PROPERTY BUBBLE

PROPERTY BUBBLE: 1.

Mdm Ho Geok Choo asked the Minister for National Development in view of the current buying frenzy in the market-driven property sector, whether a property bubble is forming in Singapore and, if so, how can the Ministry help to prevent the property bubble from bursting.

The Minister for National Development (Mr Mah Bow Tan): Mr Speaker, Sir, as I have said publicly, the Government has been monitoring the property market very closely. It is in everyone's interest to have a steady property market where prices move stably in line with economic fundamentals. If excessive speculation develops and a property bubble forms, eventually a severe correction must take place and this will have serious consequences for the economy, the property market and property owners.

We are currently seeing signs of heightened speculative activity although the level of speculation is not yet extreme. The proportion of buyers sub-selling their units has increased. Demand has rebounded very strongly since early 2009. Developers sold 10,000 units in the first seven months of 2009, more than the 4,300 units sold for the whole of 2008. At this take-up rate, the total sales for 2009 may well exceed the historical high of 14,800 units in 2007 – that was at the height of the fever in the market.

Prices for some projects are also increasing in line with this strong demand. Based on the caveats lodged for property transactions, overall private property prices have started to increase significantly since June. The current low interest rate environment has also drawn more buyers into the market. Global interest rates are at a historical low. Why? Because governments and central banks around the world have taken extraordinary measures in response to the most serious financial crisis since the Great Depression. Large fiscal stimulus packages were implemented and central banks in major economies lowered policy rates to near-zero and directly injected liquidity into the financial system and the economy. In the light of continuing weakness in the US economy, this monetary accommodation could persist for some time.

In this low global interest rate environment, Singapore's domestic interest rates have also come down. The key reference domestic inter-bank rate used for pricing housing loans, the Singapore Inter-bank Offered Rate (SIBOR), and the Swap Offer Rate (SOR), are near their historical lows at 0.68% and 0.43% respectively, compared to their 10-year averages of 1.83% and 1.91% respectively. These low interest rates have reduced the cost of property financing and encouraged a steady rise in the volume of bank lending for housing loans. If unchecked, this trend can lead to a rising spiral of demand and prices as more and more property buyers and speculators are drawn into 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 risk in the global economy. Should growth turn out to be weaker than expected, property buyers and speculators could face capital losses as the market corrects. Conversely, if the recovery stays on course, then interest rates will eventually rise and drive up financing costs with severe implications for those who have over extended themselves.

Given the current market conditions, the Government has decided to adopt several measures to temper the exuberance in the property market and preempt any speculative bubble from forming.

Firstly, the Government will reinstate the confirmed list of the Government Land Sales (GLS) Programme in the first half of 2010. The number of sites on the confirmed list will be determined later when the GLS Programme for the first half of 2010 is firmed up. In addition, we will replenish the supply of reserve list sites in the GLS Programme. Four sites on the second half 2009 reserved list have been triggered to date this year. While there are still 16 residential sites in the current reserve list that can be triggered by developers, we will enhance the supply when drawing up the first half 2010 reserve list to meet possible increase in demand. With reinstatement of the confirmed list and most sites on the reserve list, the public can be assured that there will continue to be a steady supply of private housing. MND will announce details of the first half 2010 GLS Programme towards the end of this year.

Secondly, the Monetary Authority of Singapore (MAS) will disallow the Interest-Absorption Schemes (IAS) and Interest-Only Loans (IOL) which are currently offered to buyers of uncompleted private residential properties. These schemes could encourage property speculation in a buoyant market where prices are rising rapidly. The IAS and IOL are forms of housing loans that entirely eliminate or substantially lower the regular interest instalment payments for property purchases in the first few years before the property is completed. Under these schemes, a property purchaser will not have to make any significant payment apart from the upfront 10% to 20% downpayment until the whole project is completed. Genuine home buyers can continue to purchase private housing under the standard payment scheme. Purchasing a property and taking up housing loans are major long-term financial commitments. The removal of the IAS and IOL will encourage perspective home buyers to consider carefully their ability to afford the properties over the long run and not rush into any purchases. The removal of IAS and IOL will take immediate effect for all private residential projects. We will continue to allow the IAS for projects which have already been offered for sale and which had been offering the IAS before this announcement. The IOL will be disallowed with immediate effect.

The Government also announced a number of assistance measures in Budget 2009 earlier this year to help stabilise the property market in view of the sharp fall in demand at the time and looming over-supply. These included allowing developers more time to complete their housing projects and allowing the re-assignment of Government sales sites. These assistance measures are no longer needed in view of the recent strong demand for private housing and improved conditions in the property market. As such, the measures will not be extended when they expire which will mainly be in January 2010.

The details of these policy adjustments will be provided in a press release issued jointly by MND, MOF and MAS today. Sir, the Government has decided to take these measures in view of the current market conditions. Taken as a package, it will help to preempt any excessive price swings and promote a healthy property market. The Government will continue to monitor the property market closely and will introduce additional measures if required to promote a stable and sustainable property market.

Mdm Ho Geok Choo (West Coast): I would like to thank Minister for the very comprehensive response and the measures the Government is embarking on to ensure we balance the overly positive sentiment of Singaporeans in this property buying spree. Supplementary questions for Minister. Could the Minister kindly comment on the observation that the valuation gap between new launches and completed units in the same locale, same tenure and similar size is growing wider? Question two – with regard to foreigners with deep pockets who also seem to be snapping up real estate and pushing up property prices, besides making cash purchases, how are these foreigners funding their property purchases? I am wondering whether any of these foreigners have been caught for speculative activities. Are there measures in place to ensure that foreigners buying properties here do not just dump their properties and disappear without a trace? Are there any who have done so and what action has been taken against them?

Mr Mah Bow Tan: The Member asked why there is a valuation gap between new properties and old properties in the same location. It is not for me to answer that question. I think the Member should direct that question to the developers. The point is there are new developments that are being sold at much higher prices than the existing ones and there are also buyers who are buying up these properties. In a free market, if developers price their properties in a way that buyers feel are fair or that there is some upside, then the developers will find buyers. If on the other hand, the market feels that property prices are excessive, buyers will not bite. I would rather not speculate on the reasons for the gap. I think sooner or later, the market will correct and find its level between new and old properties. There is, of course, a premium for new properties over old properties but how much that premium is or should be, is left to individual buyers and developers to decide.

On foreigners with deep pockets – first of all, we do not disallow foreigners from purchasing non-landed property. If they wish to buy landed property, they have to seek permission from the Controller of Housing and the Ministry of Law. But if the Member is talking about foreigners buying non-landed property, then, yes, there is a significant number of foreigners who are in the market. We do monitor the number of foreigners who buy, and currently the numbers are not as high as they were in the heydays of 2006 and 2007. Nevertheless, there is quite a significant number. It is not a cause for concern at this point in time and I think there is really no need for us to act. My view is that speculation in property is not a crime and we do not catch anybody for speculating. The main principle is caveat emptor or buyer beware. If you are a speculator and you lose money, that is your business. If you make money, of course, good luck to you! There is nothing against speculation. As I have said in my reply, what we are concerned about is if there is excessive speculation in the market because that can create a bubble in the market. And when that bubble bursts, there will be quite severe consequences all around. As far as foreigners are concerned, they are players in the market but the level of activity by foreigners is not that high at the moment.

Ms Ellen Lee (Sembawang): I would like to ask the Minister whether there is a mechanism in place to check the duration of ownership after a property has been purchased, that says if the property is sold within, say, a three- or five-year period, that that would certainly be speculation.

Mr Mah Bow Tan: The Urban Redevelopment Authority (URA) does monitor and publish the so-called flipping of properties, where buyers transfer their properties within a certain period after they have bought it. What is that period? It could be six months or a year. Different people have different interpretations of flipping. But again, as I have said at the outset, speculation is not an offence. People do speculate and they buy and sell for various reasons. I do not want to venture a guess as to who are the speculators and who are not. Let the market decide and let people who get into the market, whether they buy it for speculation or for owner-occupation or a combination of both, do so with their eyes wide open. As far as the Government is concerned, our job is to make sure that there is a level-playing field with sufficient information out there in the market so that everybody knows what is going on, with no imbalance of information and also, from time to time, when we see things starting to heat up, make certain calibrated corrective actions.