ST : Hot money flood 'could trigger more property curbs here'

Nov 10, 2010

Hot money flood 'could trigger more property curbs here'

By Aaron Low

THE flood of hot money unleashed by the United States' latest round of monetary easing runs the risk of inflating a Singapore property bubble and increases the chances of further property dampening measures, analysts warned yesterday.

Regional markets - already awash with liquidity from advanced economies seeking better returns in Asia - are expected to be on the receiving end of a large slice of the US$600 billion (S$770 billion) injected by the US Federal Reserve last week.

A Citigroup report noted that loan growth had already been rising and the stock market had seen a flurry of activity, with trading volumes higher and a surge of new listings, even before the latest round of easing was announced.

And Dr Chua Hak Bin, economist at Bank of America-Merrill Lynch, is among a growing number of experts concerned that the low interest rate environment is combining with the flow of liquidity to form 'the right conditions for a bubble to form'.

'It's too early to say if there is indeed a bubble, but the conditions are right,' he said.

Analysts are highlighting property as the asset area most likely to be impacted by these large flows, with the market boosted in two ways.

The more direct route is via foreign funds buying into property directly, pushing prices up.

The other is by flows pushing down interest rates and allowing people to borrow more to buy property.

'Property is probably the most interest-rate-sensitive sector there is and Asians are fanatical about property,' said DBS economist David Carbon.

In August, the Government announced a series of measures to curb property speculation, but Prime Minister Lee Hsien Loong said last week that the Government was still carefully watching the market.

Citigroup economist Kit Wei Zheng said that concern over how much households are borrowing to finance their homes and 'political pressures ahead of general election' could lead to more cooling measures.

'Amid flush liquidity and low interest rates, further administrative tightening measures on property are likely if transaction volumes or prices re-accelerate,' he said.

Dr Chua Yang Liang, head of research at real estate firm Jones Lang LaSalle in Singapore, said such curbs would most likely kick in only if the mass market segment overheats.

He noted that the August measures were primarily aimed at the Housing Board market and mass market condominiums, whereas liquidity from the latest round of quantitative easing - or QE2 as it is termed - is likely to focus more on high-end private market properties.

'A key indicator is how fast prices in the mass market segment will rise. A sustainable rate is 1 to 2 per cent a quarter,' he said.

If the housing market does look in danger of overheating, the Government has a range of weapons to call on, he said.

They include increasing the cash down payment needed to buy property, higher stamp duty, and a more drastic capital gains tax.