Reduce rental costs to help local economy

THE Hillford, a 281-unit retirement resort on Jalan Jurong Kechil, sold out within five hours at last Friday's launch. But make no mistake about it: if Sunday's sale of the Panorama condominium in Ang Mo Kio is anything to go by, the residential property market is weakening, in a welcome correction two years before interest rates are slated to go up. Just 60 of the 120 units released for sale at the 698-unit suburban condo project were booked. This translates to first-day sales of 8.6 per cent, which was hardly inspiring. Moreover, prices are said to be between $1,265 and $1,320 per square foot (psf) for various units. Yet when developer Wheelock Properties submitted the winning bid for the site last year, analysts calculated breakeven prices of between $1,180 and $1,300 psf. Again, when the developer does not seem to be enjoying a fat margin, the residential property market cannot be said to be red hot.

A cooling property market is not something to be unduly worried about, because a crash - a sharp fall of 15 per cent or more - is unlikely. Many cash-rich buyers are still waiting on the sidelines. Most Singaporeans buy homes to live in. And even though household leverage has increased in recent years, the percentage of overleveraged buyers is not alarmingly high - estimated by the Monetary Authority of Singapore (MAS) to be 5-10 per cent. Even when mortgage rates spike by three percentage points, overleveraged buyers will increase to only 10-15 per cent. Economists as well as analysts have pointed out that household cash balances remain strong. UBS's Kelvin Tay noted that with a $33 billion rise in CPF Ordinary Accounts from before the global financial crisis to June 2013, the majority of households are not recklessly leveraging, and credit growth alone does not imply a bubble.

But an unstated assumption is that economic growth will continue as usual. With global liquidity flows shifting from slowing emerging markets to recovering US and Europe, Singapore - battling high costs and limited productivity growth - will not be spared when the quantitative easing (QE) music stops. To ensure Singapore's economy is as strong as possible when liquidity outflows accelerate, the government's attention should be on shoring up the local small and medium-sized enterprises (SMEs) base. In the event of a downturn, SMEs will provide a much-needed buffer to ensure Singaporeans will still have jobs, even while larger multinational companies may have to shed workers to cut costs.