It’s the super low interest rates, dummy!

Should anyone be surprised that private home transactions – for both new and resale homes – jumped by more than 130 per cent in 2009 from the 2008 levels?

According to the Straits Times, Singaporeans apparently were the main drivers of the surge, with an overall rise of 144 per cent in private property transactions attibuted to them last year – 23,516 compared with 9,649 in 2008.

In the non-landed segment, our purchases rose almost 159 per cent while in the landed segment, the increase was nearly 83 per cent.

If anyone is still surprised by this development, I would direct them to look at the interest rates we are getting for our savings.

Yes, go to any of the websites of banks operating in Singapore and see what they are paying for S$. Lucky if you find any bank taking your money that will pay you more than 0.5% for one year.

Or if you have the appetite for foreign currencies, you will again find that, despite running the risk of currency exposure — meaning if the S$ moves up, you could suffer a whopping capital loss — it is again pittance you’ll be getting for USD and sterling, and believe or not zilch for HKD.

Only AUD and NZD pay something that’s sort of meaningful but even then what they pay won’t compensate for any sudden surge in the value of the S$.

So, what do you expect Singaporeans — who are said to be among the world’s greatest savers and living in a country where the employment rate is so high that one in three jobs is held by non-citizens — to do with their spare change?

Leave it with the banks, and let inflation, which even at 2%, would eat into their savings at the rate of 1.5% per year?

Worse, while inflation is nibbling away at our money, the banks which are paying pittance for borrowing money from us are laughing all the way to their vaults by on-lending our savings to businesses and entrepreneurs at 5% or more.

Worse, when we leave money with a bank, we are never 100% sure it won’t turn out to be another Lehman or Barings, especially in the aftermath of the US sub prime tsunami.

Worse, the Singapore Government which has been guaranteeing our savings to the tune of 100% as a result of that financial tsunami will be dropping its extraordinary guarantee by the end of this year and revert to $30K per person per account per bank.

So, guess what people with a smidgeon of spare cash stashed away with parsimonous banks would do: buy something of cos, dummy.

And what more solid something in these uncertain times than property? Better still, end up owing the bank than have the bank owe you.

History has shown that property wherever — except perhaps in Ethiopia and Sudan — continues to grow in value over time. Especially in Singapore.

For those whose budget don’t stretch to private, they can turn to HDB. That’s why HDB is also sky-rocketing.

Finally, our Government’s latest moves over HDB to appease those who have missed the boat will drive overall prices up further, because the moves — PR quotas and minimum occupation period — will create shortages by unintentionally distorting the market.

No wonder even a small detached house in Clementi Park has just been optioned for $4.6 million, even tho the owner had originally asked for $4.5 million.

The only way the property market will correct is when interest rates rise. But the US Fed has just indicated this may not be for some time ….. yet! And when the Fed moves one way, Singapore won’t ever dare to be contrarian!


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