Premature to unwind cooling measures: Maybank Kim Eng

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http://www.businesstimes.com.sg/arch...m-eng-20140113

Published January 13, 2014

Premature to unwind cooling measures: Maybank Kim Eng

Chief economist sees smaller home supply in long term

By andrea soh [email protected]


[SINGAPORE] The government is not likely to be unwinding any of its property cooling measures this year, said Maybank Kim Eng head of research Ng Wee Siang.

"As long as interest rates remain where they are now, that would be too premature."

Instead, it is more probable that the government would reduce the number of private homes and HDB flats that will come onstream in the longer term, he added.

Mr Ng's comments at The Business Times-Maybank Kim Eng Invest Asia 2014 come amid a call for the government to relax some of its property cooling measures.

Director of property research firm Ascendant Assets Getty Goh said on Friday that this was necessary given "the lacklustre property market" and the likelihood that interest rates will rise this year and in 2015.

Mr Ng said: "The key concern I have is that the moment they unwind something, people will start to think whether some of the more major measures could be unwound as well. So their expectations could actually go overboard."

He noted that the Monetary Authority of Singapore has already said that the total debt servicing ratio (TDSR) framework would be a long-term measure.

The TDSR framework, the seventh cooling measure and introduced in June last year, limits a homebuyer's total debt obligations to 60 per cent of his gross monthly income

For the first six measures, it will be wiser to unwind them "only when things get really quite bad", said Mr Ng.

The brokerage firm has an underweight rating on the property sector, which it deems to be the "biggest loser" from the start of the tapering of quantitative easing (QE) in the US.

"The property sector has benefited greatly from the very low interest rate environment in the past few years," he said.

The tightening of the US monetary policy means there will not be as much liquidity as before.

The supply of private properties will also accelerate in 2015-2016, he added.

Reits, too, will suffer, because of a depreciation in their net asset value, which had been inflated by both the low-interest rate environment and "massive liquidity in the system".

The reversal of both due to the policy shift in the US "could deter very meaningful yield-enhancing acquisitions", said Mr Ng.

The start of QE tapering would have implications for the credit cycle in Asia as well, said Maybank Investment Bank chief economist Suhaimi Ilias in another presentation at the event.

"Such low cost of credit (in the past few years) has led to a surge in banking system loans, and by now the banking system loans in both Hong Kong and Singapore have reached quite high levels," he said.

"From an Asia perspective, there seems to be a threshold of banking credit to GDP, after which risk would be very high and the danger of a financial crisis is there."

This threshold is at 160-180 per cent of GDP, which some Asian countries are approaching, or have already surpassed, he warned.

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SINGAPORE: Sales of new private homes in 2013 fell to levels last seen during the global financial crisis five years ago.
Prices in the private and HDB resale market also saw declines last year.
But some analysts have said it may not be time just yet for the government to scale back on its property cooling measures.
A slew of measures to cool Singapore's property market has been introduced since 2009 - from loan curbs to stamp duties and a Total Debt Servicing Ratio.
The effects are being seen more clearly now.

Private property prices fell 0.8 per cent in the final quarter of last year - the first dip since 2012.

HDB resale flat prices also declined in the last two quarters of 2013.

Some property analysts said this price correction could be healthy after so many quarters of strong growth, though more evidence may be needed that prices have gone back to their fundamentals before the government reviews its cooling measures.

That evidence could possibly be a price dip of two to three per cent over several consecutive quarters.

Associate Professor Sing Tien Foo from the Department of Real Estate at the National University of Singapore, said: "From a policy maker's perspective, they probably do not want to switch the policy that frequently.

"One, there is policy uncertainty, the other is if the market has not fully cooled down or adjusted, there is the rebound effect if you remove some of the stamp duty; maybe those people who are waiting at the sidelines may actually enter the market, and may cause the price to increase again."

Seah Kian Peng, member of the Government Parliamentary Committee for National Development, said: "We need a bit more time. I think all of us can be assured that the government has their eye on this. If the measures are too tough now, they need to recalibrate. I think they will.

"The main thing is to make sure prices remain affordable for home owners. We want to cut down as much on speculative investment, we also want to make sure people do not over leverage beyond their means.

"So all the measures that have been introduced are to address all this. It is certainly not in any one's interest to see prices falling drastically."

For the first time in four years, statistics from the Singapore Real Estate Exchange also show that valuations of HDB resale flats fell in the fourth quarter of last year.

But some said there may be some upside in this.

Mr Seah said: "If the concerns of most had been that prices have gone way above, I think inevitably, it needs a bit of correction. To what extent is the correction a meaningful and reasonable one?

"I think that is where probably some of the debate is. I would say that the bulk of the people would still feel the valuations can come down a bit, and that actually would benefit... the majority of the people and at the end of the day, we are all trying our best that for aspiring home owners, this is within their reach, especially for HDB flats."

In a recent Parliamentary report, it was noted that around five to 10 per cent of borrowers with property-related loans were highly leveraged.

Some property analysts said that if interest rates go up and borrowers are unable to pay, this may have a knock-on effect on the property market.

Associate Professor Sing said: "The borrowers, or even the banks, when they start to withdraw their loan or liquidity from the market, or start to call back some of the loan, this would have a significant impact on the property market as a whole. So I think it would be prudent to monitor this group of buyers."

Property analysts said this group would require close monitoring, to ensure any eventual impact is minimised.


- CNA/ms