Money Pouring In

Source : The Business Times, December 29, 2007

Everything seems to have come together well for the economy in 2007, says Money editor Ignatius Low as he looks back on S’pore’s robust economic growth, booming property and stock markets, and record low unemployment levels
FOR the majority of working people under the age of 40 - myself included - 2007 is a year that will be difficult to forget.

After all, most of us had joined the workforce in the years just prior to, or immediately following, the 1997 Asian financial crisis.
And the 10 years since 1997 have been one long series of economic busts and false starts.

Every time the economy seemed to pick up, something would happen to stop it in its tracks.

In 2000, it was the dot.com bust. In 2003, it was the severe acute respiratory syndrome.

As Singapore’s policy maestros worked to set a clear course for the economy through all these difficulties, the last 10 years were largely remembered for anaemic wage growth, asset deflation and painful restructuring.
That is why 2007 is special. It is the one year in recent memory that everything seemed to have come together so well.

For starters, the economy roared to life. And it has stayed strong despite earlier warnings that growth will slow in the second half of the year.
After clocking a blistering 8.9 per cent growth in the third quarter, the economy looks to end the year at around the 8 per cent mark, prompting The Economist magazine to recently proclaim Singapore an economic anomaly - a developed country growing at developing country rates.

Unemployment dropped to just 1.7 per cent, which really means full employment. And the tight labour market has sent salaries and bonuses skywards, especially in sectors such as finance and construction, which grew almost 20 per cent in the last quarter.

On the ground, many in my generation looked on in bewilderment as a flood of foreign liquidity sent property and stock prices up, up and up.
Braver opportunists rode the upward wave and were amply rewarded. A friend of mine flipped not one, but three apartments within a very heady six months and laughed all the way to the bank.

Indeed, property was all that anyone wanted to talk about in 2007.
The year had started with upscale condominium Marina Bay Residences setting a record price of $3,450 per square foot (psf) for its penthouse apartments - a ‘crazy’ By April, the record was already $4,000 psf.
By July, $4,000 psf had become ‘common’ after developers sold 72 units in various developments at that price.

Now, the record stands at $5,600 psf - the buyer having forked out more than $28 million for a 53rd-storey penthouse in Orchard Residences above the Orchard MRT station.

The boom has now filtered down to mass-market apartments. Areas as remote as Upper East Coast and Buona Vista are now fetching prices seen in central districts such as River Valley just a couple of years ago.
No wonder a new report by Global Property Monitor ranks Singapore the hottest property market in the world in 2007, after adjusting for inflation.
Record property prices also helped drive a stock market rally in the first half of the year that saw foreign funds pour into Asia, notably the surging Chinese markets.
Dealers and remisiers - as well as the computer system they traded on - could not quite keep up at times as the benchmark Straits Times Index (STI) broke new highs in heavy volume week after week.

For them, as well as others in Singapore, the blistering pace in 2007 often seemed a little too hot to handle.

Rising property prices fuelled a re-development craze in apartments and some 5,700 homes were sold in collective or ‘en bloc’ sales in the first half of the year alone.
In most years, sellers would have been happy to make a profit on their homes. In 2007, however, they found that prices on new, replacement homes had risen even faster than those they sold - forcing them to downgrade to smaller apartments or move to less prime areas.

The ‘en bloc’ removal of so many apartments from the housing market then helped to contribute to an islandwide shortage of homes that pushed rentals up breathtakingly quickly.

As rents effectively doubled for many apartments, expats downgraded to smaller apartments or moved to the suburbs. Moving companies and rental agents reported a banner year.

Fast-paced economic growth also meant rapidly expanding businesses. But with no new office space available in Raffles Place till 2010, there was just nowhere to grow.
A couple of years ago, rents in Grade A offices were stable at about $5 psf. Now, they are pushing levels as high as $15 psf, sparking fresh fears that they are ratcheting up the cost of doing business in Singapore.
Finally, economic theory dictates that higher growth, higher wages and higher rents will all inevitably find their way into higher consumer prices.
So in 2007, Singapore’s inflation numbers burst dramatically out of their typically sedate range of between 0 per cent and 1 per cent. Latest figures for last month show prices rising 4.2 per cent year-on- year, the highest rate of increase in 25 years.

And it looks like higher prices will be here to stay in 2008, with worldwide demand pushing oil prices close to $100US ($145S) a barrel this year and everything from wheat to rice trading at record-high levels.
What goes up must come down. If not, then something has got to give, so there is no doubt the giddy excesses of 2007 will come back to haunt us in 2008.
In Singapore, the stock market has already gone through a serious correction and those who invested in China companies, in particular, have been left licking their wounds.

Policymakers are already starting to battle the ill-effects of inflation on lower-income workers, whose wages will not rise in tandem with prices.

And the Government is also watching the property market closely, and acting to keep homes affordable for the majority of Singaporeans.
In the United States and other global financial markets, the days of cheap credit and easy liquidity have come to an abrupt halt with the sub-prime mortgage crisis. There will be plenty of losses yet to account for in the months ahead.
The year was a huge party 10 years in the making. There were great spectacles to marvel at from afar, but there was also plenty of buzz and excitement on the ground. And its broad-based appeal meant that nearly everyone had a good time.
The party is still on, but as the music starts to wind down as we enter the new year, signs of excess and fatigue are clearly showing.
Will it all come crashing down in 2008? It will take some care and skill to ensure that there will not be too many broken pieces to pick up the morning after.