The Swift-led Recovery

By TAN Kee Wee

(MediaCorp 938LIVE’s Money Talks, Thursday, 31 July 2008, 7.50 am and 7.20 pm)

More than 2 million US homes are expected to be foreclosed this year as the result of the housing bust. This makes up about 2% of the total number of homes. If it sounds like a lot to you, it probably is.

If the same proportion of homes in Singapore was foreclosed, that would be about 22,000 homes. Of course, Singapore is not facing a property bust. But some pessimists think we are heading in this direction.

Feeding such pessimism is a report released last Saturday by the URA. This revealed that prices of private homes in the second quarter barely moved, making it the worst showing in four years.

The pessimists must be asking – Is this the beginning of the decline for all of us? The answer depends on how we see it.

At the micro level, the drop in property prices is often a disaster to those with personal stakes. But from the overall perspective, when someone suffers a loss, another can be expected to benefit from it.

This compensating principle and the ability of the economic system to heal itself and find its way back to vitality is usually forgotten. More economists should transmit this broad-minded vision to all of us.

That most do not is understandable. We’re only human. Since most economists come from the financial community, we’re only voicing the depressing effects of what’s happening in the industry.

So allow me to tell you an interesting story about the creation of a man-made industry in the Malaysian state of Kelantan. In the aftermath of the Asian Currency Crisis in 1997-98, many businesses went bust. In Kelantan, many factories and buildings were abandoned as a result.

If the Malaysian government had stepped in with bailouts, these businesses could have been kept alive. But only barely alive because basically their businesses had gone over to China for good.

The Kelantan property market could have remained over-supplied. But one enterprising businessman decided to try out birds’ nests farming in one of those abandoned buildings. He converted one into a nesting home for one species of the swiftlets, whose edible nests are highly prized as a delicacy by the Chinese.

Of course it’s not as easy as creating a cave-like space for them. The right humidity level must be kept. An audio system had to be installed to play sounds of swiftlets chirping and mating to attract the migrating swiftlets into the building.

After some trial and error, the right formula was found. Profits started to roll in. Its success subsequently drew others into the business. Over the next ten years, the industry grew by leaps and bounds. Today, Malaysia is the world’s third largest exporter of birds’ nests, behind Indonesia and Thailand.

If you were to drive through the towns and countryside of Kelantan today, you’ll be able to see hundreds of shophouses and low-storey buildings all dedicated to birds’ nests farming.

Unlike the traditional farming in caves, which can be dangerous and whose supply is restricted, the sky’s the limit for the Malaysian birds’ nests farming industry.

According to one report, the Indonesian tsunami in 2004 gave the Malaysian industry another boost by diverting a lot of migrating swiftlets away from Indonesia to Malaysia.

There you have it. Someone could benefit from another’s misfortune. Since we’re talking about birds, when an egg is broken, it could either go to waste, it could be held together with scotchtape, or it could be transformed into a delicious plate of omelette.

The current noise over falling property prices and rising inflation may be the sound of many eggs being broken. Eventually, it may turn out to be a good thing for many people. This is not to say that the pain is not real. It is. But so is the strength of the economic system.