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Too early to ease property cooling measures: MAS

Risk factors have not changed, property prices still at elevated levels

[SINGAPORE] The Monetary Authority of Singapore said it is too early to ease property cooling measures as prices remain high.

Risk factors have not changed, MAS managing director Ravi Menon said at the MAS annual report 2013/2014 press conference yesterday.

Property prices remain at elevated levels although they have started to soften, he said.

Prices went up 60 per cent over the last four years but have declined by just 3.3 per cent over the last three quarters, he said.

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Global interest rates are still at historical lows, and "if you relax property measures in the current easy environment, you may set off another spiral of price increase," he said.

The level of debt among highly leveraged households remains high, though the growth of debt has moderated, he said.

For these highly leveraged households, reducing the level of debt will take time and they need to work with their banks and commit to debt repayment plans, he said.

"On the whole, MAS's view is that it's premature to ease property cooling measures now."

Mr Menon's comments come amid increasing calls by developers and other parties urging the authorities to start rolling back cooling measures such as the additional buyer's stamp duty and the seller's stamp duty.

Early this month, the National Development Ministry responded by saying it was still too early to roll back property cooling measures. It said that although home sales have decreased, prices have remained relatively stable.

Yesterday, Mr Menon said that it is important to secure gains in stabilising the market and restoring financial prudence.

The number of over-leveraged households to property purchases remain broadly similar to last year - 5-10 per cent, he said. Over-leveraging is seen when total debt servicing payments exceed 60 per cent of monthly income.

"It's stopped getting worse," but people take time, "a couple of years" to adjust and reschedule their debt repayments.

That's why it's important to be pro-active in cooling the market, Mr Menon said.

The property cooling measures have helped to strengthen overall household balance sheets in two ways, he said.

First, they have tempered the growth of household debt. Year-on-year growth of household debt has moderated from nearly 13 per cent in the third quarter of 2011 to 5.5 per cent in the first quarter of this year.

Second, the risk profile of new housing loan borrowers has improved.

Almost all new housing loans granted since the introduction of total debt servicing ratio or TDSR, were within 60 per cent threshold.

Mr Menon also said that there's no timeline or target on when the government might decide to relax some of the measures.

A sharp reduction in property prices will impact the economy. He said that the MAS does not want to see a collapse in the property market, it's not good for the economy.

Banks here are resilient to property market shocks, he said.

Stress tests of our banks during last year's Financial Sector Assessment Programme by the International Monetary Fund showed they were resilient against various stress scenarios.

These stresses included a combination of domestic interest rates increasing by more than 200 basis points; the unemployment rate rising above 10 per cent; cumulative decline in equity prices up to 70 per cent over three years; and cumulative decline in residential property prices up to 50 per cent over three years.

MAS's own stress test this year - assuming more disorderly unwinding of quantitative easing in the US and higher levels of US dollar funding squeeze - shows similar results, he said.

Latest data show a big jump in private home purchase in Q2 over Q1. DTZ's analysis of URA Realis caveats data showed a 37.1 per cent quarter-on-quarter increase in the total number of private homes transacted to 3,369 units in Q2.

Despite the recovery in Q2, the 5,826 total private homes sold in the first-half of this year is less than half the 13,651 units transacted in the first-half of last year - reflecting the dent on transactions created by the TDSR framework since its introduction in late-June 2013, noted Lee Lay Keng, regional head (SEA), research at DTZ.