Singapore acts to cool property market speculation

Source : Channel NewsAsia – 14 Sep 2009

Measures to pre-empt any speculative bubble from forming in the private property market have been outlined in Parliament by the National Development Minister.

Mr Mah Bow Tan said one of the steps to “temper the exuberance” of the market will be the immediate withdrawal of the interest absorption scheme and interest-only loans being offered for purchases of uncompleted property developments.

Under the interest absorption scheme, developers pay the interest on home loans instead of buyers until the project receives its Temporary Occupation Permit (TOP).

For interest-only loans, a borrower only pays the interest and defers repayment of the principal to a later date.

Mr Mah told Parliament on Monday that both schemes could encourage speculation in a buoyant market as they lower instalment payments in the initial years.

Pointing out that property purchases are a major long-term financial commitment, the national development minister said the removal of the interest absorption scheme and interest-only loans will help make home buyers make careful decisions.

The immediate withdrawal of the interest absorption scheme will only affect new projects and not those which had been offering the scheme until the announcement on Monday.

As for interest-only loans, these will be disallowed with immediate effect.

Private home sales have seen a 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.

Mr Mah said: “We are currently seeing signs of heightened speculative activity, although the level of speculation is not yet extreme. The portion of buyers sub-selling their units has increased. At this take-up rate, the total sales for 2009 may well exceed the historical high of 14,800 units in 2007 at the height of the fever in the market.”

He added that private home prices have been rising significantly since June. Should the situation remain unchecked, Mr Mah said, a rising spiral of demand and prices could occur as more buyers and speculators enter the market.

“Property prices can potentially build up a strong rising momentum under these conditions. Such a development would make the property market vulnerable to the continuing risks in the global economy,” he said.

“Should growth turn out weaker than expected, property buyers and speculators could face capital losses as the market corrects. Conversely if the recovery stays on course, interest rates will eventually rise and drive up financing costs with severe implications for those who have overextended themselves.”

To avoid this situation, the government is bringing back the confirmed list of the Government Land Sales (GLS) programme in the first half of next year to ensure a steady supply of private housing.

The number of sites will be decided at a later period when the GLS programme for the first half of 2010 is firmed up.

Sites under the confirmed list are released for tender at a pre-determined date without the need for the sale to be triggered by a bid. The confirmed list had been suspended since the start of the year due to poor market conditions.

The government will also replenish the supply of sites on the reserve list to meet developers’ needs. But developers will no longer enjoy property-related assistance measures announced in the Budget this year when they expire. The minister said improving market conditions have rendered these measures unnecessary.