ST : Cooling the property market

18 JAN 2011,

Cooling the property market

THREE times, it has mounted a cavalry charge up the hill, but each time, the defenders looked down and shrugged off the assaults, and carried on with their business. A futile Charge of the Light Brigade, as immortalised by Lord Alfred Tennyson? Not quite. This time, the cavalry put more iron in their lances, and the assault has stung. Announced last week, the Government's fresh salvo of property curbs shows that it is dead serious about cooling the red-hot property market. By far, the most potent weapons are the lowering of the loan-to-valuation (LTV) ratio from 70 to 60 per cent, as well as the 16 per cent stamp duty levied on properties sold in the first year after purchase.

The latest charge seems to have delivered the desired effects - at least for now. Some buyers have given up their options to purchase, while developers and property agents have cancelled their print and television advertisements. Analysts expect private home prices to correct by 5 to 10 per cent this year, as the Government's two-pronged strategy of releasing more land for development and curbing demand starts to bite. Some market watchers have called the measures 'draconian'. They are not wrong.

There is a silver lining, however. The measures are a precision weapon, which leaves first-time buyers largely unaffected. This is because the lower LTV limit affects only those with one or more outstanding housing loans. The 16 per cent stamp duty also leaves buyers with deep pockets free to pick up properties of their choice. If they want to sell the properties later, they need to wait for only four years.

In short, the latest measures show that the Government is pulling out all the stops to produce what it deems to be a 'sustainable' property market. The Monetary Authority of Singapore's (MAS) promise that the Government will remain 'vigilant' and implement more measures 'if necessary' to cool the property market underlines the Government's determination.

Whether more cooling-down measures are required, however, remains to be seen. Due to quantitative easing in the United States and the subsequent sloshing of capital around the globe looking for quick capital gains, property markets in places such as China, Hong Kong and Singapore are experiencing speculative froth. In November last year, the MAS warned that a potent cocktail of low borrowing costs and excess liquidity could push property prices higher again. If the measures announced last week are not sufficient to prevent that from happening, one should expect another charge up the hill. But besides iron in their lances, what would the cavalry use the next time?