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Cooling measures still relevant as property prices are still high

Posted on 17 Feb 2014 | Comments Off

In the commentary “Cooling measures worth tweaking” (Feb 14), the writer suggested that the low overall resale volume indicates that not much upgrading is taking place. He felt this is not a good situation as homeowners cannot fulfil their housing aspirations, and attributes it to the property cooling measures.

Even if he is correct in stating that not much upgrading is taking place, I believe this to be a result of the high property prices, which the cooling measures target to tame, rather than of the cooling measures themselves. As he noted, “under normal market conditions … households relocate to bigger or better homes as their income rises”. However, today’s high prices mean that few can afford to move to a bigger private home in a comparable location.

Sales information indicates that many private homes sold today are equivalent or smaller than some four-room Housing and Development Board (HDB) flats. This means most upgraders today will have trade-offs in terms of living space and location if they want the intangible benefit of perceived higher social status of living in private property and the convenience of access to recreational facilities.

Therefore, until property prices are at a more affordable level, I believe the property cooling measures are still relevant.

Moreover, there are also other reasons for the low resale volume. Most upgraders today are choosing not to sell their HDB flats as a confluence of factors has made it more attractive to keep them.

Firstly, the flat can fetch a very attractive rental as a result of the high property prices. If the upgrader bought his flat directly from HDB more than 10 years ago, the rental yield can easily be more than 10 per cent of his purchase price, which is impossible to obtain in any other asset class of similar risk.

Secondly, the low interest rate means that the upgrader has little need to release the capital locked up in his flat to lower his loan quantum to save interest payments.

Thirdly, the restriction on purchase of flats by private property owners means that an upgrader may prefer to keep his flat, rather than risk not being able to buy any flat in future.

From Chong Lee Ming

Source : Today – 17 Feb 2014

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Posted in Cooling Measures, Government, Property Market / Real Estate

Tagged Cooling measures, property-cooling measures

Singapore home prices may drop 10-15%, says DBS CEO

Posted on 17 Feb 2014 | Comments Off

Singapore’s property prices could fall by 10 to 15 per cent this year, as government cooling measures and mortgage curbs continue to dampen the property market.

This is the outlook from DBS Bank’s CEO Piyush Gupta.

His comment came during the bank’s results briefing on Friday.

Since 2009, the government has rolled out a series of measures to rein in property prices, and the impact is showing.

In the final quarter of 2013, private home prices fell 0.9 per cent from the previous three months — the first decline in nearly two years.

Mr Gupta said he expects property prices to correct by 10 to 15 per cent this year, with high-end homes taking a bigger hit.

His views are more bearish than those of most property analysts, who see home prices declining by 5 to 10 per cent.

However, DBS said it is not overly concerned about the impact of a sharp correction in residential property prices on its loans portfolio.

Mr Gupta said: “All our stress tests in the past have shown that we can easily withstand a 30 per cent reduction in Singapore property prices without having any material impact on our portfolio in Singapore.”

He added that the quantum and extent of correction will also depend on any tweaks in macro-prudential policies by the government and Monetary Authority of Singapore.

Meanwhile, United Overseas Bank’s CEO Wee Ee Cheong also expects to see a downward pressure on home prices, especially on the high-end property segment.

However, he said it is difficult to predict the extent of correction in property prices as it also depends on factors such as the interest rate environment, economic conditions and housing supply situation.

For now, DBS said it saw a 30 to 35 per cent reduction in mortgage applications as a result of the Total Debt Servicing Ratio framework put in place last June.

Over at OCBC, home loans volume fell by some 40 to 50 per cent in the last few quarters.

Housing and bridging loans account for about 30 per cent of total loans in the banking system in Singapore.

One concern among some observers is whether households will be able to carry a heavier debt burden as global interest rates start to normalise.

Samuel Tsien, CEO of OCBC Bank, said: “Because of the warnings that have been given — and I think both the regulators and the banks have been very disciplined in making sure that borrowers understand the impact on them — we believe that when the interest rate rises, it will be within the capacity of the borrowers.”

OCBC said it does not expect global interest rates to rise till 2015, while DBS said it won’t be surprised if rates start to rise only from 2017.

DBS said more borrowers are taking on fixed rate loans to protect themselves from a rising interest rate environment.

Source CNA 16 Feb 2014