Introduction

The global economic pie is shrinking rapidly, and when that happens, there will not be enough business to keep everyone happy. So far, all the economic numbers, data, and statistics that have been released by both the governments and private sector analysts the world over are pointing to a long and torturous year in 2009. 

And as for now, nobody is any wiser about when the recovery will begin.  As for the interim period, there will be no denying or escaping it – in order for the global economy, including Singapore’s, to get better, there will be many bitter pills to swallow. In short, the global situation will get worse before it gets better.

Fortunately, not all the housing sectors in Singapore will be adversely affected by the on-going downturn – at least not the public flats that continue to make up more than 70% of the secondary market transactions. Demand for resale flats continue to stay on the healthy level; and as the crisis deepens, more prospective buyers may be forced to go for the safer option of public flats which are being heavily subsidised by the state.

(A) The big picture of the larger economy

[A.1] Global economy in serious trouble – IMF

The International Monetary Fund (IMF) reported that the unemployment rate in the 15-nation euro region will reach 8.3% in 2009.

A study by the Organisation for Economic Cooperation and Development (OECD), which includes the world's richest economies, said that the financial turmoil that started in the US has rapidly spread to the rest of the world. The study indicated that the number of unemployed people in its 30 member nations will rise to 42 million in 2010 from 34 million now.

[A.2] Prospect bleaker for US economy

The year-old recession in the US began to intensify with the third quarter growth shrinking by 0.5%.

[A.2.1] Consumer spending and corporate earnings down

According to revised figures from the US Commerce Department released on 23 December 2008, consumer spending along with corporate earnings fell the most in almost three decades and the contraction in GDP was the worst since 2001.

[A.2.2] Residential investments down

Residential investments contracted 16% at an annual pace in Q3 2008. Besides, new-home sales plunged 2.9% to 407,000 in November 2008, the lowest level since January 1991.

The National Association of Realtors (NAR) reported on 23 December 2008 that sales of existing homes fell 8.6% to an annual rate of 4.49 million in November, from a downwardly revised pace of 4.91 million in October.

[A.2.3] Job losses up in US

On 5 December 2008, the US Labour Department confirmed that some 2.7 million jobs have been lost since the US slipped into recession in December 2007. It also revealed that the US economy lost another 533,000 jobs in November 2008 and the unemployment rate now stands tall at 6.7%. Many economists are expecting the unemployment rate to rise to 8% in 2009.

The government report also corrected the previous months’ job loss data as follows: October saw a loss of 403,000 jobs (up from an earlier estimate of 240,000) and September job losses were revised up to 320,000 from 284,000.

In the week ended 20 December 2008, the number of Americans on dole rose 140,000 to 4.506 million people – the highest since December 1982 which saw 4,509 people receiving unemployment benefits.

This means that the current economic recession is far worse than the last two recessions and may need much longer time to recover.

[A.3] US subprime mortgage crisis spread to other domains

Rising unemployment in the US has intensified and widened delinquencies on mortgages across the nation.

[A.3.1] More prime mortgages in trouble

The continual slide in property value is causing more prime mortgages to sour, and exacerbating foreclosures on prime mortgages.

The US government efforts to rescue the massive housing slump can at best be described as slow. In earlier December 2008, the Federal Reserve began its first move to buy up to US$100 billion of government-backed mortgages. It was the first step in the right direction but the journey will be a long and painful one.

Home foreclosures in the US may rise to 8.1 million homes over the next four years, according to Credit Suisse.

[A.3.2] US Commercial real estate asking for help

Even big commercial real estate players in the US are not spared the blushes. The US$6 trillion industry of hotels, office buildings and shopping malls, has recently asked the US government for help in providing some ‘credit market support’.

The commercial property industry is bracing itself for a record total debt of close to US$530 billion due for refinancing in the next few years. In 2009 alone, about US$160 billion of the huge pile will need to find fresh financing. However, with credit virtually in non-existence, thousands of those properties could go into foreclosure or bankruptcy if owners are unable to get new loans.

The trade associations are asking that their members be included in a US$200 billion lending facility that was created by the government for consumer debt such as car loans, student loans and credit cards.

Read the latest updates on other property segments:

Part 2:Taking a look at the private residential property segment

Part 3:Movements in the non-residential property sector, collective sales and foreign interest in Singapore

Part 4:Updates on the GLS Programme and HDB resale market