'Too early' to lift property cooling measures: MAS chief

'Too early' to lift property cooling measures: MAS chief
Posted 25 Jul 2016 13:00 Updated 25 Jul 2016 16:46

SINGAPORE: It is "too early" for the Government to consider lifting the property cooling measures currently in place, as it looks to make sure the gains "painstakingly made" are entrenched, said Mr Ravi Menon, the managing director of the Monetary Authority of Singapore (MAS), on Monday (Jul 25).

Speaking at the central bank's annual report briefing, Mr Menon said it is also to make sure the local property market is on a "sustainable path" and that household balance sheets become stronger to "withstand shocks".

Mr Menon's comments reiterated National Development Minister Lawrence Wong's own, which were made during the Committee of Supply debate in Parliament in April. He said that while the cooling measures have been effective in stabilising the property market, relaxing them too early may risk a premature market rebound.

The MAS chief said the contribution to accommodation costs to inflation has come down significantly, while the balance sheets for households show signs of strengthening with the moderating of annual growth in household debt.

He added that the property market has been stabilising over the last two years since its peak in the third quarter of 2013. That said, property prices went up 60 per cent between 2009 to 2013, while nominal incomes increased only 30 per cent during the same period.

"The risk of a renewed surge in property prices is not trivial given that interest rates are likely to remain low and global investors continue to search for yield." said Mr Menon.

"And while the growth in household debt has eased considerably, it will take time for household balance sheets to strengthen and become more resilient to interest rate and income shocks," he added.

The MAS, Ministry of Finance and Ministry of National Development will continue to closely monitor developments in the property market, the MAS chief said.

MAS has introduced several cooling measures since 2013, including raising the rates for Additional Buyer's Stamp Duty (ABSD) and capping the Mortgage Servicing Ratio for housing loans granted for public housing by financial institutions at 30 per cent of a borrower's gross monthly income.

However, there have been voices calling for the lifting of such measures, particularly from developers. The Real Estate Developers' Association of Singapore, for one, said in February that there is a need to ensure a soft landing to prevent further damage to an already fragile local economy.

Property analysts Channel NewsAsia spoke with were divided on the issue. Chief executive of PropNex Realty Mohamad Ismail Gafoor said cooling measures that concern an individual's debt ratio should stay for the long term.

But he said the Additional Buyer's Stamp Duty (ABSD) that Singaporeans and foreigners are subjected to for their second property could be revisited. Foreigners will be subjected to 15 per cent of ABSD for their second property, while Singaporeans will have to pay seven percent.

"15 per cent of a property worth $3 million will come close to half a million dollars, which means people could buy properties in other countries just on ABSD. What is happening is a fair number of Singaporeans, because of the ABSD are buying properties in other parts of the world. We already have a Total Debt Servicing Ratio. Why do we need to penalise Singaporeans for buying a second property within their means and not stretching themselves?"

Mr Ismail said reducing the ABSD from 15 per cent to between five and 10 per cent for foreigners, and doing the same for Singaporeans, would encourage more people to invest in the local property market. This could be a positive sign for developers who have been struggling in recent years,

Century 21 chief executive Ku Swee Yong highlighted Mr Menon's comments on the gap between property prices and income growth, which was about 30 per cent. In the last two and a half years, the gap has dropped by about nine per cent. Mr Ku said the authorities are of the mindset that "there is still some way to go".

He said the government's wait-and-see attitude might also hinge on risks not apparent to observers and analysts: "What they can see would include families that have stretched themselves to buy industrial, retail and office real estate in the last four years, where strata titles - small sized commercial properties - were selling like hotcakes. "

Mr Ku said these loans are classified under commercial property loans and many investors have set up private limited companies to buy such real estate, and take on the loan under their companies.

The recent release of second quarter property figures also showed the number of private residential transactions "suddenly" spiking, as developers slashed prices and offered incentives to buyers. "If the government were to relax policy measures, there would be further encouragement for the market to buy even more," he said.

- CNA/kk


- wong chee tat :)