More action may be needed if recent property measures inadequate: MAS

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Published November 10, 2009

More action may be needed if recent property measures inadequate: MAS

Risk of speculation escalating as market expects low interest rates to persist

By CONRAD TAN


(SINGAPORE) Further action to cool the Singapore property market may be needed if recent measures to dampen speculation prove insufficient, the Monetary Authority of Singapore said yesterday.

Looking ahead, 'price levels and transaction activity bear close monitoring', MAS said in its yearly Financial Stability Review, published yesterday.

'As Singapore emerges from recession and with the market expecting low interest rates to persist for some time, the risk of a renewed escalation of speculative momentum cannot be discounted.'

Despite lingering uncertainties in the economic outlook for Singapore and the rest of the world, 'the domestic property market activity has taken on its own dynamic', MAS said in a special section in the report highlighting what it sees as the key risks to Singapore's financial system.

Other downside risks centre on the sustainability of the global economic recovery after governments start to withdraw their fiscal stimulus and tighten monetary policy, MAS said.

'Should growth turn out weaker than expected, property buyers and speculators could face capital losses as the market corrects. Conversely, if the recovery stays on course, interest rates will eventually rise and drive up financing costs with severe implications for those who have overextended themselves,' it said elsewhere in the report, commenting on the recent sharp rise in private home prices.

'While the market rebound may appear to be aligned with improved prospects for the domestic economy, the current low interest rate environment has also played a part by reducing the cost of property financing,' MAS said.

'If unchecked, this could lead to a rising spiral of demand and prices as more and more property buyers and speculators are drawn into the market, and expose the property market to the continuing risks in the global economy.'

The steep increase in property prices here in recent months has already prompted the government to act to discourage speculation.

In September, the government banned interest-only housing loans and the interest absorption scheme that allows developers to absorb interest payments for apartments that are still being built.

It also restarted the confirmed list of the Government Land Sales programme in the first half of next year to meet the strong demand for private homes.

Unlike sites listed on the reserve list, confirmed-list land sites are put up for sale at a pre-determined date, without the need for the sale to be triggered by an application from developers.

Last Friday, the National Development Ministry said that it would place eight residential sites on the confirmed list for the first six months of next year.

That definite increase in residential land for sale is expected to have a dampening effect on overall home prices.

'We would view the comments made by the MAS as more of a pre-emptive signal for now,' said Donald Chua, an equity analyst at CIMB here in a note to clients.

'A low interest rate environment coupled with strong property demand has led to fears of rising speculative activity.'

However, since the recent measures to discourage speculation were announced, 'the euphoria on property has clearly cooled down in recent months, which should lead to more normalised property demand', he added.

If the latest measures aren't effective in curbing home price increases quickly enough, the government's next step could be to reduce the limit on how much of a property's price may be financed with a bank loan, from 80-90 per cent now, Mr Chua said.

Banks' loan exposures to the property sector remain in line with historical trends, MAS said.

Its most recent aggregate bank lending data show that half of all Singapore-dollar bank loans at the end of September were to the broad property sector, with business loans to the building and construction sector making up 17.8 per cent of total bank lending, and consumer housing loans contributing another 31.6 per cent.

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November 10, 2009 Tuesday

MAS flags two risks to property buyers

Danger of loss in a weak economy or interest rate burden in a buoyant one

By Gabriel Chen


HOME buyers are being advised to pause a moment before leaping into the purchase of that dream apartment.

The Monetary Authority of Singapore (MAS) yesterday cited two scenarios in which the resurgent private property sector may not stay quite so rosy.

The central bank also flagged possible fresh measures to cool the sector, on top of last week's government announcement that plenty of mass market condominium sites will be released next year.

The first scenario MAS outlined is that if economic growth proves to be weaker than expected, property buyers - including speculators - could suffer losses as the market corrects and home prices fall.

Second, even if the economic recovery stays on course, property buyers could suffer a hit of a different kind in the longer term, the central bank warned.

In a rebounding economy, it is more likely that interest rates - now at rock bottom levels - will eventually rise, and this will drive up monthly instalments on home loans that are not fixed.

This could have severe implications for buyers who have over-extended themselves with big home loans, believing interest rates will always stay low.

The MAS issued the words of caution in its annual Financial Stability Review released yesterday, even as it acknowledged a strong rebound of the economy.

It said households here have weathered the crisis relatively well, owing to their sound money management. Banks are not weighed down by risky loans.

However, MAS said that with the market expecting interest rates to stay low for some time, more buyers, including speculators, may be drawn to the market, driving up demand and prices.

Given the risks, MAS said prices and sales needed to be monitored closely.

It outlined earlier government market cooling steps, adding: 'The nature and timing of further measures, if deemed necessary, would have to be balanced against the still-uncertain path of economic recovery.'

According to Urban Redevelopment Authority data, private home prices surged 15.8 per cent in the third quarter - the sharpest quarterly rise in 28 years.

Volume has been strong with 12,969 homes sold in the first nine months of the year. Experts expect full-year sales to exceed the 2007 new home sales record of 14,811 units.

The MAS warning comes as a growing number of Asian nations, such as Hong Kong and South Korea, step up efforts to rein in property buying, for fear of a home prices bubble.

In September, Singapore, for its part, announced a slew of measures to cool the market, including the withdrawal of the interest absorption scheme that allowed home buyers to defer payments.

Details of mass market land sites to be offered to developers in the first half of next year were unveiled last week.

These steps have had some effect already - with the number of home sales falling in the last two months. A key indicator of speculative activity, sub-sales - when uncompleted homes are bought and resold before being built - are also down.

MAS pointed to encouraging signs on banks' property exposure. More than 70 per cent of housing loans are for owner-occupied residential properties, which suggests a lower risk profile, it said.

One trend MAS noted: the share of total loans where the value of the outstanding loan is above 80 per cent of the property's value has surged from 8 per cent last December to 17 per cent in September this year. However, dreaded negative equity, where a home loan exceeds the value of the home, remains very low at less than 3 per cent of loans.

In any case, banks' checks include the person's debt-servicing ability. Said Standard Chartered Singapore's general manager for retail banking products, Mr Dennis Khoo: 'You should not have more than $1 for every $2 that you earn going into overall debt servicing.'

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