Been there, done that, will do it again
Billions of dollars were wiped out of the stock market in recent weeks by the sub prime loan collapse in the US. Though far away, we were not spared. What then is this sub prime loan and can we learn anything from it? The gist of this mess is 'clever' financing and refinancing. Lending to high risk debtors to buy properties and repackaged the high risk loans into something else thinking that the risk will go away. This is the American version of loan shark financing, except more glitzy and sophisticated. But when interest rate soared and the bad debtors defaulted or cannot afford to pay, the house of cards collapsed. It all started by not only selling properties. The housing agents, property developers and their collaborators, all joined in to paint a glory picture of a property boom. Prices were raised higher and higher or chased up. Analysts and reporters, maybe even paid, wrote about the euphoria as if it will never end. And during a time of low interest rate, buyers were roped into the mad rush as if they would miss out if they did not buy then. There was the fear of missing out, the greed of making money in a property boom, the selfish manipulation of property developers and their accomplices, the media, helped to shore up the whole industry. Sounds familiar? Were the regulators involved as well? The funny thing about this is that we have been through it and beaten very badly only 10 years ago. And we are going through the whole process again, driving up property prices, writing about how high the prices will go and how big is the liquidity that will absorb all the properties, that it is a sellers market. And we add in the foreign buyers into the pot, plus the en bloc phenomenon, all add in to the fury of a property boom and bubble. Why are we allowing this bubble to grow only to see it go bust? Why are we so irresponsible? There are really two kinds of property buyers. The very rich, including the speculators, buying and selling for profit. The next is the genuine property owners, the Singaporeans who need a roof over their heads. This group can only afford what their income dictates. Property prices that shot beyond their income will always be out of reach to them. And if those who have vested interest in high property prices continue to fan and allow the prices to shoot to the sky, the genuine buyers will be the one to lose out. Because of the limited income of the lower income group, maybe 70 or 80% of the population, they just cannot participate in the private property market. This sector can only be supported by the rich and foreign money. Maybe we should bring more foreigners to buy up all the private properties. Will we be digging our own grave?