There is a high possibility of further cooling measures if residential prices continue to escalate ahead of economic fundamentals
THE government this week announced several tightening measures for the property market. This is in response to increasing worry that the local property market is getting a a little frothy. In his previous speeches, National Development Minister Mah Bow Tan has explained therole of government in the property market.
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In his speech in Nov 26, 2008, Mr Mah highlighted the need for property prices to move in tandem with underlying economic growth. He also said that when housing prices are going up, speculation and fear of missing the boat can cause home buyers to pay more for their property than is justified based on economic fundamentals and this can lead to bubbles being formed. Time and again, the government has acted to cool down the property market when it became too hot. The recent measures were described by most analysts as being ‘measured’. They shouldn’t dampened the sentiment too much. But it did show that the government is prepared to impose cooling measures.
So this week, I’ve decided to do an update on the property market, looking at the latest available numbers. Last year in this column, I plotted a chart which showed how the Singapore’s gross domestic product (GDP), the URA private property price index and the Straits Times Index moved since 1975.
The chart showed that up till 1993, the stock and property market more or less tracked the growth of the economy. Then the property market broke away in 1994, 1995 and 1996. In hindsight, that huge deviation of property prices from GDP has proved to be a bubble.
That bubble was pricked by the government’s anti-speculative measures, and later by the Asian Financial Crisis. Property prices then corrected severely and closed the gap with the growth of the domestic economy. In 2007, property prices sprinted ahead again. The correction came soon after in 2008, but in the last couple of quarters, prices have risen again. But as per URA’s second quarter data, private property prices don’t seem to have strayed too far from the economic fundamentals. How about affordability? Here, the numbers look reasonable as well. I take the average income of the 71st to 80th percentile households in Singapore. According to the Department of Statistics, the average monthly income for this group was $8,010 in 2006, $8,730 in 2007 and $9,720 in 2008. I then compare these to the median price of condominiums in that three years. Continue reading
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