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Pre-empting a property bubble

Posted on 14 Sep 2009 | Comments Off

Goh Eng Yeow on traders’ reactions to the move to dampen some speculation.

PROPERTY counters are reeling from the much anticipated move by the Government to deflate the bubble now brewing in the residential property market.

As I write, City Developments has fallen 74 cents to $10.34, while rival CapitaLand is down 17 cents at $3.70.

What surprises me is the strong reaction by traders to the Government’s move to disallow the interest absorption scheme by developers to lure buyers to purchase new properties.

Essentially, the interest absorption scheme is a variation of the deferred payment scheme which was scrapped in October 2007. It allows a buyer to defer making the bulk of the payment on the property he buys until TOP, once he has come up with the agreed down-payment.

Given the scare at the end of last year when there were fears that large number of buyers on the deferred payment scheme might default on their uncompleted property purchases, it is surprising that traders should have reacted so strongly to the scrapping of the interest absorption scheme. Continue reading →

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Posted in Loan / Mortgage / Finance, Property Market / Real Estate

Tagged Property Bubble, Singapore Property Market, Singapore Real Estate

Averting property bubbles: lessons to heed

Posted on 8 Sep 2009 | Comments Off

WHILE it is appropriate for the government to continue monitoring the situation in the property market, the question is whether pre-emptive measures should be taken sooner rather than later to prevent a bubble from forming. It is instructive to consider the actions of the Reserve Bank of Australia (RBA), which has largely managed to keep the
country out of a recession.

Prior to the sub-prime crisis, central banks in several countries (notably the US and the UK) had helped to pump up property bubbles with low interest rates which were accompanied by easy mortgage terms. By contrast, the RBA resisted cutting rates and chose instead to talk down the property market. As far back as 2002, the RBA, feeling that property prices were escalating dangerously, decided to commission housing market reports to show that prices were unsustainable. Looking at affordability, bank lending standards and collating data on home loans as well as errant marketing ploys, the RBA went on the offensive with its then governor Ian Macfarlane saying: ‘I’m using a certain amount of moral suasion to try and get . . . to investors, to make them sit back and think again.’ Interestingly, his comment mirrors that of Singapore’s National Development Minister Mah Bow Tan, who said last week that home buyers ‘need to think carefully, think long term, think about the unexpected’. Continue reading →