ST : Property market still hot but not feverish

Dec 09,2010

COMMENTARY
Property market still hot but not feverish
Cooling measures are curbing speculation without stifling demand

By Esther Teo
THREE months after the Government's latest measures to cool it, the property market remains buoyant.

This has led some to question if the Aug 30 measures to tighten financing for those with existing loans and dampen demand for resale Housing Board flats were sufficient. These measures came on the back of earlier ones in September last year and February this year to cool the red-hot property market.

Others think the measures are effective. National Development Minister Mah Bow Tan declared recently that the calibrated cooling measures 'are starting to take effect'.

Those who think the market did not cool sufficiently may point to rising sales volumes for new private homes. After dipping in September, sales rebounded in October. Last month's figures look rosy so far, with more than 950 homes sold in three projects alone: Waterview, Spottiswoode Residences and Lakefront Residences.

Private home sales totalled 13,109 units in the first 10 months of this year, and may beat the 2007 record of 14,811.

The sales volumes suggest strong underlying demand for new private properties. Overall, the property market remains strong. But then it was never the intention of the Government to precipitate a fall in demand or prices.

No fewer than three ministers have said in the past month that the Government is monitoring the market closely - watching it 'like a hawk' as Mr Mah put it - and that it will not hesitate to introduce further cooling measures if necessary. Prime Minister Lee Hsien Loong and Finance Minister Tharman Shanmugaratnam have both said as much.

The Government's preference for a series of calibrated measures is borne of painful experience, after the Big Bang approach in the last property boom in 1996 led to a prolonged bust, no thanks in part to a global downturn.

Ideally, cooling measures should aim to remove speculative froth from the market, yet allow the property sector to grow in a stable and sustainable manner, with prices moving in line with economic fundamentals. This way, genuine home buyers are not priced out by cash-rich speculators flipping properties for quick gains.

If this is the yardstick, then the slew of measures so far this year have worked well: removing speculative froth from both private and public housing markets, yet keeping the overall market strong.

The evidence?

First, growth in private home prices has moderated. Prices rose by a smaller 2.9 per cent in the third quarter, down from 5.3 per cent the quarter before, according to the Urban Redevelopment Authority (URA). The URA index tracks prices of new projects - which tend to be priced higher - as well as those under completion and already completed.

Another price index, the Singapore Residential Price Index (SRPI) by the National University of Singapore (NUS), tracks only prices of completed projects. This index was 0.7 per cent lower in October than in September. The last time the overall index fell was in July, when it dipped by 0.1 per cent. NUS has been compiling the index since March this year.

Second, recent winning bids for private residential sites in the government land sales (GLS) programme have mostly plateaued in the $300 to $350 per sq ft per plot ratio range. The gaps between bids have narrowed considerably, indicating developers' more conservative outlook.

Third and more importantly, property prices and rents are now moving upwards in tandem and in line with economic fundamentals, said property firm Cushman & Wakefield's senior manager of Asia-Pacific research Ong Kah Seng.

In the bubbly second half of last year, prices of completed non-landed private homes gained 26 per cent. But rents actually fell by 1.7 per cent compared with the first half of the year. The economy grew by 10 per cent in that period.

This showed prices soaring without regard for rental yield and fast outstripping economic growth. Mr Ong notes: 'A prolonged period of price increase amid rental decline may suggest that some home buyers have intentions to speculate.'

In contrast, in the first nine months of this year, the prices of completed non-landed private homes have risen 13 per cent, keeping pace with a 15 per cent rise in rents and expected 15 per cent growth in the economy for the full year.

Fourth, speculative fervour has cooled with fewer sub-sales of private homes - when someone buys and then sells a property still under construction. This fell 52 per cent month-on-month in September.

In the private property market, prices are rising, but the froth is subsiding. But what of the public housing market? This has been a red-hot issue, with first-time buyers complaining of having to fork out large sums in excess of valuation, or cash over valuation (COV).

Mr Mah said recently that overall HDB resale transactions have fallen 30 per cent in the fourth quarter so far, against the previous quarter. Median COVs fell to $22,000 last month from $30,000 in the third quarter.

An objective observer would say the property market today is strong and healthy, and no longer feverish - for now.

But Singapore's open economy makes its property sector vulnerable to global developments. There is excess liquidity worldwide. Funds are fleeing faltering Western economies to Asia, including Singapore, in search of better yield. Already, Singapore has been flagged as the top real estate investment destination by the non-profit Urban Land Institute and PricewaterhouseCoopers.

Domestically, low interest rates and the spectre of up to 3 per cent inflation this year make property an attractive inflation-hedging investment. As Singapore's population crossed the five million mark in June, underlying demand is driving up prices.

With domestic and global factors aligned for a property boom that could become a bubble, a prudent government would rightly watch the market like a hawk for signs of excessive exuberance. So far, using calibrated measures has worked well. So too have the Government's moves on both sides of the property equation to trim demand while releasing more supply.

In this context, if prices outstrip economic fundamentals again, the more pertinent question is not whether, but when, there will be another round of measures.

esthert@sph.com.sg