It’s a sprint to the finish

After setting a scorching pace in the early part of the year, it was widely expected that the housing sales market would lose a lot of its steam towards the year-end. Instead, Urban Redevelopment Authority data released on Wednesday showed developers’ sales of private homes hit 1,909 units last month, indicating the market is not limping home but headed for a sprint finish. This will set a new benchmark that I believe will take years, nay, a few property cycles to beat.

November’s numbers brought cumulative home sales for the year to 15,025 units, surpassing the previous record of 14,811 in 2007. If we were to describe the performance of the property market over the past few years as a marathon, is the market getting its second wind, a resurgence of energy that many long-distance runners experience during a race which helps them attack the course with renewed vigour?

Many sceptics who have long held the belief that the present strong housing demand is unsustainable must be wondering if this is the end, or just the beginning of a new wave of buying?

Every market player except the Government takes a narrow view and acts individually in its own interest. Because of commercial interests, they cannot be taking the macro view and acting appropriately to protect the industry. That responsibility of looking at the broad picture belongs to the authorities. They have the statistics and power to change policy.

At the moment, the end supply and demand numbers do not look right, even if the authorities want to leave enough room for choice, for the right of market players to learn from their mistakes.

In a free market, the end numbers are supposed to be right as they are determined by market forces or the “invisible hand”. However, the direct and sustained interference of governments around the world in the aftermath of the United States sub-prime mortgage fiasco has robbed the markets of their ability to work their magic.

In a report released this week, IIFL Securities Research noted that Singapore banks’ exposure to the property sector was comparable to the 52 per cent in Hong Kong.

But the two cities have significantly higher exposure than the 20-to-30-per-cent norm for the rest of Asian banks.

A key difference, according to IIFL, is that, while Hong Kong’s loans are largely to property developers (27 per cent), the bulk of Singapore loans (35 per cent) are to home buyers. That tells you where the burden of a sharp correction, should it happen, will fall heaviest upon.

Another matter that has grabbed the headlines this week is interest rates. What caught my attention was the comment by a banking research head who said that Singapore’s interest rates were too high. Hold on, say that again?

He said this explained why Singapore’s rise in foreign currency reserves from April last year to October this year amounted to 31 per cent of gross domestic product – the highest increase in Asia.

Given a 3-per-cent currency appreciation, he said Singapore’s interest rates should be 3 per cent below partner interest rates. Instead, Singapore’s three-month interbank offered rate is 0.44 per cent, while the average comparable rate in the United States, Europe and Japan is 0.41 per cent. This gives excess returns of about 303 basis points.

Most countries attack inflation using interest rates while Singapore uses its exchange rate. In the past, our interest rate movements tended to mirror those in the US. Given current economic conditions there, we know US rates are not going up any time soon. On that score alone, we can safely say our rates – in particular, mortgage rates – are likely to stay low for the time being. This means domestic home buyers and investors are not affected.

If our currency is up 3 per cent and is expected to continue to go up, it means most foreign buyers, except those in China and Australia – face higher prices. Will this significantly affect foreign buying?

Will 2011 be the year of the high-end sector as some have suggested? It could still happen. After all, Credit Suisse recently issued a report for investors to get out of China’s housing market and head for the same markets in Hong Kong, Japan and, you guessed it, Singapore.

By Colin Tan, head of research and consultancy at Chesterton Suntec International.

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