The Next Big Crash - Are You Prepared?

[greengiraffe]

Gd analysis. I just want to add - US is one of our major trade partners within our trade weighted basket of currencies. Unless all our trading partners raise in tandem, Singapore interest rates are likely to reflect on part of US interest rates since S$ is not a 100% US$ peg like HK$.

Please correct me if I am wrong.

GG

Hi GG,

I do agree that equities may hit a stumble in 2017 with rising I/R. In this post, I will be attempting to look into the future and SG property market. In 2014, we will see a new Fed head (v. likely). However, the fed chairman will still be constrained by these dilemma: I/R too high, US debt will be unsustainable and the country defaults; I/R continuously being low, inflation may begin and citizens of the lower rank will struggle with their livelihood.

What the fed chairman is likely to do is only drastically raise I/R when the US govt is mature enough to put in at least a balanced budget for its fiscal year or if economic conditions get out of hand (anything can happen!). My optimistic expectation that the US will do this by 2015. It will be only 2016, where we will see I/r rising. I predict a 2% fed rate around 2018.

So what is in it for Singapore? Well, for one those who have borrowed cheap credit are going to suffer. As panned out in one of my scenario analysis, if banks start charging 5% I/r, we are going to see a serious correction in private housing prices (assuming people invest in second properties in this market).

In addition, it gets more interesting in the EC market. Under the current EC scheme, people are only allowed to sell their flats to SC/PR after staying for 5 years. (foreigners 10 years). So lets say you purchased an EC in 2012, and move in at beginning 2015. If banks start increases your loan from 1.6% (current market rate) to 5% interest pa for your loan, you will be stuck with servicing it until 2019 before you can even decide to sell and oh yeah by then we may have a supply glut of ECs! For ECs, market interest rates have to rise to 8% before a family will find the loan as unserviceable. Maybe some old & Wise VB buddy can recount to me the time when property loans hit 8%. Thanks