Property price falls measured, says MAS, in signal curbs will stay

SINGAPORE — The decline in private home prices has been measured and points to the market settling at sustainable levels over time, the Monetary Authority of Singapore (MAS) said today (Nov 27), in yet another indication of the Government’s intention to keep property curbs in place.

Private home prices have fallen 8 per cent in the third quarter this year from its peak in the third quarter of 2013, but the central bank said it is watching for signs of renewed froth in the housing market given still-elevated prices in certain segments. Prices of homes in the Outside Central Region, or suburbs, for example, remain at 30 per cent above levels before the global financial crisis, it said.

However, the MAS does not discount the risk of a sharper-than-warranted downward correction arising from external headwinds.

“A culmination of adverse headwinds in the external outlook and surprises in the timing and trajectory of interest rate increases by the US Federal Reserve could prompt knee-jerk reactions by market participants and foment volatility in financial and asset markets. This could in turn disrupt a benign and orderly correction in the property market,” the central bank said in its annual Financial Stability Review today.

Benchmark mortgage rates have increased since the end of last year to the current 2 to 2.5 per cent, and are expected to rise moderately over the next two years, Fitch Ratings said in a separate research note today. It added that it does not believe that rates will have a large impact on property prices in the near term, although higher supply and lower immigration will cause prices to soften further.

The MAS said in its review that the Singapore banking system is resilient to risks from the property market. The exposure to housing loans has declined and the risk profile of such loans has improved. For instance, the share of new private housing loans with loan-to-value ratios above 70 per cent fell from 77 per cent in the second quarter of 2010 to below 60 per cent in the third quarter this year. That helped to slow household debt growth to 2.9 per cent year-on-year in the July-to-September period from an average of 8.7 per cent over the last five years.

“What’s been happening suggests that the timing of the introduction of TDSR (Total Debt Servicing Ratio) framework is quite appropriate… It is part of increasing vigilance in tandem with the growing uncertainties in the region and also in the world,” said Barclays economist Leong Wai Ho.

TDSR was implemented in June 2013 to promote financial prudence but has also been effective in stabilising the property market along with other cooling measures introduced after the global financial crisis.

Industry players including City Developments executive chairman Kwek Leng Beng and the Real Estate Developers’ Association of Singapore have urged the Government to remove some of these measures as prices and transaction volume have come down.

Against these calls, the Government has stood its ground. Newly minted National Development Minister Lawrence Wong said last month the Government does not want to risk a premature market rebound, noting that price corrections have been moderate so far compared to the increases in earlier years.

The MAS today reiterated it will continue to watch the property market carefully and take appropriate measures to maintain a stable and sustainable market.

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