Wednesday, March 13, 2013

Strength in property due to low returns from deposits

I think Singapore will do well to look at what's happening to China now. For years Chinese business owners, faced with limited investment options and low returns from deposits in state-run banks, have used property as a store of value, pushing prices up even higher in the good times but creating the risk of a crash in the bad.

This I feel is exactly what's happening in Singapore. The deposits returns from our state-run banks are even more pathetic than China. No matter how they look at it, putting the cash in property seems to them a no-brainer than to leave it in the bank at an interest rate of 0.25% p.a.

Well, like China, what happens if there is a property crash? Not only did you lose your yield, you may lose some of the capital.  What happens when you lose your capital? If you're still paying your mortgage, you may need to pay back certain capital because the valuation of your property went down. Interest rates my spike up, and guess what, when the property crash, usually it means the economy is in trouble, which means that your job might be at stake.

A lot of things are in play, and you should do your sums before putting your life savings in property.

1 comment:

Anonymous said...

The ruling class will have cashed out before letting it crash. They have to power to decide how long they want interest rate to remain low and they also control the supply and create the demand through increasing the population.

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