By: Kheng-Liang Tan
This morning, Bloomberg ran an article on how Singapore’s supposedly middle-class have been classified as ‘rich’ because of artificially-inflated property prices and this has in turn caused some possibly bad investment choices.
Based on current banking practices and legislation, only investors with a 1) minimum assets of S$2 million and 2) income above of S$300,000 in the past 12 months income are classified as ‘accredited-investors’.
This requirement could be misleading given that inflated property prices in the recent years has put many condominium owners in this category. With an “accredited-investor” status, this group is able to invest in risky products.
Such a status allow them to purchase riskier financial products that may not be available to retail inveators. Nevertheless, these products may carry risks that are not be fully appropriate to the ‘real’ financial status of these investors.
A/Professor Christopher Chen from SMU said, “if someone happens to own a landed property, likely that person will become an accredited investor… some people are semi-rich, or look rich on paper.”
An Elaine Tham – who fell into the definition as she lived in a condo – invested $250,000 in Swiber Bonds. Swiber went into Judicial Management last month and the money she had set aside for her children’s education is now likely to be lost.
Lawyer Robson Lee echoed the view of Chen above, saying that while these people are “wealthy by technical definition.. in reality they may not have enough disposable assets to withstand such losses”
Currently, such a status seem to be automatically assigned, although MAS said in response to Bloomberg queries that they are considering preventing banks from assigning such status to investors whose wealth is in property and an opt-out option.
Another investor who lost money in the Swiber bonds said, “Who would understand the full consequence of being an accredited investor? It can be a grey area.”
Banker Chris Kuan said: that is was worrying that “so much household wealth are tied in property – surely an extremely risky macro-economic proposition in which real estate prices are intertwined with fiscal policy, household wealth, retirement and healthcare funding – all of which works only because the government control the land bank and maintain elevated prices..”
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