PROPERTY MARKET (Measures to stabilise)

Mr Robert Chua Teck Chew asked the Minister for Finance, in view of our strong economic growth, the rapid rise in property prices and the prediction of another bull run on the stock market, what measures are being taken by the Government (i) to stabilise the property market and (ii) to avoid a convergence of these events which may lead to a "bubble economy" with its dire consequences.

Dr Richard Hu Tsu Tau: Mr Speaker, Sir, economic growth in the first half of this year was substantially above expectations and the main impetus came from strong growth in the manufacturing and transport sectors which more than offset a slowdown in the finance sector. The momentum of growth in the manufacturing and transport sectors is expected to be sustained in the second half due to strong external demand arising from economic recovery in our main export markets, but the finance sector and domestic demand growth will be weak. GDP growth for the year as a whole is therefore expected to be within the range of 9-10%. This high level of growth is not expected to be sustained, however, and GDP growth in 1995 should return to a more modest 6-8% rate.

Against this background, I see little danger of a "bubble economy" developing, nor do I see the makings of a runaway bull run on the stock market. The price-earnings ratio of our stock market currently is still in the low 20s, unlike the bubble situation in Japan in the late 1980s when its price-earnings ratio went above 50. Our financial sector is well regulated to ensure that banks and other financial institutions here are not over- exposed to the stock market.

Interest rates are rising world-wide and this should have a moderating effect on equity markets over the next 1-2 years. The Singapore and Malaysian stock markets have stabilised after falling from last year's excesses and their current performance should better reflect the growth rates of the underlying economies.

The increase in property prices in recent years has reflected strong demand by households, underpinned by the rapid growth in their income levels and their aspirations to upgrade. While property prices will appreciate with economic growth, the price surge over the past two years is not sustainable. In the commercial and office sector, rentals today are significantly lower than what they were when they peaked in 1990.

The most effective way of stabilising property prices is to ensure that there is adequate supply of new housing and land for development. The Member would have noted the many announcements made by the Ministry of National Development in recent months on its plans to increase the supply of land for all categories of housing. Over the past three years, MND has progressively increased the amount of State land sold for private residential development - from land for 2,500 units in 1992 to land for 4,000 units this year. This will be increased to 6,000 units next year. The potential supply of private residential units in the pipeline currently stands at 71,000. At the same time, MND has tightened up its rules on the sale of private properties to discourage speculative buying of properties. The Inland Revenue Authority of Singapore is also scrutinising more carefully the accounts of individuals and companies active in property transactions to ensure that appropriate taxes are paid.

Mr Robert Chua Teck Chew (Nominated Member): Sir, I presume that the release of more State land for residential buildings will still be done by tender. Would that not push property prices even higher?

Dr Richard Hu Tsu Tau: I do not understand why the tender system should automatically push prices up if the supply is large. It is based on supply and demand. So why should the tender system push prices up by itself?

Mr Robert Chua Teck Chew: Sir, would the Minister assure us that he will monitor the prices and if they continue to rise, something will be done to ensure that there will be no spiral?

Dr Richard Hu Tsu Tau: I will convey the Member's request to the Minister for National Development.

Mr Chia Shi Teck (Nominated Member): Sir, is there a floor price during the tender offer? Would you withdraw the tender, if it does not meet your minimum level?

Dr Richard Hu Tsu Tau: There is a floor price established by the Chief Valuer, below which the tender can be withdrawn, and we have done so.

Mr Chia Shi Teck: Therefore, as you move the floor price up, it will actually push the price higher.

Dr Richard Hu Tsu Tau: The floor price will be determined by the prevailing market situation.