Source : Straits Times – 2 Jun 2009
YESTERDAY’S article, ‘Private home sellers raise asking prices’, raises a vital point that caution is needed, and so far no one in authority has sounded a warning.
Property prices seem to be edging up, and the optimism of sellers seems to be related to the rise in stock prices, which have gone up by more than 20 per cent.
This rise in prices defies economic analysis, as there seems to be no basis to prices going up since fundamentals show that economic growth has been negative. Fourth quarter 2008 statistics show minus 9 per cent and first quarter 2009, minus 14 per cent. So there is no fundamental support for a rise in stock or property prices. Yet most property counters like CapitaLand, City Developments and Keppel Land, as well as other blue chips, have shown appreciation in prices, some as much as 50 per cent.
This prompts the question why no word of caution has come from any chief executive that there has been no fundamental change in his company’s earnings in the past two to three months to warrant such a hefty increase in the prices of its stocks. Perhaps they are just revelling in the increase in their portfolios. There has also been no warning from the Stock Exchange.
Obviously, all market players are making hefty profits from their quick short-term trading, so why should anyone rock the boat?
One banker told me it is simply speculation, as there is excess liquidity, and returns on bank deposits earn a pittance 0.5 per cent interest at best, so there is no point keeping the money in the bank; it is better to pledge the deposit, borrow heavily and play the market.
No one is sounding the warning bell, because any true blue businessman knows that when fundamentals do not support values, it is a matter of time before the collapse happens, as prices will ultimately adjust to reflect realistic values.
This may well happen here, unless a strongly worded note of caution is sounded soon.
Anil Bhatia
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