will open the doors of her daycare for the first time this week.

Tulsa-based business coach Bill Bartmann says it's clear that banks are treating people differently. "They've changed their standards," he said. "They want to see what value you can bring to the bank."

Michele Larson, also a client of McKinley's on Maui, wanted to expand her one-year-old fitness center to another island. She, unlike Smith, procured a loan, but had to jump through hoops with three banks just to get a proposal.

"She was sitting on heaps of cash and had a perfect credit score," McKinley said. "Three years ago, the banks would have come back to her within 30 days. But instead they grilled her on balance sheets, business plan and personal finances for months."

Six months after the time she applied, the bank came back with outrageous terms on the loan. "The conditions were terrible. Basically, the bank wanted to control all my money," Larson said. "Also, there were no fixed rates and at the end of the fiscal year, I had to pay an additional 25% of excess cash flow back to the bank. Thank goodness for my accountant, who helped translate all the jargon and caution me."

Business coach Bartmann, as well as KeyBank's Coyne, emphasize that an entrepreneur's relationship with their bank can make or break a loan today. "It can differentiate you from all the other small business owners who walk into the same bank vying for the same money," he said.

And yet the NFIB remains adamant: "Credit has tightened ever so slightly since 2003," Dunkelberg said. "But there's no seizing up of markets - nothing is frozen on Main Street."

Over on Maui's main street, the view is grimmer. "I'm really shocked that large organizations whose constituents are small businesses are saying that the credit crunch is only affecting Wall Street," McKinley said. "It just seems really off target."

First Published: September 15, 2008: 11:13 AM EDT
Have you had trouble getting a bank loan? Join the discussion.

Market bets that the FED will lower rates

quote: "Success is a thought process"

When the U.S.A. sneezes, the rest of the world catches a cold. Singapore is right smack in the middle of that sneeze as Trade (Import/Export) makes up a large percentage of Singapore's Economy. Weakness in the USA directly impact the economic outlook of Singapore. Major markets are expected to lower rates in expectation of a forecasted slowdown (Source:IMF) of growth worldwide. Interest rates may stay low for at least in the 2009.

Most banks in Singapore charge a Step-by interest rates in which you pay lower interest rates in the 1st year and move on to higher interest rates in the 2nd and subsequent years. In a refinance scenario, the other bank takes over the outstanding loan balance from the previous bank.

However, banks are tightening credit the world over.

If you are expecting some changes in personal circumstances, you may not qualify to refinance your home to get better offers and end up paying elevated rates if the following occurs: -

YOU LOSE EMPLOYMENT
YOU SALARY IS REDUCED
YOUR PROPERTY VALUE DROPS
CREDIT TIGHTENING in general

It may be advisable to get a free mortgage health check to determine your risk level.



Source: IMF, http://www.imf.org/external/pubs/ft/survey/so/2008/RES012908A.htm

"In Western Europe, signs of a future slowdown in credit growth are just now emerging and there is some potential for worsening credit quality as lending has been very robust in some countries and several countries face housing markets considered overvalued, the IMF warned.
Lending in some segments of the corporate sector also expanded rapidly in the first half of 2007 with the rise in leverage buyouts. Weaker quality corporates have already seen a substantial rise in the cost of credit although yields investment grade debt have remained relatively stable. Additionally, a slowing economy will likely exacerbate the tighter credit environment further as unemployment picks up and job growth slows.
Emerging markets have been resilient so far, but face challenges ahead. Emerging market equities have outperformed mature equity markets, but prices in some markets have declined steeply since the start of the year on expectations that the U.S. economy may slow more rapidly. "Signs of spillover are most evident in the sharp fall in private emerging market bond issuance, particularly in some emerging European economies whose banks have relied heavily on external financing to support rapid domestic credit growth," the Financial Market Update stated. Generally, flows to emerging markets have remained positive up to now."

REFERENCE:
CHICAGO (Reuters) - U.S. short-term interest rate futures rose sharply on Monday to reflect higher prospects for a rate cut at or before Tuesday's Federal Reserve policy meeting.

Dealers responded to a fresh crisis in financial markets after investment bank Lehman Brothers filed for bankruptcy over the weekend, and to sharply lower calls for the U.S. stock market.

The Federal Open Market Committee holds hold a regularly scheduled meeting on Tuesday.

Implied prospects for the Fed to lower the benchmark fed funds rate to 1.75 percent traded as high as 92 percent and have now subsided to 72 percent. On Friday, prospects for a September rate cut were a slim 12 percent.

A single, quarter-point rate cut is fully priced by the December FOMC meeting.

"It looks like the market is looking at just a 'one and done' scenario," said Rudy Narvas, analyst at 4CAST Ltd in New York.

The Fed late on Sunday announced several measures aimed at mitigating strains in financial markets.

Those moves included enlarging the range of available collateral for the Primary Dealer Credit Facility and the Term Securities Lending Facility.

"It is only prudent to consider all available tools at the Fed's immediate disposal ... The option of adjusting the funds rate per se is probably not at the top of the priority list," said Thomas Lam, senior Treasury economist at United Overseas Bank Group in Singapore.

(Reporting by Ros Krasny; Editing by James Dalgleish)

SIBOR OR NOT???

Between 1988 and Aug 2008, Interbank rates have almost reached 9%. During recession years of 2002 and 2005, interest rates hovered around 1%. However it has risen to 3+% from 2006 to 2007 only starting to fall dramatically back to around 1% in 2nd half of 2008.

Differences between 2002 to 2005 and 2008.

During 2002 to 2005, inflation are low, while in 2008, inflation is still high (~5-6%). This negative interest rate to inflation rate is typically rare. This could indicate intervention.

But then, nobody really knows where the rates will end up. If you cannot stomach the full risk, take some precaution such as a mix of Fixed Rate and Variable Rate mortgage to cushion the risk of fluctuation.

BANKS STEPS ON BRAKES ON LENDING

quote: "Success is a thought process"

Wachovia Corp. A big regional american bank lender has stopped Offering option adjustable-rate mortgages, which let borrowers skip part of their payment and add the balance to the principal. According to Robert Steel, the Charlotte, North Carolina based bank is "tapping the brakes" on risks.

Banks worldwide are indeed becoming more cautious, not less.

That means some people who do not qualify for refinancing with other banks may be stuck with an existing bank. Many banks in Singapore tend to charge a lower interest rate to acquire new customers and in latter years charge more to either recover their profitability.

As interest rate directions especially the SIBOR cannot be accurately predicted, it is safe to say that for some people, certainty of a fixed rate mortgage for a number of years gives them ample time to react to any crisis.


Source: Morningstar.com

As you can see from the chart of 3-month Libor (The London equivalent of Sibor) rates over the past 20 years. It can go as high as 20%.

Many banks are increasingly providing Sibor Plus packages to home owners (Sibor + margin%). While it can offer lower rate in the short term, it can be highly dangerous when a credit or liquidity crisis comes.

Now the question to ask yourself. Can you afford your installment when interest rate hits 20%?

BUYING A PROPERTY IN GEYLANG

quote: "Success is a thought process"

Recently in 2007, a friend of mine bought a property in Geylang. The property is in decent condition, it's Freehold and it is about 1000 square feet. With all the promises of KALLANG Expansion and being near to the city, etc. It seemed too good to be true at S$400,000. She was planning to lease it out for S$1500/- per month.

So here is the calculation: -

Rental revenue --- S$1500 x 12 months = S$18,000
Downpayment 20% --- S$80,000
Cost of Financing S$320,000 @ 2.5% --- S$8,000
So the Return of Investment --- (18,000 - 8,000) / 80,000 = 12.5%

So 12.5% gains is quite OKAY right?

So she went to the bank and tried to borrow money, the banks told her, sorry you have to pay 30% to 35% downpayment.

NOW, new calculation: -

Rental revenue --- S$1500 x 12 months = S$18,000

Down payment 30% of 400k --- S$120,000

Cost of Financing S$320,000 @ 2.5% = S$8,000

So the Return of Investment = (18,000 - 8,000) / 120,000 = 8.3%

Where are you going to get that extra S$40,000 all of a sudden.

People can avoid these pains if they get a PRE-APPROVED LOAN. Just provide the unit number, development name, the banks can usually reply to you in 1-2 days to give you a YES/NO answer. Do bear in mind that some banks may say NO and you have to go check with some other banks and wait some more days. So it is a tedious process. A Independent mortgage consultant such as

http://www.propertybuyer.com.sg or info@propertybuyer.com.sg
can quickly help you get a loan pre-approval (and subsequently get you the best fit loan). So you can put your heart at ease to buy the investment property/home of your dreams.

This is just a simple calculation which does not YET include the Rental property tax of 10% p/a. Conservancy charges, maintenance and depreciation of property as most tenants will want you to re-furbish it, and it can cost $$$. Don't forget stamp duty, lawyer's fees, fire insurance, surveying cost, etc.

DON'T RISK IT, get pre-approved loans first before signing the option to purchase.

Valuing A Property - A layman's approach

quote: "Success is a thought process"

Recently Straits Times pointed out that many condominiums do not have enough car parks. I would have to agree that CAR PARKS space as one of the Valuing criteria.

CAR PARKS ADEQUACY
Car parks are important as many people who stay in Condominiums may own multiple cars. During festive seasons when their family and friends visit, having no car parks is quite inconvenient. One friend said, "After I have moved into this condo, I have no more friends and my family cannot visit me, unless they take the taxi."

However I strongly believe that buyers do NOT sufficiently value this aspect when buying a property or left it too late. Only when the problem surfaced when they cannot even find parking lots when they started to realize this problem. Once the problem is publicized and known, it can and will impact the property value. It is not immediately.

Your thoughts?

Valuing A Property - A layman's approach

quote: "Success is a thought process"

Success is a thought process."

What explains the price differential between 2 adjacent properties? Often you will see 2 adjacent properties sometimes a big enough price gap to warrant a big WHY.


Say for example, Condo 1 is asking an average price of S$900 psf and Condo 2 is asking a S$1200 psf.

What could be the reason???

Here are some possible explanations: -

SIZE
1. Condo 1 offers bigger units and Condo 2 offers smaller units. Towards the pricier end of properties, affordability is an issue. For example: -
Condo1 unit sizes may be in the average of 1500 square feet (10.76 sq feet = 1 sq meter). That means that an average unit would cost around S$1.35m.
Condo2 unit sizes may be around 700 to 800 square feet. That means an average unit would cost S$960k.

AGE
2. If size is not an dissimilar, Condo 1 may be older than Condo 2. Newer units generally command a premium as their design tends to be more up to date with current trends. Over time, property value tends to become higher, therefore newer properties tend to have better finishing, technologies (intercom systems), lighting, marble floors, feature walls, large lobbies, Bigger and faster lifts, air-con lobbies, nicely manicured gardens, etc. You name it, they have it. You are paying for the luxurious lifestyle. Good marbles and feature walls can cost upwards of 30 to 100 dollars (per sq feet).

LOCATION
3. Even if a property is across 1 road, the feel and surrounding attributes may be totally different. In feng shui, the road cuts across the "chi" 气 of the area. That may also explain the price differences. An example of that is Garden Vista a 99 years development (by Far East) in Dunearn Road, the going rates in 2006 were $850 to $900 psf and in 2007 and 2008, Far East was asking $1350 psf onwards. But across the road/highway is Sherwood towers, it is going for $400-$700 psf tops (and it is either Free Hold or 999 years). Location effect, in this case, garden vista is "Bukit Timah" while Sherwood towers is "Beauty world" branded, but of course more factors are at play.

LAND ATTRIBUTES
4. Two developments side by side may have similar finishing, however one may have a stream or is hilly and the other is flat. If developed and planned nicely, the rolling and hilly terrain may enhance the feeling of space and conveys a sense of well-being. As a result, people may like it more and are happy to part with more of their hard-earned money.

DESIGN ATTRIBUTES
5. Not all developments are the same. Different design appeal to different people. As Singapore is generally land scarce, properties are becoming expensive. Older designs used to have balconies. As Singaporeans become more and more utilitarian, the balconies disappeared to become part of the living space. Hence those without Balconies are more highly valued. Of late, as more and more developments are built without Balconies, developments with Balconies are making a come-back due to demand from certain segment of the home buyers who cherished the balconies, they are priced at a premium.

6. Some designs are awkward, they deliberately squeeze out 4 rooms when it should only comfortably have only 3 rooms. There are several twists and turns, corridors are long and space is "wasted". This is because you cannot really put anything along the corridor. Therefore the place feels smaller than it actually is. Though this kind of design may find some fans, it is generally not well liked by the Space minded and bargain hunting Singaporean home buyer.

FENG SHUI
7. Feng Shui, an age old art of harmonious living. More and more people are subscribing to this school of thought. And Feng Shui plays a big part in the valuation of a property. Even if you do not believe in it, many others do. It will eventually affect the price of your property either positively or negatively.

CONNECTIVITY
8. Properties near to major roads, bus stations and train stations are generally valued more. There are about 750,000 cars in a population of 4.6m. About 1 in 6 people own a car. But other family members still need to go to work, go to school, go to buy stuff and run errants, so connectivity is still very important. Despite Singapore's small size and famed public transport system, some private residential areas are a bit off the beaten track. If they are near to public transportation nodes, they are generally of the 99 year lease hold type.

VICINITY
9. Most good properties have good connectivity, but also great vicinity. The locality is near the Sea, near a nice lake, the hills, the forest or near heavily forested areas with lots of shade and foliage. Bukit Timah is one such place, East Coast park, Katong, Siglap, Yio Chu Kang are other such areas.

SCHOOLS
10. In Singapore, most children of school going age (6 to 7 years old) will have to go to Primary school. Being the usual KIASU (a hokkien word to describe, "Afraid to lose out") Singaporean parents, most parents will try to get their children to the best Primary Schools. And in Singapore, priority is given to families living within 1 km of the primary school (subject to the family having stayed there 2 years prior to the registration exercise). With good Primary schools within 1 km, most properties within 1km of the school is highly sought after.

AMENITIES
11. Singaporeans hate to walk. For an average foreigner, it would seem surprising that Singaporeans generally do not have the same sense of distance compared to a foreigner. So there is a premium to be near to the super markets, wet markets, shops and shopping centers.

LAND TITLE
12. In Singapore, most people prefer Free Hold land followed by 999 years lease hold and the least liked is 99 years. For some people from Hong Kong or China for instance, they do not seem to understand what is the big deal about 99 years and Free Hold, because no bodies lives that long. But I tell you, in Singapore, most people prefer Free Hold and that is a fact. If they did not buy free hold properties, it is usually a matter of budget constraint.

13. There is also a difference between Free Hold Strata titled land and Free Hold land with individual title deeds. Though the difference is not always reflected in the price of a property. Free Hold Land has more intrinsic value generally as it cannot be over-written by a majority vote. Strata titled land with properties on it, means that each property owner owns a "share" of the land that their property sits on. And older properties over 20 years old have Strata title laws that governs it, as long as 80% or more vote to demolish or sell the property, even the dissenting 20% of property owner will have to agree. In other words, you have no control over your home, even if you do NOT want to sell it, you may be force to sell it if the majority opts to sell or re-develop it.

FACILITIES AND SIZE OF THE DEVELOPMENT
14. A development needs to be of a certain size in land area in order to economically provide all the facilities. A full facility condominium (Condo) will have facilities such as: -
Swimming pool
Jacuzi pool
Gymnasium
Sauna room
tennis court
exercise bay
children playground
function room
Barbeque pits
Squash court (most condos do not provide this now)

The facilities differential will be create a price differential in 2 different developments.


LAND VALUE VERSUS PROPERTY VALUE
15. Property and buildings depreciate. Fittings degenerate, paints peel. The once sought after property is no longer deemed HOT. However, in land scarce Singapore with an expansive immigration policy, more population and lesser and lesser land is a recipe for higher land prices. Land appreciate, buildings depreciate.

16. Singapore is a country where the government likes to micro manage. Some call it good governance, others call it, "they plug every loop hole". So developers cannot buy large tracks of land and keep it till it appreciate. This is because the Government levies development charge and penalties on delay of building the "proposed" building and/or amenities. So that is out of the question.

However, there are many good gems out there that are DIRTY and OLD and FORGOTTEN. Many old buildings that sit on rather good land asking very reasonable prices.

Why is there such a price differential given that those are gems???

This is because buying and staying in a property is an emotional process. Many gems are over-looked because they are
simply "Dirty and NOT polished". It's definitely a different decision altogether. In this case, this property may be an
investment gem, but not a lifestyle gem, unless you can do some modifications work to it.


http://paulhokangsang.blogspot.com

http://investinsingapore.blogspot.com

WHY IS SIBOR FALLING DESPITE RECORD INFLATION (CPI)

quote: "Success is a thought process"

I have 1 question. Why is Sibor (Interbank borrowing rate) falling despite record inflation?

In Singapore, Sibor is set by the Association of Bankers (ABS). As this is a closed group, I can only surmise that the Sibor Rate is set after banks consult each other and after considering the amount of liquidity available.

In the US, the federal reserve set target interest rates to regulate the economy, But in Singapore, the Monetary Authority of Singapore regulate the foreign exchange against an undisclosed basket of currencies of it's biggest trading partners, in order to control Inflation.

However Interest rates are usually set by banks and the government has a say in the direction of the interest rates, though it is thought to be implicit.

SUCKING UP EXCESS LIQUIDITY: BUT TARGETED INDISCRIMINATELY AT POOR AND MIDDLE-INCOME
With M1 money supply at a historic high, CORE inflation is a natural by-product (housing, ERP, bus fares, SMRT increase, food prices, etc). Adding fuel to fire is the additional inflation caused directly by fuel and resources. So in a sadistic way, the Singapore government has to increase indirect taxes to suck up the liquidity. However the scary thing is, this M1 nett increase is not spread out equally, that means that the Government's indiscriminate and across the board increase hits the poor and the middle-income hardest.

Normally, you would expect that any government should increase the interest rates when inflation is high, so as to slow down economic activity. In Singapore's case, where we import many items, therefore keeping the currency strong reduces inflation.

FORWARD LOOKING: INFLATION TO SOFTEN???
Of late, the USD vs SGD has seen an increasing trend (meaning that USD is stronger vs SGD), this in fact is a devaluation of the Singapore Dollar vs USD (of course this is only versus 1 currency). But this could signify that the Singapore Government views inflation ahead as benign.

If you look at SIBOR, it has also come down dramatically to below 2% for 1 year Inter-bank rate. Surely this cannot be right in an Inflation year??? Usually SIBOR comes down when there is an impending or risk of recession and in any economy, there is a lag effect of at least 6 months or more.

POSSIBLE IMPACT
When the currency trend is established or expected to weaken, smart money is the first to leave the currency. On top of that SIBOR is set to be reduced, this means that some other money parked in Singapore money market may deem the reduced yield too low and leave Singapore in search of higher yield.

But on the other hand, lower SIBOR keeps housing financing affordable. Some property developments in areas such as District 9 and District 10 has up to 40% to 50% foreign ownership. If they are NOT all here to stay but instead buying for investment, lower SIBOR will keep these people from cashing out of the Singapore market (There will be trouble even if foreign owner drops by 10% as that would mean increased selling pressure in an already bearish market). It is highly unlikely that such investors (many from Indonesia, Malaysia, China, India, etc) will keep the money from the sales proceeds in Singapore currency given that their home country deposit interest rates are higher.

As long as property prices stay fairly stable or drop in an orderly manner and gradually, Singapore can ride out the economic trough.


PROGNOSIS
In other words, lowering SIBOR is a calculated gamble to stabilise the property market and ensure an orderly fall (governed by supply and demand) and not panic selling. Although there is a risk of flight of some foreign capital from Singapore, those are potentially lesser evil considering that the property sector is a big sector in Singapore.

Many economic and policy tools are already activated to mitigate the severity of the coming slow-down or recession. So sit tight...

http://paulhokangsang.blogspot.com

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?

Singapore Property Price Trend

quote: "Success is a thought process"

Where is Singapore's Private Property prices headed? In order to make accurate guesses, many variables must be used to gauge the past and therefore determine/guess the future.

Let us take a look at the Singapore's M1 Money Supply.


Chart adapted from Monetary Authority of Singapore MAS time-series data.

According to Investopedia, M1 money supply is, "A category of the money supply that includes all physical money such as coins and currency; it also includes demand deposits, which are checking accounts, and Negotiable Order of Withdrawal (NOW) Accounts.

This is used as a measurement for economists trying to quantify the amount of money in circulation. The M1 is a very liquid measure of the money supply, as it contains cash and assets that can quickly be converted to currency."

In order words, M1 is a measure of how much money is in circulation. And overly quick acceleration of M1 money supply could stoke inflation if the amount of goods and services do not match the pace of the increase in money supply.

Let's take a look at the Singapore Private Property Price Index.

(Source: Singstat.gov.sg)

There do not seem to be much correlation between M1 supply and Property prices. So let's move on to look at the growth rate of M1 money supply. But what explains the huge increase in M1 supply? M1 stimulates the GDP though it is debatable whether there is a lag and how long the lag is.


Chart adapted from Monetary Authority of Singapore time-series data.

By looking at the above chart, it seems that M1 more or less track GDP, except that there is a run-away increase in M1. I am not quite sure what is the break-down or exact source of this increase. I am speculating that it is net inflow of investments from the 2 casinos (integrated resorts). But there is also one other factor, Singapore resident growth (Singapore Citizens plus Permanent residents) has always been rather flat, but if we take a look at the Total population growth (total population is Singapore residents + foreigners on employment passes and working permits), the year where it shrinks, the M1 supply is negative. Subsequent years where Total population has accelerated (largely through foreign employment pass growth), the M1 supply has largely accelerated. There seems to be some correlation.

Between 2005 and 2007, there is a dip in M1 supply, this I speculate could be due to it's conversion into Non-liquid assets, meaning during this time, this money could have gone into Properties and other asset classes which are non as liquid. (because M1 is a measure of liquid assets) By around 2007, the M1 money supply has continued to grow and accelerate. Around this time, the share market has tanked, property prices are showing slow down, and perhaps to an extend consequently, the M1 money supply continue to accelerate.


Adapted from data obtained from Singstat

If we look at the interest rates, it seems to track more closely to the GDP rates. Interbank rates are currently in the 1 to 2 % range. Previously when we see interest rate at this low is during the 2003 recession. This time, the interbank rates seemed to have tracked lower even before the GDP has reduced significantly with projections of GDP of 4 to 5%. This is also while inflation is at >8%. A strong possibility is that there is government intervention in the interbank 1 month, 3 month markets.

What this low interbank rate means is that it will be easier to support the cheap financing of properties and thereby reducing the number of distressed property owners dumping their units into the open market. The continue strong growth of the M1 money supply could perhaps be Casino's (IR) stand-by reserves which has not yet been converted to non-liquid assets or other capital investments.

Even if the M1 money growth rate is zero now, there is still some over S$70 billion in M1 supply. Not all of this currency is required for active transactional use. As long as this money doesn't flow outside of the country, it could still find it's way into non-liquid assets as long as there is a genuine demand.



Household formation in Singapore is about 25,000 a year. Nett immigration continues to be high.

With the onset of about over 30,000 units of private residential (non-landed) properties to be launched between now and 2011, with current stock levels at about 260,000 units at around 5.2% vacancy rate. By the time the total stock reaches 290,000 units, the demand would have more or less leveled. My guess is vacancy rate at around 7%, more or less at equilibrium.

So yes, USA is slowing down and will impact Singapore's GDP. But there is still ample M1 money supply in Singapore as well as a current property shortage.

My guess is that the prices will soften due to the drop in consumer confidence, leading to people hoarding money. While those with properties will hang-on to their properties largely helped by lower financing costs. Yes, I think the property prices will trend lower, perhaps easily by 20%, but I do not think it will be a doomsday prediction of 30 to 40% drop.

As long as there is ample money supply, Supply-demand equilibrium (Looks likely) and an improvement in business sentiment and outlook, you will suddenly see another rally. But don't expect that to be too soon. Maybe 1 to 3 years, it's anybody's guess.

BANKING SYSTEM NOT WELL PROTECTED

quote: "Success is a thought process"

UBS Balance Sheet (source: Google Finance)

Balance Sheet 2008 in millions CHF
Total Assets 2,231,019.00
Total Liabilities 2,214,633.00
Total Equity 16,386.00

If you want to know why is the situation so bad, you only need to look at the balance sheet.

2.234 Trillion CHF in Assets with 2.214 Trillion CHF in Liabilities with Total Equity amounting to paltry 16.386 Billion CHF. Depending on what kind of assets they hold, whether it's properties or CDOs or bonds or others.

An impairment of 5% on assets would cost 111.55 Billion CHF, wiping out the entire Equity base of 16.386Billion CHF. With the recent sale of CDOs from Merill Lynch of their CDOs for 22 cents for the dollar, a 5% impairment is simply theoretical and perhaps even optimistic.

Just say for theoretical sake, a 5% impairment would require fresh equity of >100billion CHF. Surely Sovereign wealth Funds will need to have deep pockets easily to the tune of 300 to 500billions CHF to mitigate the problem.

The entire financial system is over-leveraged. Sub-prime originally would not have been an issue, but it now is, because it causes the over-leveraged Financial system to break down.

How much more money do we need? UBS being one of them, who else needs funding?

Your thoughts?

MGSM Singapore Community News Flash: Issue 1: June, 2008

DEFINING THE DNA OF A LUXURY BRAND, NURTURE VS NATURE?


On 15th June 2008, MGSM Singapore Community and Singapore Human Resource of Institute (SHRI) has put together an event for fellow MGSMers to have an insight on building and managing brand equity as well as to network. We are pleased to have Mr. Richard Yong, Managing Director for Bvlgari South Asian Operations share his personal experience with us

BROUGHT TO YOU BY: -
SPONSORS:

SHRI – Function Room, Wine, Food and Logistic coordination
MGSM – Wine and Food

ORGANISED BY:

Event Concept, Planning, Organisation, coordination
• Paul Ho Kang Sang
• Lin Lin Chua
• Daphne Yuen

Actual day Event coordination

• Louis Soo
• Nicky Kim
• Many from SHRI

Write up and commentary

• Ian Chang

Editor and Compilation

• Lin Lin Chua

quote: "Success is a thought process, Positive thoughts generate positive outcomes."



The evening was well-attended with audience members from a variety of industries. The eager listeners were first treated to a few light remarks from Mr Richard Yong, Managing Director for Bvlgari South Asian Operations, before he started on the night's raison d'etre - "Defining the DNA of a luxury brand, Nurture vs Nature?". He brought us with him on a trip through time as we traced Bulgari's founder's journey from tiny Greek village of Kallarrytes, through Corfu, then Naples, and eventually settling in their flagship store of Via Condotti in Rome.

Richard explained that a luxury brand, development and growth must always keep in mind the brand's origins and core competencies, illustrating his point with numerous examples of creative and versatile Bvlgari designs.

To show our sincere thanks to Mr. Richard Yong.


To show our sincere thanks to SHRI. Audrey receiving a token on behalf of SHRI.


A mingling session with snacks and wine allowed the listeners to network and further discuss what they had learned that night as well as their own experiences, and Richard was on hand to share challenges that he had faced and how he had overcome them.

Our grateful thanks to SHRI for kindly providing the facilities, snacks and wine as well as MGSM for chipping in with food and wine and for Richard for a thoroughly informative and enlightening talk. He certainly whetted our appetite and created what a luxury brand sets out to create - aspiration and desire.