Source : Business Times – 8th Sep 2009
WHILE it is appropriate for the government to continue monitoring the situation in the property market, the question is whether pre-emptive measures should be taken sooner rather than later to prevent a bubble from forming. It is instructive to consider the actions of the Reserve Bank of Australia (RBA), which has largely managed to keep the
country out of a recession.
Prior to the sub-prime crisis, central banks in several countries (notably the US and the UK) had helped to pump up property bubbles with low interest rates which were accompanied by easy mortgage terms. By contrast, the RBA resisted cutting rates and chose instead to talk down the property market. As far back as 2002, the RBA, feeling that property prices were escalating dangerously, decided to commission housing market reports to show that prices were unsustainable. Looking at affordability, bank lending standards and collating data on home loans as well as errant marketing ploys, the RBA went on the offensive with its then governor Ian Macfarlane saying: ‘I’m using a certain amount of moral suasion to try and get . . . to investors, to make them sit back and think again.’ Interestingly, his comment mirrors that of Singapore’s National Development Minister Mah Bow Tan, who said last week that home buyers ‘need to think carefully, think long term, think about the unexpected’.
Mr Mah’s comment, which buyers would do well to heed, came as he revealed that the government was likely to resume confirmed land sales through the Government Land Sales (GLS) programme, a strategy that can help keep property prices in check. However, there is little consensus on what is spurring property sales, which reached a record high of 2,767 new housing units in July. Stated reasons range from low interest rates and confidence in the economic recovery to speculation and panic buying, to the imminent completion of the integrated resorts (IRs) and a renewed influx of visitors and potential homebuyers. Whatever the reasons, prices have risen significantly, and across the board. A recent Citigroup report noted that, based on caveats lodged, luxury and the mid-segment home prices are now 15-30 per cent above the lows in the first quarter of 2009 while the mass market segment is some 10 per cent higher. However, the latest evidence suggests that buyer interest may be cooling off – although it is too soon to
view this as a trend.
The need for vigilance thus remains. Apart from hastening land sales, the government should stand ready to enact other measures, including reining in liberal housing loan practices. Historically, there has been a tendency to let free market forces run their course and for measures to be taken only when the home-buying reaches frenzied
levels, as in 1996 and 2007. We are fortunately not at that point yet. But one of the lessons of the financial crisis of 2008/09 is that by the time a property market bubble is even identified, it’s too late.
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