Hi, thanks for your response, your description of property price inflation is basically logical and correct, just that my proposal disects ANY form of inflation into it's sub-causes for the sake of better understanding of how governments today operate/ the causes of inflation we see today (in various sub-categories not-withstanding).Originally posted by Veggie Bao:Re: Topic: What is inflation?
Good explanation.
But I wanna mention something else.....
Property inflation.
This is something a bit different.
In many countries, property inflation is due to the fact that many people "invest" in property.
People who wanna save and invest, they think they should park their money in property, as an asset and as an investment.
Therefore it pushes up the price of property.
It is not real demand, because they are not real home residents. It's not really for usage.
This has devastating consequences.
Because housing is one of humans basic needs and basic commodities.
If housing is hoarded by the moneyed class, it has many societal implications.
Their money is channeled into something, that sucks something out from circulation and make the system choke.
For instance,
It makes young people have a hard time getting independent. Because when they wanna buy a home, indirectly they are competing with people in their 50s and so on, who have saved all their life and have more savings.
Meanwhile the younger people have only a few years of labour.
So it makes their efforts tougher.
It even lowers the birth rate.
Secondly,
It promotes neo-feudalism.
In the past, one of the basic characteristics of feudalism is that the society is divided into 2 classes, the landlords, and the landless peasants.
Nowadays with housing prices increasing, the moneyed class is the new landlord and the young people and the lower middle class people are the landless peasants.
It is divisive to society and it hampers social mobility.
So in order to increase society's wellbeing, all types of property investment should be discouraged. Stricly, property ownership should only be for usage.
As mentioned, fiscal/ currency based inflation (due to govt printing $) is like a guaranteed tide that raises all the boats since everything is valued according to currency (even gold is valued according to fiat currency nowadays rather than vice versa), the price level of everything will go up: subject to seasonal change, as the total currency in circulation increases- the USD being the prime mover in this respect since many if not all countries tag the value of their own currencies to the USD, (not least SG'pore for instance).
Property, equities, gold, commodities all increase in nominal price levels as the total currency in circulation increases.
The 2nd cause of inflation is of course non-fiscal(currency) caused: an example of such non-currency based inflation is for instance the increase in vegetable prices due to inclement weather resulting in decreased vegetable yields in the countries supplying.
The price of veggies in this case is lesser driven by the amount of currency in circulation than it is due to the relative shortage of vegetables as compared to usual supplies, thus the temporary and proportional increase in prices... of course better sourcing methods could alleviate this shortage but then again, import from further afar would certainly incur higher freight charges.
This dichotomy in the causes of inflation distinct as they may seem in theory however may not be so simple to distinguish in practice due to the seasonal change in supply and demand of goods of various categories and make- some substitutable, others less so- however, such supply/ demand variations aside, a chunk of inflation can be attributed to the 'dishonest' printing of monies by governments- the outcome of which is simple inflation in the price levels of goods, some sooner then others, but to all eventually as goods become progressively repriced according to the availability of money that people have to spend, the price of gold in a way reflects its pricing by those who can afford to 'invest' in it- as such, however, due to the low demand for gold in industrial use (10% of annual supply only), much of the inflation in the price of gold can thus be indicative of the inflation of other goods: housing, transport, food etc prices in time to come e.g. the desire of the farmer's wife to own a gold ring, ditto the tractor builder's wife, ditto the petroleum supplier's wife, ditto the vege wholesaler's wife and so on... would pressure the farmer to raise prices where possible to afford her such desire as requested: thus completing a full circle whereby inflation in currency supply by the government causes inflation in the price level of food due to such government intervention (the printing of $$$ that is).
Moral of story, the price of gold will go up, as will everything else, simply for the fact that by the (unwise) precedence of the USA, all governments in the world print $$$ way in excess of what is necessary due to population expansion and genuine advancement of the economy (greater spirituality, green-consciousness/ energy conservancy/ efficiency etc).
In response to your comment about 'feudalism' and how it might disadvantage some menbers of our society (younger, less well off etc) one way would be to increase the cost of property taxes since at present, the 4% of 'annual value'(AV) level (owner occupied discount level) is way too paltry. Many a foreigner intending to invest in SG property would as you have mentioned, purchased a unit and the sit on it (whilst paying the discounted property tax) or else rent it out and pay the undiscounted 10% of AV tax rate just to exploit the SG property market for the purpose of gaining capital appreciation from the property owned. Perhaps a fairer way of apportioning property amongst Singaporeans is for property tax to increase to a uniform 7% across the board (in line with GST levels), with a surcharge of 3% for freehold properties/ properties leasehold in excess of 99years- the 3% surcharge payable to the SAF since it can be argued that freehold property holders have a greater stake to protect the ownership of their properties, the SAF serving that role and not a cheap organisation to operate.
The median er capita property tax paid by Singaporeans would then be repaid to each Singaporean to offset the property tax payable by this Singaporean. PRs would also be entitled to half this property tax rebate only insofar as they remain in Singapore for a cumulative duration in excess of half a year, foreigners who are not PRs will not be entitled at all to this rebate.
This way, the Singapore government can ensure that all property (residential in this case) in Singapore is efficiently utilized. Singaporeans unable to own their own property may use the property tax rebates to offset some of their rental fees whilst rental might actual come down due to a fall in property tax for rented apartments decreasing from 10%AV to 7%AV. The biggest looses would of course be the big bungalow owners would property values are expected to fall with an increase in property tax payable but then again, they must understand that their property stands by the sweat and blood of all Singaporean NS men who serve time to protect our little island state- a fair tax proportionate to the property value and a rebate equal to all Singaporeans should be acceptable to them.
Foreigners will marvel at the robustness of democracy in action in our shining bright little island state.
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15Feb2012: What is inflation?
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