Cooling measures inevitable

With suburban housing prices hitting new highs, markets awash with liquidity and banks introducing longer home loan tenors, I believe it is inevitable that another round of cooling measures will be introduced simply to keep potential price increases in check.

In my commentary in Today last week (“Is the glass half empty or half full?” July 27), I said you could choose to interpret the findings of the Credit Suisse inaugural survey on home buying negatively or positively.

Looking at more of the numbers, some 47 per cent of those polled in the bank’s proprietary survey believed that homes here will cost more within the next year, with almost three in 10 predicting price increases of up to 10 per cent.

Just as many believed that the opposite is true: A significant 35 per cent of respondents expected prices to fall within the next 12 months.

Interestingly, six in 10 predicted another round of cooling measures. Assuming all 35 per cent who believed prices would correct within the year fall into this category, this leaves another 25 per cent whom I interpret as those who believed that yet another round of cooling measures would be necessary simply to keep prices stable.

This week’s release of resale price indices for completed apartments by the National University of Singapore’s Institute of Real Estate Studies supports this last opinion. Although some of the media focused on the 1.4 per cent fall in prices of small apartments in June compared to those in the previous month, the real story for me was the second successive new high for apartments located in suburban areas.

The sub-index for non-central apartments excluding shoeboxes had been trending downwards for some months – with fluctuations – before bottoming out in February. Since then, it has staged a recovery, reaching new highs in May and June. It had risen by 1.9 per cent in May and by 0.7 per cent in June, the latter number being the latest flash estimate.

This indicates strong pressure on prices for completed units to rise.

Are the effects of the cooling measures introduced in December wearing off? I believe this to be so. This is where I share the opinion that it is inevitable that there will be another round of cooling measures.

While cooling measures may be viewed negatively by developers, they have helped ensure price stability. A stable environment has actually allowed buyers to come out in droves.

Price stability encourages genuine upgrading. Selling your existing property to buy another need not be done hurriedly. Prices would not run away. And if they are not falling, it means you need not wait for a better deal.

Speculators are the only group who will lose out in such an environment because they see no reason to participate in the market. Then again, there is no actual loss, only the loss of an opportunity to make more money.

Finally, as a caveat to all would-be investors, I would like to say I cannot see the robust buying continuing indefinitely. It may be prolonged by changes in the local market and in the global environment, as in our current situation.

Increasingly, more of the buying rests on low interest rates and less on fundamentals. What happens when there is a sharp hike in rates? Seven years of feasting may be followed by seven years of famine. It is best that we build our defences early, even as we play the game or are forced to play the game.

By Colin Tan – Head of Research and Consultancy at Chesterton Suntec International

Source : Today – 3 Aug 2012

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