Singapore sets measures to prevent home price swings

Source : The Edge – 14 Sep 2009

Singapore is introducing new measures to prevent excessive price swings in the property market following signs that speculative home buying may be on the rise, National Development Minister Mah Bow Tan said.

The government will push for more sites to be sold and will bar interest-only mortgages for uncompleted housing projects, Mah said in parliament today. It will also stop allowing developers to absorb interest payments for apartments that are still being built, he added.

Singapore’s home sales reached 10,000 homes in the first seven months, more than the 4,300 units sold for the whole of 2008, Mah said. The so-called take-up rate for these projects may exceed the historical high of 14,800 units in 2007, while home prices have started to increase “significantly” since June, he added.

“We are currently seeing signs of heightened speculative activity, though the level of speculation is not that extreme,” Mah said. “Given the current market conditions, the government has decided to adopt several measures to temper the exuberance in the market and preempt any speculative bubble from forming.”

CapitaLand, Singapore’s largest developer, fell 3.9% to $3.72 at the close of trading. City Developments, the No. 2 property company, lost 7.6% to $10.24, while Allgreen Properties dropped 7.9% to $1.16. The Straits Times Index slipped 1.5% to 2,639.74.

Land Sales

“The measures should temper people’s expectations in the property market in the near term,” said Wilson Liew, an analyst at Kim Eng Holdings in Singapore. “Over the longer-term, there shouldn’t be a huge impact. Most of the housing demand is coming from owner-occupiers.”

The government will reinstate the so-called confirmed list of land sales in the first half of 2010, Mah said. It will also “replenish” the supply of land on the so-called reserved list, he added. These are sites that will only be offered for sale when the government receives a triggering bid.

The Monetary Authority of Singapore will also disallow the interest-absorption plan and interest-only loans currently offered to buyers of uncompleted private homes, Mah said.

These are housing loans that either eliminate or lower the interest installment payments before the completion of the property.

This will take immediate effect for all private residential projects, Mah said. Still, the interest- absorption plan will be permitted for developments that are already on sale and that had previously offered the program, the minister added.

Removing Speculation

“This would remove much of the speculative element from the burgeoning sales volume,” Li Hiaw Ho, executive director of CB Richard Ellis Research in Singapore, said in an e-mailed note. “This is good for the medium-to long- term health of the private residential market.”

The government also won’t extend assistance measures that were introduced in the 2009 budget when they lapse in January 2010, Mah said. These include allowing developers more time to complete their projects and allowing the reassignment of government sale sites.

The measures “will help to preempt excessive price swings,” Mah said. “It is in everyone’s interest to have a steady property market where prices move steadily in line with economic fundamentals.”