Lay down the cooling measures to be taken upfront

In a Sunday feature article entitled “History-making year ahead”, eight events and issues were highlighted by the writer which are expected to loom large in 2011. Seventh on the list was how to cool the property market without crashing it.

Last year, private housing prices eclipsed the previous 1996 peak, while the cash-over-valuation (COV) levels for public flats reached historic highs even as the Government unveiled two sets of cooling measures and ramped up the supply of housing sites and the number of new public flats for sale. It was a tumultuous year to say the least.

While the events in the property market may not be as central as the General Election and Presidential Polls listed as first and second on the list, it has the potential to significantly affect the results of the two.

Fortunately, the impact of the most recent set of cooling measures appears to have yielded results for the time being at least.

Flash estimates released by the Urban Redevelopment Authority (URA) recently show that private housing prices edged up by only 2.7 per cent in Q4, down from 2.9 per cent in Q3, albeit taking the price index to a fresh high.

However, sales volumes have not dampened. Over 15,500 new private homes are estimated to have been sold last year – a new benchmark.

Over at the HDB market, prices of resale flats rose 2.4 per cent in Q4 2010 – a slower rate of growth than the 4 per cent increase in Q3 2010. But while the resale price index was pushed to yet another all-time record, transaction volumes fell.

The resale volume declined by about 21 per cent in Q4. The median COV amount is also estimated to have fallen by $7,000 or 23 per cent, from $30,000 in Q3 to $23,000 in Q4 2010. But prices of public housing resale flats are still going up.

With the region awash with liquidity and healthy economic growth, the upward trend of the property market is expected to continue in 2011.

The finalised set of market numbers will determine whether a new round of cooling measures is forthcoming.

However, even if prices remain stable, if sales of new homes continue to be very high, then the concern is that a lot of it may not be owner-occupier demand. This has strong ramifications for the rental market. If the cost of borrowings should suddenly shoot up, a crash cannot be ruled out even if our track record shows that we have always managed a soft landing.

To outsiders who are not familiar with our housing market, all of our current market indicators, including those on the economic front, are gelling together to produce what can be considered to be the perfect property bull run if there is such a thing.

It is a sign of the anxious times, when single-property owners have mixed feelings even as many are made millionaires on paper.

Personally, I am not so sure the effects of the latest set of cooling measures will last. Our housing market must be among the most open and attractive to investors all over the world.

Is it time for some measures regulating the amount of liquidity flowing into Singapore and into the local housing market? Can there be more focused cooling measures without affecting genuine buyers and sellers? Is it time to pool together all the data of all the various government bodies to get to the bottom of the “problem” if it has not already been done yet?

It is very difficult to suggest solutions if there are still big gaps on what we know about the market. If the gap persists should not there be greater efforts to plug them?

Much as I like speculators to learn from their mistakes, a crash benefits no one.

Personally, I am not in favour of changing the goal posts midway with respect to investors. It breeds uncertainty and affects investor confidence. As I see it, part of the problem is that the market does not appear to take the Government’s warning – that it will not let the market overheat – seriously. Either that or it has short memories.

I prefer a more direct approach. Lay down all the cooling measures to be taken upfront. Have four sets, one for each quarter. Set the trigger points for each of them, say x per cent rise in the price index. If the price index surpasses this figure, the first set of cooling measures automatically kicks in and so on. The trigger points can be linked to fundamentals, say the percentage GDP growth for the previous quarter plus x per cent.

This should send a very clear message to investors. At the same time, the market has a choice; whether it wants to trigger the measures or not.

By Colin Tan – head, research and Consultancy, at Chesterton Suntec International.

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