MAS flags risks from 'excessive exuberance' in property market

THE Monetary Authority of Singapore (MAS) sounded a note of caution on the property market on Thursday, saying that recent market developments such as the en-bloc rage and rising land prices could pose risks to the market's stability.

Market players should therefore take a medium-term view of supply-demand dynamics and act with caution, it said in its 2017 Financial Stability Review.

Its concerns stemmed from a potential mis-match between the supply of private housing and occupation demand, as the development of en bloc and Government Land Sales (GLS) sites is expected to add another 20,000 new units in the next one to two years. This is more than double the current supply in the pipeline, if the 16,031 unsold uncompleted units with planning approvals as at the end of the third quarter remain unsold.

"With slower population growth, there is considerable uncertainty as to whether existing vacancies and the new supply coming on-stream can be fully absorbed by the market. Should there be insufficient occupation demand for the completed housing units, a supply imbalance could result and place downward pressure on prices and rentals in the medium term," the MAS said in the report.

On that note, the central bank urged developers to factor in a significant increase in private housing stock in the near term when bidding for land, and prospective buyers to consider the subdued rental market and further interest rate hikes that could weigh on their debt servicing ability.

"Banks should continue to maintain prudent underwriting standards and review their valuation practices to ensure that property appraisals remain realistic and substantiated," the MAS said.

MAS deputy managing director, Ong Chong Tee, said: "Near-term financial stability risks may have receded with the stronger global economy. However, financial institutions, households and corporates should remain vigilant to the risks highlighted in the report, including the impact of rising interest rates, geopolitical developments, and excessive exuberance in the property market."

The warnings by the MAS echo recent comments of National Development Minister Lawrence Wong in Parliament and at a dinner gathering of real estate players last month, when he reiterated the need for developers and homebuyers to be prudent.

Singapore's private residential market has picked up in recent quarters, with a first uptick of 0.7 per cent in the official price index in the third quarter after 15 quarters of decline. Rents remained unchanged in the third quarter, also after falling for 15 quarters.

Transactions of private homes in the first 10 months of this year have already exceeded that for the whole of last year, reflecting firm demand underpinned by an improvement in buyers' sentiment and low interest rates. Consequently, new housing loans have risen to an average of S$3.5 billion per month in the first 10 months of 2017, up from S$2.8 billion over the same period last year.

Developers have also actively participated in bidding for sites in the en-bloc market and the GLS programme to replenish their land banks.

But meanwhile, the rental market remains weak as vacancy rates stayed elevated at 8.4 per cent in the third quarter, compared with 5.2 per cent in the first quarter of 2013 and the historical average of around 6.5 per cent over the past decade.

Population growth has also moderated to a compounded annual rate of 1.1 per cent from 2012 to 2017, down from 3 per cent in the 2007-2012 period.

The MAS said that it will continue to monitor market developments with the Ministry of National Development and the Ministry of Finance and "where necessary, take appropriate actions to maintain a stable and sustainable property market".