Tag Archives: Property Bubble

The rise in risk appetite and sharp rebound in financial markets since the start of the year may have outpaced economic fundamentals, according to the Monetary Authority of Singapore (MAS) in its annual Financial Stability Review on Monday.

The MAS noted that although Asia has bounced back from the financial crisis faster than expected, the global economic outlook remains uncertain.

This is because the nascent recovery in the world’s biggest economies – the United States, Japan and the European Union – has largely been dependent on government stimulus.

There is a risk that once these stimulus policies are withdrawn, their recoveries will take a hit, thus affecting Asian economies, especially those that are export-dependent such as Singapore.

If economic recovery stalls, corporate earnings may come under renewed strain and corporate refinancing may become more difficult. MAS added that unemployment could also rise if the economy slows again.

Despite such uncertainties in the global outlook, Singapore’s property market has taken on its own dynamic. Private home prices rose almost 16 per cent in the third quarter – the highest quarterly increase in almost three decades.

This has led MAS to warn that a speculative bubble could form.

MAS said although the government has already introduced several measures in September to temper the exuberance in the market and pre-empt a bubble, more measures might be needed.

But the nature and timing of such measures would have to be balanced against the still uncertain path of economic recovery.

On a brighter note, MAS said local banks and insurers have remained resilient through the crisis, maintaining high capital and liquidity ratios. It added that local banks’ earnings have dipped but remained above market expectations.

This, together with successful capital-raising efforts during the crisis, should enable the local banks to absorb further credit losses in the coming quarters.

Source : Channel NewsAsia – 9 Nov 2009

Singapore’s central bank warned that more measures may be needed to curb the risk of renewed speculation in the country’s property market, buoyant by low borrowing costs.

MAS Financial Stability Review November 2009

The comments underscored the growing concern among policymakers in Asia, who are worried that the froth in residential markets in financial centres such as Hong Kong, Singapore and Seoul could turn into a bubble.

‘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,’ the Monetary Authority of Singapore (MAS) said in an annual Financial Stability Review. ‘More measures might then be necessary.’

The Singapore government in September acted to cool the property market by releasing more land and making it harder for home buyers to defer payments..

Last month Hong Kong’s central bank said it would cap the mortgage limit for luxury property at 60 per cent, down from 70 per cent currently, and limit loan values.

South Korea’s central bank has warned it would have to raise interest rates to curb a boom in property prices.

The Singapore central bank said property market activity has taken its own dynamics despite the lingering uncertainties in the domestic and global economy.

Singapore’s monetary authority also warned that the global financial market rally has outpaced economic fundamentals and any perception that the economic recovery is stalling could trigger a repricing of financial assets.

It said the rally in Asian asset prices since the first quarter of 2009 has been supported by abundant global liquidity, but they may be sensitive to removal of monetary accommodation.

‘Such market volatility could prompt capital outflows from Asia and, in turn, exchange rate volatility,’ the MAS said.

Asian stocks, as measured by the MSCI Asia ex-Japan index, have surged 60 per cent this year, outpeforming a 27 per cent jump in MSCI’s world equity index.

The MAS said some Asian economies may need to tighten monetary policies ahead of the world’s largest economies, namely the United States, but cautioned against a significant tightening earlier than the G3 countries.

‘If monetary policy needs to be tightened significantly earlier than in the G3, carry trades, capital inflows and exchange rate appreciate pressure could result, potentially entailing a risk of asset price bubbles,’ the MAS said.

In October Singapore’s central bank kept its loose monetary policy unchanged because it was unconvinced an economic rebound can be sustained.

The MAS said Singapore’s financial system has weathered the financial crisis well and domestic financial conditions should continue to improve as the economy recovers.

Singapore banks led by by Singapore’s biggest bank, DBS, beat market expectations with a strong set of third-quarter earnings and are better positioned than global peers for post-crisis.

But the MAS cautioned that the situation in the Singapore financial system is not without downside risks, largely due to concerns over the sustainability of the global recovery.

Source : Business Times – 9 Nov 2009