is inevitable, says Colin Tan. the new bear.
Cooling measures inevitable
by Colin Tan
04:45 AM Aug 03, 2012
With suburban housing prices hitting new highs, markets awash
with liquidity and banks introducing longer home loan tenors, I
believe it is inevitable that another round of cooling measures
will be introduced simply to keep potential price increases in
check.
In my commentary in Today last week ("Is the glass half empty
or half full?" July 27), I said you could choose to interpret the
findings of the Credit Suisse inaugural survey on home buying
negatively or positively.
Looking at more of the numbers, some 47 per cent of those
polled in the bank's proprietary survey believed that homes here
will cost more within the next year, with almost three in 10
predicting price increases of up to 10 per cent.
Just as many believed that the opposite is true: A significant 35
per cent of respondents expected prices to fall within the next 12
months.
Interestingly, six in 10 predicted another round of cooling
measures. Assuming all 35 per cent who believed prices would
correct within the year fall into this category, this leaves another
25 per cent whom I interpret as those who believed that yet
another round of cooling measures would be necessary simply
to keep prices stable.
This week's release of resale price indices for completed
apartments by the National University of Singapore's Institute of
Real Estate Studies supports this last opinion. Although some of
the media focused on the 1.4 per cent fall in prices of small
apartments in June compared to those in the previous month,
the real story for me was the second successive new high for
apartments located in suburban areas.
The sub-index for non-central apartments excluding shoeboxes
had been trending downwards for some months - with
fluctuations - before bottoming out in February. Since then, it
has staged a recovery, reaching new highs in May and June. It
had risen by 1.9 per cent in May and by 0.7 per cent in June, the
latter number being the latest flash estimate.
This indicates strong pressure on prices for completed units to
rise.
Are the effects of the cooling measures introduced in December
wearing off? I believe this to be so. This is where I share the
opinion that it is inevitable that there will be another round of
cooling measures.
While cooling measures may be viewed negatively by
developers, they have helped ensure price stability. A stable
environment has actually allowed buyers to come out in droves.
Price stability encourages genuine upgrading. Selling your
existing property to buy another need not be done hurriedly.
Prices would not run away. And if they are not falling, it means
you need not wait for a better deal.
Speculators are the only group who will lose out in such an
environment because they see no reason to participate in the
market. Then again, there is no actual loss, only the loss of an
opportunity to make more money.
Finally, as a caveat to all would-be investors, I would like to say
I cannot see the robust buying continuing indefinitely. It may be
prolonged by changes in the local market and in the global
environment, as in our current situation.
Increasingly, more of the buying rests on low interest rates and
less on fundamentals. What happens when there is a sharp hike
in rates? Seven years of feasting may be followed by seven
years of famine. It is best that we build our defences early, even
as we play the game or are forced to play the game.
Colin Tan is Head of Research and Consultancy at Chesterton
Suntec International.