Property: Govt has learnt from history

Source : Straits Times – 21 Sep 2009

THE last thing the Government expected to do in this recession year was tackle a budding housing bubble, the second to appear in three years. But on Tuesday, four state bodies – the Ministries of National Development, Finance and Law, as well as the Monetary Authority of Singapore – came together to do just that.

They unveiled measures to cool the downturn-defying ‘exuberance’ of the property market, revealing in the process how much the Government has learned about pricking property bubbles since the epic housing bubble of 1996.

What stood out about Tuesday’s announcement was that it was timely and generally light-handed. Some measures were even widely anticipated, such as the reinstatement of regular, scheduled sales of state land through the confirmed list.

Back in 1996, the Government acted only after home prices had been rising for 10 straight years, including the surges of 1993 and 1994. And just two years ago, when the Government removed the deferred payment scheme in October 2007 to deter speculation, the move came only after private home prices had jumped 23per cent in first nine
months of 2007, on top of a 10per cent rise in 2006.

This time, the anti-speculation steps were announced just as the bubble was forming. Indeed, National Development Minister Mah Bow Tan said the measures were designed to ‘pre-empt any speculative bubble’.

Although home sales picked up in February, and have been steadily rising since then, it was only in June or July that worries of a bubble surfaced. Until then, the global economy was still in recession and property experts had expected the housing market rebound to fizzle out.

But as soon as boom-time signs started appearing in the market – such as queues forming outside showflats, and new benchmark prices at Centro Residences in Ang Mo Kio – the Government began laying the ground for an intervention.

Mr Mah sounded the first alarm in July, saying that the Government could revive the confirmed list if necessary. About a month later, he said confirmed list sales were likely to be resumed. So when the Government officially signed off on this on Tuesday, the market was well-prepared, even if the speed of the announcement caught some off-guard.

Ms Fera Wirawan, a Royal Bank of Scotland property analyst, said the swiftness of the measures ‘has surprised the market, as the Government had warned of a nascent bubble only on July30′. She noted that in 2007, it took four months between warning the market of a bubble and removing the deferred payment scheme.

The speed of Tuesday’s measures signalled an urgency borne of the fact that the boom is in the mass market, she said. Affordability was less of an issue in 2007, when the buying frenzy was largely confined to the luxury home market.

Apart from restarting the confirmed list, the Government also disallowed home loans that let buyers of uncompleted homes defer initial mortgage payments. Again, this move did not come as a surprise: City Developments chief Kwek Leng Beng had suggested it to the media last month.

The measured approach this time contrasts greatly with past interventions.Back in 1996, perhaps to make up for its delay, the Government unexpectedly unleashed a wide-ranging arsenal of dampening measures. They drew criticism for being both too late and too much.

The measures back then included taxing gains from property sales, mandating stamp duty on property sales, and restricting home loans to 80per cent of the property’s price – measures that predictably drove the property market to the ground.

Property consultants say the Government’s more calibrated handling of the bubble this time round clearly shows it has learned some lessons from the past.

‘The Government appears to be monitoring the market more closely and it is more proactive,’ said DTZ Debenham Tie Leung’s senior director of research, Ms Chua Chor Hoon.

The measures now may be more effective in curbing speculation without killing genuine demand. They seem targeted at speculators and at danger-zone buyers with low affordability.

Their main impact on the wider property market could be through moderated sentiment, which was arguably the element that was the most bubbly.

That is not to say that the Government’s pre-emptive strike is without risk.

While there was an element of speculation in the current boom, experts believe the vast bulk of demand came from genuine home buyers and investors, drawn in by super-low interest rates and improved economic optimism.

Removing the interest absorption scheme could hit young home buyers or HDB upgraders, who benefited greatly from the two to three years of deferred mortgage payments.

Property prices also have not technically surpassed the fundamentals. Although new home sales are roaring, private home prices fell 4.7per cent in the second quarter, even as Singapore’s economic growth surged 20.7per cent in the same period.

This has led some pundits to question whether the Government was too hasty in moving to calm the market.

In some ways, the active housing market was also acting counter-cyclically to the recession. Bursting the bubble before it has even formed, while probably less painful for homeowners in the long run, could pose dangers to a nascent economic recovery in the short run.

The jury is still out on whether Tuesday’s anti-speculation measures will work better than those adopted in 1996 and 2007. But the good thing about being prompt and moderate is that if anything goes wrong, there is still time and room for the necessary corrections.