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Cooling measures stay amid risk of spillover property demand

MAS fears easing rules now will draw inflows from countries clamping down on runaway prices

Property cooling measures remain "necessary" as there is a risk of pent-up demand spilling into Singapore if it eases rules now while other countries are tightening regulations on property investments.


PROPERTY cooling measures remain "necessary" as there is a risk of pent-up demand spilling into Singapore if it eases rules now while other countries are tightening regulations on property investments.

Managing director of the Monetary Authority of Singapore (MAS) Ravi Menon said on Thursday that countries including China, Hong Kong, South Korea, and New Zealand have tightened prudential requirements such as housing loan-to-value ratios and debt servicing ratios. In Australia, New South Wales will be doubling the stamp duty surcharges for foreign investors.

"Regional property markets have been buoyant and their respective authorities have, in the past six months, introduced further property cooling measures," he told reporters at a briefing on MAS' annual report.

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"Easing the measures now would send a wrong signal."

To be clear, the property market has substantially stabilised over the last three years, said Mr Menon.

Private residential property prices have fallen by nearly 12 per cent over the last 14 quarters. This follows an increase of close to 60 per cent over 17 quarters. Growth in housing loans, which stood at about 20 per cent year-on-year in 2010, has moderated to 4 per cent as at the first quarter of this year, while just a negligible share of housing loans is in negative equity, said Mr Menon.

But underlying demand for private residential property remains firm amid a continued low interest rate environment, he added, with property project launches in recent months attracting good take-up.

"At the same time, notwithstanding rate hikes in the US, mortgage rates in Singapore remain very low. The risk of a renewed unsustainable surge in property prices is not trivial," said Mr Menon.

While certain measures have been "calibrated" - such as in shortening the holding period for the sellers' stamp duty - that does not signal the start of an unwinding of the property cooling measures, said Mr Menon.

Specifically, the total debt servicing ratio (TDSR) - a debt-to-income threshold - is not a cyclical tool to be adjusted periodically, he said. Under TDSR, a borrower is limited to making total monthly debt repayments of no more than 60 per cent of his or her gross monthly income.

"Over the medium term, property prices should be aligned with broader income trends in the economy," said Mr Menon.

The Singapore economy is forecast to grow by 1-3 per cent this year, with a strong likelihood that it would be higher than the 2 per cent registered last year. Global GDP growth is expected to come in at 3.5 per cent this year, according to IMF, up from 3.1 per cent in 2016.

MAS also noted that global trade is recovering, alongside a more entrenched economic expansion in the US, recovery in domestic demand in the eurozone, and steady growth from China.

"The global economy should be able to absorb the ongoing increase in US interest rates, as the rise in rates is itself a response to strengthening economic activity," said Mr Menon.

"But vigilance is still called for - economies and markets have been accustomed to low interest rates. They could be thrown off balance if rates rose faster than expected."

Core inflation is projected to average 1-2 per cent in 2017, up from 0.9 per cent in 2016. The rise in core inflation since the fourth quarter of 2016 has largely reflected higher prices of oil-related items, said Mr Menon, though domestic sources of inflation remain contained partly as the pass-through of business costs to consumer prices has been quite weak.