Saturday, April 12, 2008

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Global Recession+Global Inflation=Global Stagflation

Smart Buyers Collection is a collection of words of wisdom by various Singapore property watchers.

By: Anonymous
Posted: 12-04-2008

In the big recession of the 70s, stagflation was also the key reason why it lasted till the early 80s.

The IMF says it will be a GLOBAL recession. In case you don't understand what GLOBAL means, it refers to countries on an international basis and not just the US. Europe and Asia are going to be greatly affected; decoupled or not, we need to tighten our belts now to prepare for the next one to two years of recession and retrenchments.

Commit to a $1m property with a big loan and you will find yourself in negative equity in less than six months. GE in the US is a belwether; this means investors look at it as the biggest indicator of the performance of the consumer market. The recession that we have today is a consumer-led recession i.e. it is a lack of confidence in the whole financial and economic system that we have. The triggers to the breakdown in consumer confidence were the subprime issues but further cracks in the financial and economic system and subsystems have resulted in a freefall in consumer sentiment and and much reduced spending that worsens the vicious cycle of economic recession and devastated corporate bottomlines.

The inflation problems that we have with basic commodities such as rice and other foodstuffs, and other industrial needs such as coal and oil have literally been adding oil to the fire. Living and business expenses have increased many-fold and resulted in the man-in-the-street fighting for survival on a relatively stagnant pay-check. What we are experiencing is the evil monster of Stagflation which is like a multi-head hydra. Cut off one head and it regrows. The central banks of the world are in a dilemma - the usual methods of rate cuts and other monetary infusions into their own financial systems do not work well this round simply because they cause inflation to worsen. In the big recession of the 70s, stagflation was also the key reason why it lasted till the early 80s.

Looking at all these, it is hard to imagine how property prices can avoid the big fall in a matter of months. My advice to would-be buyers. Think deeply and plan your finances very very carefully.

Are you going to pay your monthly housing loan installments using your CPF?

How sure are you of a job several months down the road?

Do you have enough cash buffer in your bank?

Have you factored in the inflationary increases of 6% to 10% in basic needs of your family?

The baseline consideration would be:

Do you really need that property now?


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The blogger here has been affectionately named by close allies as "Smart Buyer" but really, he's not smart. Smart Buyer just believes that being prudent is smart. That's the essence of the message of this blog and Smart Buyer hopes it'll benefit other property buyers.

Smart Buyer :)