Lawrence Wong, Redas chief give different takes on cooling measures

The government cannot take a hands-off approach to the property cycle and allow bubbles to develop, said National Development Minister Lawrence Wong as he explained the rationale behind July’s cooling measures at the anniversary dinner of the developers’ body on Thursday.

He also reasoned that had the authorities not intervened, private home prices this year are very likely to have exceeded a 10 per cent increase, and may be even gone up by up to 15 per cent.

“It would continue next year and then in two, three years’ time, there would be another crash. And many more Singaporeans would be hurt.

“And that’s the reason why we decided we had to move with the cooling measures,” said Mr Wong, who is also the Second Minister for Finance.

Sending a clear message at the 59th anniversary of the Real Estate Developers’ Association of Singapore (Redas), Mr Wong stressed: “Let me be very clear that government cannot and will not take a hands-off attitude to the property cycle. So there should not be any surprise when we intervene in the market, because that is our approach and attitude.”

Reiterating, he added: “We will not take a hands-off approach to the property cycle. I don’t think any responsible government should do so.”

“Instead, we will do whatever we can to prevent property bubbles from forming and to minimise exuberance in the market,” said Mr Wong at the event at The Ritz-Carlton, Millenia Singapore.

He emphasised that the government’s aim is not to bring property prices down but rather to have a steady and sustained property market where prices move broadly in line with income growth or fundamentals.

Elaborating on the scenario where the authorities had not come up with cooling measures, he said: “What would the price have been by the end of this year? Would it have naturally corrected by itself ? No one can tell but I would imagine if we had not done anything, there would have been significant momentum behind the prices.

“All of you know that the fear of missing out is extremely powerful. It is a very strong force among buyers. They will come, they will enter the market, so prices will continue to rise sharply and then like in any bubble, this will be followed by a sharp decline in few years’ time.

“We are already seeing significant headwinds in the external environment, with trade, with global economy slowing down, with interest rates likely to go up. On top of that, within our domestic market, more supply is coming on stream.”

In a speech at the same event, Redas president Augustine Tan said that the association is watching the market keenly and has engaged the government to raise its concern about the sudden introduction of the property cooling measures in July.

He also highlighted that the challenging times that have befallen developers in terms of higher cost of development arising from the introduction of the 5 per cent non-remissible additional buyer’s stamp duty (ABSD) that developers have to pay when they buy residential development sites.

In addition, there is a higher risk of developers having to cough up the 25 per cent remissible ABSD on their residential site purchase price, with interest, if they fail to complete the residential project and sell all its units within five years of acquiring the site.

Mr Wong also highlighted that within a period of 12 months from mid-2017 to mid-2018, private home prices had increased by more than 9 per cent. “And to put this in context, in the last cycle, it took the government eight rounds of cooling measures over a period of four years and over this period of four years, prices came down by 12 per cent.

“Within one year, the prices shot back up 9 per cent. And there was every indication that that price increase would continue because the developers’ bids for Government Land Sales sites indicated quite bullish expectations of a continued rapid increase in prices.

“So we were at a very real risk of having price increases that would run ahead of economic fundamentals. The pace of price increase over that 12-month period was already almost double that of income growth in 2017. And if prices had continued to grow at that pace and outpaced fundamentals, there would eventually be a destabilising correction later on that would be even more painful for everyone, both sellers and buyers.”

That is why the measures were put in place; they were intended to moderate the cycle.

Giving an update on property prices four months after the July cooling measures, Mr Wong noted that prices have not come down, but are “flattish or perhaps increasing at a very gradual rate.”

“Land sales and overall transaction volumes have moderated and importantly the measures have encouraged en bloc sellers and developers to be more realistic in their price expectations, which is what we had intended.”

Mr Wong told developers that while he understood that they have short-term commercial imperatives, he hoped that they would also appreciate and understand the basis for the government’s actions and “why we think this is the more responsible approach to take in the longer term and why we believe this is the approach that will benefit more Singaporeans in the longer term”.

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