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INSIDE VIEW

Property: Don't get too excited

Saturday, March 11, 2017

by Cai Haoxiang
[email protected]
@HaoxiangCaiBT


For now, the government might aim to unwind cooling measures just enough to prevent a sharp decline in prices.

1. What do you think was the most significant thing that happened this week?

On Friday morning, the government sparked a property stock rally as it announced a series of tweaks on the residential property market.

One notable change is in the seller's stamp duty (SSD) measures, last tightened in 2011. Homeowners who buy houses from today only need to wait three years instead of four to avoid the SSD when they sell their properties. If they can't wait, they will also pay less in tax - some four percentage points less, compared to homeowners who bought their properties yesterday.

2. Did you see it coming?

No. The government has long said that property prices still have some way to correct before cooling measures can be lifted. At the same time, there were signs of a revival in the market that negated expectations for any tweaks, such as recent condo launches being well-received.

3. Why is this a big deal?

Easing the SSD will aid speculative activity in the property market, giving a fillip to developers launching new projects this year, and helping liquidity three years down the road.

Arguably, the signalling of the move matters more than the substance. It shows the government has no intention to kill the property market altogether.

Authorities might even try to be ahead of the curve, given how a rising interest rate environment might draw funds away from Singapore and dampen sentiment excessively.

4. Should anyone be worried? Excited, maybe?

Don't get too excited. Here's why.

First, plenty of cooling measures are still in place. Nothing has changed significantly.

Second, nobody wants prices to overheat. Remember what happened in 2011? The ruling People's Action Party got hammered in the general election. If prices rise too fast before the young feel secure enough to settle down and buy a property, they will be unhappy.

Don't forget the populist wave sweeping through the world. The average Singaporean couple might be able to afford an HDB flat, but they don't want condo prices to be out of reach.

Third, a still-uncertain economy will weigh on prices. Unemployment is rising. The rental market is in the doldrums. Will there be enough good jobs for everybody, even as the numbers of university graduates continue to go up?

Fourth, interest rates are also due to rise, putting a major dampener on property prices.

The probability of a March interest rate hike by the US Federal Reserve, as deemed by interest rate futures, has risen to 100 per cent this week. After the Fed meets next week, overnight rates could rise from the 0.5 to 0.75 per cent range to the 0.75 per cent to 1 per cent range.

5. What happens now?

To read the tea leaves on property prices, watch the pace of interest rate hikes in the US, which Singapore rates will track.

Interest rates are a key financial indicator determining the cost of borrowing, driving investment decisions made by corporates and individuals. Rates rising too fast will constrain property prices, cooling measures or no.

Fund flows matter. Watch longer-term interest rates. US 10-year Treasury bond yields rose past 2.6 per cent this week for the first time in 2017. Higher yields in the US, the most advanced economy in the world, will attract capital back there. All things equal, the US dollar will strengthen. Singapore is a relatively stable place for investors to park their money, but it could also be affected should funds flee Asia.

Watch incomes. If Singaporeans get decent pay rises this year and the next, then property prices will have room to rise.

Watch immigration policy. For now, nobody likes having too many foreigners around. But if we ever move back to our 6.9 million population target, property prices will have room to move up.

For now, the government might aim to unwind cooling measures just enough to prevent a sharp decline in prices.

Amid a soft - but not crashing - economy, its priority is to put longer-term measures in place to ensure the competitiveness of Singapore's workforce.

But having engineered a remarkable soft landing in Singapore's property market in a low interest rate environment, when cities such as Vancouver, Shenzhen and Hong Kong are struggling, surely our authorities have no incentive to spark an unsustainable boom in asset prices.