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Too Early to Ease Property Cooling Measures in Singapore

The MAS, working with other government agencies, has introduced several rounds of measures to cool an overheated property market. However, it assessed that it is premature to ease property cooling measures now. They believe that it is important to secure the gains that are made in stabilizing the market and restoring financial prudence.

On July 21, National Development Minister Khaw Boon Wan told Parliament that Singaporean home-buyers, especially those with the eagerness to upgrade will not welcome the results of the measure. He stated that such move would lead to an improvement in demand, which would increase the number of transactions and raise housing prices.

On July 24, the Monetary Authority of Singapore (MAS) related verbally and on paper that even if the property market may be stabilizing currently due to the cooling measures taking their effect, it is still "too early" to relax those measures since property prices remain high.

Concurrently, MAS Managing Director Ravi Menon, in regards to unwinding cyclical measure at the MAS annual report 2013/2014 press conference, reported that it is too early to relax as risk factors remained. He mentioned that while housing prices have moderated, they have remained at elevated levels. In the previous four years, property prices had risen 60% but have declined by a mere 3.3% during the last three quarters. Mr Menon further added that if property measures are relaxed at a time of low global interest rates, it may set off another spiral of price increases.

It was stated by MAS that household balance sheets are in better shape - that the property cooling measures have helped strengthen overall household balance sheets - household debt growth has been tempered. For example, year-on-year growth of household debt has moderated to nearly 13% in the third quarter of 2011 from the same quarter of 2010 and to 5.5% in the first quarter of 2014. Mr Menon remarked that this comes amid a considerably brighter economic outlook, with a modest pickup expected in the second half.

The level of debt among highly leveraged households, which takes time to reduce, remains high, thus there is a need for them to work with their banks and commit to debt repayment plans, he added. The cooling measures introduced are divided into two categories – structural measures such as the total debt servicing ratio which are meant for the long term, and cyclical measures such as loan-to-valuation limits and stamp duties that can be "re-calibrated according to market conditions".

"The prices are just beginning to soften,” said Mr Menon. With high level of prices, low interest rates and high debt levels for the highly leveraged households, he said that it would take time to adjust, and required close monitoring over supply and demand conditions, credit and liquidity environment and a variety of other factors. Furthermore, he stated that the objective is to have an orderly correction and stabilization of the market and not just to see a collapse in prices.

Similar to China, which had introduced numerous measures that include credit curbs and restrictions on buying more than one home, Singapore is worried that inflation may increase as a result of a potential property bubble destabilizing the financial industry; thus, a series of property-market curbs was implemented since 2009. However, it was reported by analysts that measures had slowed housing demand beside increasing processing times for home loans.

Currently, MAS expects inflation to grow at a pace of between 1.5 percent and 2.0 percent, compared to an earlier forecast of a 1.5 percent to 2.5 percent increase. Mr Menon attributed the decline in overall inflation to moderating car and property prices.