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Singapore Property : This for developers and their customers

Posted on 11 Nov 2009 | Comments Off

NO PROPERTY bubble shall be tolerated. This bald assertion went down like a splash of cold water on the fast heating market when, in September, the Government stopped home loans on easy terms and chose not to extend concessionary support for developers upon its scheduled expiry next year. These concessions were granted in the last Budget. Speculative demand did slow as a result of these moves, but price levels were still too high for comfort. Developers were pushing their luck cashing in after a fallow period.

Last week came an early announcement that land sales targeted at mass market buyers, including parcels for executive condominiums, will be available for bids early next year. Land releases have a gestation period between tender and launch, but the depressant effect on sentiment is immediate. The market understands that, like nothing else. This undoubtedly was the intention of the National Development Ministry, as the consensus among government trend trackers is that the variable economic recovery is hard to chart. It makes sense that asset price inflation associated with unjustified market exuberance has to be checked.

Within days, the Monetary Authority of Singapore reinforced the message with a prominent warning on real estate activity in its year-end Financial Stability Review. It cited risks covering the opposing contingencies of a faltering economic recovery leading to property portfolio devaluations, and a sustained recovery leading inevitably to higher interest rates, which would be trouble for the over-leveraged and the illiquid. The central bank’s concern about macro stability is naturally holistic, seeing what adverse impact unrestrained stock and property bets in a period of unstable growth can have on the soundness of the banking system. Household debt shall not grow onerous, it is saying by extension.

Banks’ lending capacity must remain unimpeded so as to keep the economy oiled. It would be compromised if the rebound falters and brings in its train business failures, job losses and the ultimate danger of soured loans forcing banks to be again stringent with credit. The MAS bottom line (developers should prick their ears up here) is that further intervention in the property market would be necessary if ’speculative momentum’ re-emerged.

Buying activity and price levels for the rest of the year and up till the next Budget is presented will tell if the industry and its customers see the inherent risks of acting too hastily on the rebound. It took Hong Kong a dozen years for property values to right themselves. But stable growth never stood a chance in that archetypal monetised enclave. Its government is now desperately acting to head off a bubble forming.

Source : Straits Times – 11 Nov 2009

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Singapore Property : Property cycles hard to predict

Posted on 11 Nov 2009 | Comments Off

PROPERTY cycles are hard to predict, but the Government will try to avoid boom-bust cycles, said Finance Minister Tharman Shanmugaratnam yesterday.

‘We will keep our eyes on the ball and use all the tools at our disposal, but in a calibrated fashion,’ he told about 80 business leaders at a forum to garner feedback for the Economic Strategies Committee. Mr Tharman is heading this committee to look into new ways for Singapore to grow.

The Government will probably not use ‘macro tools’ to manage property cycles, such as changing interest rates or exchange rates, because these rates have many other effects such as on businesses as well, said Mr Tharman in his concluding remarks at the forum.

But there are other options. These include tweaking rules on credit, adjusting land supply and – in extreme situations – amending tax policies, he said.

Two months ago, the Government introduced measures to help cool the property market, including removing the interest absorption payment scheme and significantly increasing land supply.

On Monday, the Monetary Authority of Singapore also highlighted the possibility that additional cooling measures may be needed if there is a renewed surge in property speculation.

‘We do want to manage the property cycle as best we can, prevent boom and bust,’ said Mr Tharman, adding that this is not easy as it is difficult to anticipate Singapore’s property needs four or five years in advance. As for broader economic cycles, Singapore will always be exposed to ups and downs beyond its control, he said.

‘As a city, and a global city at that, we will always be subject to global cycles in specific industries as well as the global macro cycle,’ he said.

The important thing is to achieve good average growth over the cycle, rather than go for a lower growth path to avoid volatility, said Mr Tharman. ‘If you try to dampen all volatility, you usually end up with a lower average as well.’

The unusually strong growth that Singapore enjoyed in 2006 and 2007 helped pull the average growth across the most recent business cycle up to 5 per cent, he added. Without this, wage growth in particular would have been weak.

So Singapore should opt for a path of good growth in incomes, but prepare its businesses and workers well for occasional shocks and respond quickly when they come, said Mr Tharman.

Singapore has ‘not come out too badly’ in the downturn in terms of its ability to buffer companies and employees and to prepare for recovery, he said. But for its next growth phase, the country must undergo a ’step change’. What are needed are higher skills, higher productivity and a higher level of expertise across the board.

Singapore could not engage in strategies of the industrial policy type, that try to plan well ahead of the market. But it moves quickly to identify emerging market trends and work with early adopters to develop clusters of real strength, Mr Tharman said.

One advantage that Singapore can use is its diversity of both people and companies. This will prove a big boon in an age where the Asian consumer is expected to be a key driver of economic growth, Mr Tharman said.

‘In Singapore, you can get a feel of what is happening all around Asia… a sense of what the emerging drivers are.’

Source : Straits Times – 11 Nov 2009