Cooling Measures for Property Market

Witnessing the burst US property bubble, it is not hard to imagine how those conditions if not tempered with cooling-off measures by Ministry of National Development will put Singapore in similar dire straits. Property prices should be aligned with economic fundamentals. With the current spiraling of prices, these are signs of heightened speculative activity with no major shift in economic fundamentals.



The intervention with the immediate withdrawal of the interest absorption scheme and interest—only loans being offered for purchases of uncompleted property developments will halt any frivolous speculations for the moment. However, with the interest rate pedal nailed to the floorboard and remaining so low for such long time, new money will find properties as good investment options. Whatever the case, it looks like demand outstrips supply and therefore there is a chasing up of the property prices. Private home sales witnessed strong upswing since February this year when 11 times more homes were sold compared to January’s 108 units. Since then, developers have sold more than 10,000 units, more than double the 4,300 sold in the entire 2008.



All eyes are on the economic performance since should growth turns out weaker than expected, all buyers of property will be chasing the tails of escalating prices with possible capital losses should the market suddenly corrects and re-balances. This will create a negative wealth effect traceable to a flattening out or worst, drop in property prices. On the contrary, should the recovery maintains its course, interest rates will shoot north and drive up financing cost and this can have serious implications for those who over-extended with no real money to back their purchase. To avert such clammed up, the government is bringing back a confirmed list of land sales programme in the first half of next year to ensure a steady supply of private housing.



The removal of the IAS and IOLs technically will remove the speculative element from the burgeoning sales volume. This is good for mid to long term genuine homebuyers and investors as it will take out the speculative element in the pricing of the property.



The cooling-off measures by the government will discouraged property “flippers” but I suspect that property prices and sales volume will continue to improve; only now that the pace of increase would be more sustainable with less volatility with the hope that cool and level heads will prevail.