Since the property market has not taken a decisive turn for the worse, even though underlying economic growth has slowed, the industry’s calls – louder by the day – to roll back some cooling measures may not be the right thing to do just yet.
Here is why.
Reversing some of the cooling measures now could:
• Potentially fuel speculation that more easing is on the way.
• Threaten to undo any price moderation the market has achieved - a 8.4% correction (Q3 2013 to Q4 2015) versus over 60% price gains achieved between 2009 to 2013.
• bring back potential buyers who have been bottom fishing.
As economic growth slows, increasing the nation’s debt level run the risk of households facing difficulties in servicing debt especially when interest rates rise.
DTZ reported that 87 properties were put up for mortgagee sales last year, an 85 per cent surge from 47 units in 2014. In 2012, only nine units were listed for mortgagee sales as a result of owners’ inability to finance their loans.
Such listings are on the rise, but are they widespread enough to signal a downward spiral of the property market?
Mr Song Seng Wun, economist at CIMB Private Banking:
“The market has softened, but we haven’t seen people throwing in the towel, we haven’t seen distressed sales. Underlying labour market condition is still supportive of people being able to service their loans.”
“If the Government were to ease curbs, that would be seen as the first step to further easing. This could induce a return of speculative activities. There could be risks to underlying growth in terms of people more willing to take on debt when there could be a turn in the economic fundamentals.”
MORE URGING GOVT TO TWEAK MEASURES
Renewing its calls for the Government to roll back the measures, the Real Estate Developers’ Association of Singapore said last month that developers face pressure from measures such as the Additional Buyer’s Stamp Duty (ABSD) and Qualifying Certificate, which impose hefty charges on developers with unsold units.
Valid Concerns But The Market Isn't Ready
The concerns of an over-correction are valid. Getting the property market right is especially important now, so as to not add stress to an already slow economy. However, more signs are pointing to the need to retain these measures.
“Has the market reached the stage of stability? Perhaps there is still some way to go before the trigger level could be hit. The stock level and vacancy rate, though, have risen recently; the price adjustment has not fully reflected the oversupply situation,” said Sing Tien Foo from NUS Department of Real Estate.
Walking A Fine Line
Besides stabilising the property market for economic purposes, it’s also the Government’s intention to ensure affordability of homes.
Maintaining affordability for those who have not bought a home and preserving the wealth of those who own one is the government’s challenge.
“it is not easy to determine what is the optimal time to remove the measures because policymakers need to gauge with confidence what is the reasonable price level given the dynamic nature of the market,” Sing said.
Last month, Minister for National Development Lawrence Wong reiterated the Government’s stance that it is “too early” to relax the measures, as doing so could result in a market rebound.
Responding to increasing calls for the cooling measures to be tweaked, the Government has maintained that it is not time yet to roll back the measures. But It also hinted that it has a “rough idea” of when to do so.