If you haven’t read about the news about the US Federal Reserves releasing QE3, announced on the 13th of September a week ago, here’s a short summary coming from Wikipedia,
QE3 was announced on September 13, 2012. In an 11-to-1 vote, the Federal Reserve decided to launch a new $40 billion a month, open-ended, bond purchasing program of agency mortgage-backed securities; to continue until at least mid-2015. According to NASDAQ.com, this is effectively a stimulus program which allows the Federal Reserve to print $40 billion dollars a month for an unlimited amount of time. Ratings firm Egan-Jones said it believes the Fed’s decision “will hurt the U.S. economy and, by extension, credit quality.” As a result the firm once again slashed the U.S. bond rating bringing it down to AA-. Federal Reserve chairman Ben Bernanke acknowledged concerns about inflation.
Read more about Quantitative Easing, Wikipedia
With QE3, the Feds are going to inject another $40 billion (printed of course) to buy back mortgage securities in the States, to allow Americans to have an improved lives by improving the job data and consumerism from the possible enhanced property market. They are guaranteed on the low-interest rate as well till mid of 2015 (I wonder whether Bernanke will still be chairman by then)
How would this adversely affect Singapore Property Market?
Although some financial experts have stand out and mentioned that QE3’s effects will not spillover (the Edge, Business Times, yada) as the effects could be absorbed by US domestic market before affecting the global economy, but I feel otherwise. By rule of thumb, if you are printing money, it just simply means inflation is going to happen.
QE3 is a process flow where monies are printed and distributed to the banks’ channel to pump into the US economy, therefore, this should be lagging and be treated with care. We should be able to feel the effect from QE3 within the next 6 to 9 months when this would hurt the US Dollar.
With most countries holding a US basket of currencies in their reserve, this is definitely going to affect the global economy. Investors will channel their funds to somewhere that protects the value of their money instead of holding onto anything that is in relative to US Dollar. You would already know some countries are not very reliant on their own country’s currencies for consumption. Its a well known fact that commodities such as gold, silver and Real Estate from other economies would be the protection against the losing power of US Dollar.
Unfortunately, countries like Hong Kong and Singapore where home currencies are strong and property stability is an attraction, would be one of the channel that opens up gate to the globe. Although Singapore has already took extensive measures to cool down the buying momentum, recent reports shown that foreigners took the extra stamp duty into consideration as part of their investment cost and still is comfortable putting their trust onto our market. Ah, the low interest rate till 2015 as well..
New Cooling Measures?
The only possible dampener in the Singapore property market would be the government to stem foreign buying should they introduce something drastic again. Hong Kong has introduced cooling measures immediately after QE3’s announcement to prevent any possible bubble in the market.
For now, prices can only go north from here slowly, as of how inflation will affect any markets in the world on property pricing.