Not time to tweak property cooling measures, say observers

While a growing number of property market participants are calling for the Government to tweak some of the measures introduced to cool the market, observers said it may be premature to do so as there is still room for the sector to stabilise.

Economists TODAY spoke to have raised concerns that any unravelling of the cooling measures before interest rates start to rise would, once again, heighten the risk of excessive leverage.

“We haven’t seen interest rates rise, so it’s a little premature at this point. People are still looking to come back at levels that they feel comfortable, so I think a premature loosening would reignite the speculative element that we’re trying to dampen,” said CIMB economist Song Seng Wun.

“Rising interest rates bring about concerns in terms of repayment, affordability and whether people have the ability to service their debts … So, loosening now could encourage more reckless borrowing. We would certainly want a market that is more stable before doing that,” he added.

While agreeing that there is still uneasiness surrounding the hike in interest rates, Bank of America Merrill Lynch economist Chua Hak Bin said the Government can keep loan curbs intact and fine-tune some of the stamp duties instead.

“I think a case can be made for some measures — the additional buyer’s stamp duty (ABSD), for example — to be reduced because the latest index has shown more slowing down. Mortgage loan growth was also down to 7 per cent to 8 per cent from a peak of more than 20 per cent. So, I think a lot of the concern about runaway prices and property bubbles forming have been abated considerably,” he said.

Latest figures by the Urban Redevelopment Authority showed price growth in the private residential property sector tamed somewhat, increasing by 1.1 per cent for the whole of last year compared with 2.8 per cent the previous year. New sales also moderated by more than 30 per cent last year.

This has prompted several market participants, the most prominent being City Developments Executive Chairman Kwek Leng Beng, to suggest that it might be time to tweak some of the curbs. One measure that can be lifted is the ABSD, Mr Kwek said.

But KPMG Principal Tax Consultant Leung Yew Kwong said that while there are merits in the proposals to roll back some cooling measures considering a somewhat weaker market, it is unlikely that the Government would start with “potent” measures such as the ABSD.

“I think the likely candidate would be the seller’s stamp duty. First, this measure has lost its potency because we now have the ABSD and TDSR (Total Debt Servicing Ratio) to choke off demand. Second, removing it may encourage more people to sell, and introducing more supply into the market can help bring prices down,” said Mr Leung.

“But realistically speaking, I don’t think the Government will relax (the measures) so soon because it has indicated that there still needs to be some cooling down. Even though transactions are low now, prices still have room to correct,” he added, noting that any changes may only come next year.

Mr Song agreed that a better time to start scaling back these measures would be at the end of this year or next. “There’s no rush. The market can still withstand further correction before it becomes harmful to the economy. With nobody in jeopardy or difficulty yet, I would say it’s okay to keep the measures around now.”

Source : Today – 21 Feb 2014

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