Forbes Article - Why Singapore's Economy Is Heading For An Iceland-Style Meltdown

[kazukirai]

Recession is a possibility in these days & times ..i dont know why they call it unexpected recession.

In my opinion, as some have also pointed out, the Forbes article is highly sensational in it's writing. Forbes doesn't exactly have the kind of reputation the WSJ has.

Will SG be affected if the rest of the world, or at least the part of the world that we trade with, has problems? Of course, we will since SG's economy is highly integrated with the global economy. Just take a look at our share of Exports and Imports relative to the rest of our economy.

Will it be as serious as Iceland where the economy is still struggling to return to pre GFC days? My guess is not. We already have a good example of that in 2010 where a developed economy like ours was the fastest growing in Asia.

Also, the majority of Singaporeans stay in HDB and a significant portion of loans taken from HDB are fixed rate. Another point also already brought up is that the lending requirements here for houses and more recently for cars (which are the two biggest loans taken by a normal household) are pretty strict to begin with and have gotten stricter recently.

If anything, yes, hot money will flow out in the event of a crisis. Private property market especially those secondary properties and investment properties will get hit but I don't think we will see people losing their homes on a scale seen in the US or Greece or Iceland.

[kagemusha]

lol, even a broken clock is right twice a day.

I predict also that Singapore will face a crisis down the road.
(I will not state when because it has to happen sooner or later.
I will also not state which specific crisis, so I can cover most of them.
For a added cover, I will also predict that it may be caused by external elements as well.
Think I got all the bases covered liao.)

Move on to the next country. Rinse and repeat.

Check my prediction 10 years later, I am sure I am a economic guru because I got it right.

[CityFarmer]

lol, even a broken clock is right twice a day.

I predict also that Singapore will face a crisis down the road.
(I will not state when because it has to happen sooner or later.
I will also not state which specific crisis, so I can cover most of them.
For a added cover, I will also predict that it may be caused by external elements as well.
Think I got all the bases covered liao.)

Move on to the next country. Repeat and rinse.

Check my prediction 10 years later, I am sure I am a economic guru because I got it right.

Your prediction is as sure as saying "we will all die down the road", if the "check" is 50 years later.

[kagemusha]

that's exactly what the article is about. nothing concrete about it.
copy and paste a few charts and make some similar scenarios and bingo, the zebra is actually a painted horse.

[Boon]

Chilly reception to S'pore's 'Iceland' tag

VICTORIA BARKER

Published on Jan 16, 2014

A FORBES article on the state of Singapore's economy which has gone viral has raised a storm, with economists here offering differing views on its credibility.

American economic analyst Jesse Colombo claimed that the Republic is facing a dangerous credit bubble fuelled by low interest rates and heading towards an "Iceland-style meltdown".

On Tuesday, the Monetary Authority of Singapore categorically refuted this. "Singapore is not facing a credit bubble that puts the country or its banking system at any risk of crisis," a spokesman said, adding that "serious observers and investors are not in doubt about the country's financial health".

Among Mr Colombo's claims:

Singapore has a credit bubble, which started soon after interest rates fell below 1 per cent. Outstanding private-sector loans have risen 133 per cent since 2010.

It also has a property bubble, with prices up 60 per cent since 2009. Mortgage loans have grown at 18 per cent each year for the past three years.

Seventy per cent of Singapore's mortgages have floating interest rates.

Cheap credit is also fuelling a construction bubble.

The financial-services industry grew 163 per cent between 2008 and 2012, which is not sustainable.

Singapore's bubble will pop if the bubbles in emerging markets and China, where Singapore has invested heavily, pop, and interest rates rise.

CIMB economist Song Seng Wun disagrees. "To say the authorities are blind to the risk (of overleveraging) is a bit excessive," he told MyPaper. "This region has gone through the (1997) Asian financial crisis... measures taken by regulators suggest they are much more mindful of the risk of excesses brought about by cheap lending."

Mr Yeoh Lam Keong, a senior adjunct fellow at the Institute of Policy Studies, called the article "insightful in many ways" and said it "correctly" points out the dangers of real-estate-based asset bubbles in Asia.

These, together with overinvestment in construction due to depressed global interest rates and debt-fuelled expansions, are "very likely to lead to crashes in these sectors when prices of real estate and construction activity take a deep fall", he said.

Though the risk of the real-estate bubble popping is high, he said "a recession here is very unlikely and, thus, a banking crisis is also unlikely".

The article raised doubts about the Government's ability to handle cyclical shocks to the economy, noted Barclays Capital economist Leong Wai Ho. "We are not invulnerable to such shocks," he said. "(But) the key is to stabilise the labour market quickly, which heralds the quick return of confidence...Singapore has (previously) managed to do this."

In a Facebook post, Lee Kuan Yew School of Public Policy senior fellow Donald Low called the article "far too sweeping".

Property prices may fall 10 per cent this year, said Mr Low. But even if they fall 20 per cent, the health of the banks and households will not be affected.

"There will be households that have negative equity, but as long as they have the cash flow to service their mortgages, it will not precipitate a financial crash," he said.

Still, he mostly agrees with Mr Colombo's point that booms led by real-estate development and the financial sector are "mostly illusory". "They create the impression of economic dynamism without creating any real productive capacity in the economy," said Mr Low.

vbarker@sph.com.sg

http://mypaper.sg/top-stories/chilly-rec...g-20140116

[specuvestor]

Recession is a possibility in these days & times ..i dont know why they call it unexpected recession.

In my opinion, as some have also pointed out, the Forbes article is highly sensational in it's writing. Forbes doesn't exactly have the kind of reputation the WSJ has.

Will SG be affected if the rest of the world, or at least the part of the world that we trade with, has problems? Of course, we will since SG's economy is highly integrated with the global economy. Just take a look at our share of Exports and Imports relative to the rest of our economy.

Will it be as serious as Iceland where the economy is still struggling to return to pre GFC days? My guess is not. We already have a good example of that in 2010 where a developed economy like ours was the fastest growing in Asia.

Also, the majority of Singaporeans stay in HDB and a significant portion of loans taken from HDB are fixed rate. Another point also already brought up is that the lending requirements here for houses and more recently for cars (which are the two biggest loans taken by a normal household) are pretty strict to begin with and have gotten stricter recently.

If anything, yes, hot money will flow out in the event of a crisis. Private property market especially those secondary properties and investment properties will get hit but I don't think we will see people losing their homes on a scale seen in the US or Greece or Iceland.

Agree. An asset deflation has good chance of recession. But that's different from what Iceland experienced

My simple heuritic rule of thumb is easy. If a govt pricks the bubble before it burst in full maturity like what China, Singapore and yes even HK are doing, then it is manageable.

If it is driven by market forces into a no choice scenario from tulip, south sea, to Latin America crisis, AFC, internet bust, GFC... then it will be very painful

I see Asian govts proactive in managing the bubble. I disagree with Greenspan that nobody can foresee a bubble. Anecdotally makes no sense because he is trying cover himself and saying that there is nothing regulators could do.

What is dangerous is exactly when regulators do nothing about it.

[kagemusha]

all economies will face some adjustments sooner or later.
To say a meltdown is a damn sweeping statement.

Reason for this - over leveraged lending, artificially low interest rate, housing bubble.
Compare these to Iceland, yeah looks similar, so it should be the same.
Hello!! trade surplus?? CPF? Foreign demands? Down payments?

Just on the point on housing alone.
80% of Singaporeans stays in HDB and we got to wait like 2-5 years to get the house....do you not think that if empty houses gets a 30% discount, they will sell like hot cakes.
Just need to tweak the rules and boom, the waiting list is shorten and all empty houses gone.
All these to be paid 20% down payment via CPF?? Doubt the writer know what CPF is.
Last I heard, the queue is still there.

[yeokiwi]

Just on the point on housing alone.
80% of Singaporeans stays in HDB and we got to wait like 2-5 years to get the house....do you not think that if empty houses gets a 30% discount, they will sell like hot cakes.
Just need to tweak the rules and boom, the waiting list is shorten and all empty houses gone.
All these to be paid 20% down payment via CPF?? Doubt the writer know what CPF is.
Last I heard, the queue is still there.

There is also SERS. Basically, the gov is able to systematically transferred the residents of aging flats to new flats and in the process, reduce the supply in the market if they want to.
Singapore property market is unique in the sense that the gov is able to add, hold on and remove properties from the market with ease.

[nsengkia]

While the majority of posts appear to disagree with the Forbes article and cite CPF and the ability of the Government to control the property market, I do have four observations to make:

1) The lag effect of households in transition is higher than usual because of the under building in the past followed by over building in the future (waiting for their new home to be built and then planning to sell their current home).

2) The number of my peers who aspire to be amongst the landed gantry and hence fund their retirement through rental income seems to have grown.

3) The number of foreigners holding Singapore property has grown over the years. I opine that they would be more willing to cut and run (and even default on their housing loans) than locals.

4) There has been some degree of mal allocation of investment in shoe box apartments (jury is still out on this one as Mickey Mouse may be willing to relocate from the US to stay in them ).

Then again, I maybe wrong to point out that "this time is different".

[ValueBeliever]

The weakest link in Singapore is its economy. The article did not analyst fully the contribution of foreigner activities and in particular construction infused growth into other sector. I believe in what the article point out of the nos. towering crane at construction site may be understating the real GDP contribution of foreigners in Singapore.

Just look around you, how many stall holders in the hawker center or shop unit is now own by foreigners? They are the 1 who drives the cost up and increase rent does made 1 wonder why in the first place rent are going up, and that drive construction and in turn drive more lending. The spread is low for consumer loan for bank for a reason - dont you see it? 3 local banks control that spread which help to give foreigner the place is booming.

It is they that hype the bubble. I m sure they will pay dearly as soon as the bubble they created burst. Once the economy slow, the more disruptive technology will take over and kill inefficiency, meaning less employment for those on the other side of the economy, what you can expect is a bubble that has meaningful impact.

Why is OCBC so desperate in seeking out HK bank?