4 March 2014
(c) 2014 Singapore Press Holdings Limited
THE Finance Minister made the right call in his Budget that property cooling measures should be retained, despite slowing sales. It is a never-ending balancing act to ensure that the usually volatile real estate component does not destabilise an open economy. Overall economic health has to override the competing interests of owners, investors, buyers and developers.
Younger married couples and older singles seeking their first homes have less cause to be worried as the Housing Board is catering to their needs. This is a social good the Government has promoted in state housing.
Predictably, prospective sellers and investors want the higher stamp duty and tighter mortgage lending rules relaxed to keep the spiral climbing. So do developers who have seen their profits reduced as sales contracted on weak sentiment and deferred launches. They plainly had sustainably high profitability in mind when they suggested the time was right to substitute some of the curbs, perhaps with a disguised capital gains tax.
Not so fast: The statistics support Mr Tharman Shanmugaratnam’s caution in wanting both the HDB and private sectors to be made more stable before curbs could be eased. Importantly, there is a need to “avoid a more serious correction in prices further down the road”, as the National Development Ministry noted.
Although buying interest has waned, this is not reflected in the depth of price correction. The private market has recorded a marginal drop, but prices are nearly two-thirds above the 2009 baseline when property values were more in sync with incomes. By one measure – The Economist’s price-to-rents ratio – Singapore property was the fifth most over-valued last year. In the region, it was exceeded only by Hong Kong and New Zealand.
Taking the relationship to incomes as another value indicator, a long 30-year term loan despite the low interest rates denotes a premium charge on career earnings capacity compared with other developed nations, where a typical term ranges from 15 to 20 years.
Holding real estate values at a stable level is a long-term objective of a well-adjusted economy. Just as buyers might yearn for lower prices, existing homeowners might prefer to see their property values continue to climb. To be sure, Singapore has room for prices to adjust downwards and the release of completed HDB and private flats which will saturate the market between now and 2016 may well do that. So also will interest rates which the central bank forecasts will rise as the United States goes off the steroids of abundant cheap money. Deciding when to tighten or loosen to maintain an even keel calls for fine judgment. Timing is, indeed, crucial.