Ad Hoc Commentary – Singapore still fighting the last war

In America, they are still fighting the Great Depression, thus the bias to stimulate. In Germany, they are still fighting hyperinflation, thus austerity.

In Singapore, they are still fighting the Asian Financial Crisis of the 1990s. That is, hot foreign capital flows. We remember the inflows into Asia and the subsequent outflow to the formation of European Union in the 1990s.

Merkelections on Sep 22, 2013 will likely switch off the lights on the European Union economic growth prospects for the coming years. When that happens, capital that left Asia for Europe will return.

Bad memories on the destruction of wealth as capital fled in the late 1990s will keep Asia vigilant against such foreign capital inflows.

Well-known for being pragmatic and forward looking, the elites in Singapore had already put up barriers of entry in the local housing market. They likely fear locals overextended in local property markets. If 1996 repeats, these policies will save the people.

However, in all likelihood, it isn’t your grandfather’s market anymore. The villain this time might very well be locals overextended in foreign property markets. In cross-border investments, location, location, location is secondary.

The golden rule of cross-border property investments is:
1. the rule of law, and
2. stable tax regimes.

Without the rule of law, property investments degenerate into worthless pieces of paper. Without stable taxes, property becomes a conduit for foreign nations to consume the wealth of nations through property taxes. However, that brings us to the very difficult question on how to regulate cross-border flows? Moral-suasion anyone?

Good luck in the markets.

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