Published September 18, 2012

Property here may sizzle from QE3 heat

Cash may flow into S'pore market and raise the possibility of further cooling measures

By Mindy Tan AND Teh Shi Ning

[SINGAPORE] The possibility of a fresh wave of capital flows into Singapore as a result of the latest round of quantitative easing (QE3) in the United States has raised the prospect that the property market could heat up again. This, in turn, could lead to a new round of government measures to keep prices in check.

The Federal Reserve's decision to pump US$40 billion into the US economy each month until sustained jobs growth kicks in, while welcome news for the struggling global economy, also created fears that loose monetary conditions in the US may push funds into the region in search of yields and fan asset price inflation.

An influx of foreign funds into the property market here could well push the government to introduce new measures or tweak existing ones to prevent a bubble from forming, said economists and property consultants.

"Clearly, Singapore is one of the destinations people look to as a safe haven . . . After the implementation of the ABSD, it seems the government will have to step it up again," said Enrico Tanuwidjaja, economist at RBS in Singapore. The ABSD refers to the 10 per cent additional buyer's stamp duty introduced last December to moderate foreign buying.

In a report issued last week, Kelvin Tay, chief investment officer for Southern Asia-Pacific at UBS Wealth Management, noted: "With the current environment of low interest rates to be extended further, the property sector would also continue to be resilient, although any upside is likely to be met with further government regulatory measures."

Said Mizuho Corporate Bank economist Vishnu Varathan: "The government is trying to toe a fine line. They are very mindful of the fact that when you tighten too much you never know how it's going to unravel.

"If the Fed is going to pump in this amount of money, and if the eurozone is not brewing out in a bad way, a lot of these funds will find their way to Asia as they last did. They can't go into public sector HDB, but they could go into the mid-range to luxury segments, and that mops up the supply that was supposed to dampen prices."

Already in the region, Hong Kong has moved swiftly to introduce mortgage curbs. In its fifth round of mortgage-tightening measures, the Hong Kong Monetary Authority announced that it would limit the Cashmaximum term of all new mortgages to 30 years.

Additionally, mortgage payments for investment properties cannot be more than 40 per cent of buyer's monthly incomes, compared with 50 per cent previously.

A series of measures have been levied in Singapore too, chief among them being the ABSD.

The measure has worked to reduce the proportion of foreign buyers from 30 per cent in 2011 to 22 per cent in Q2 2012, noted Png Poh Soon, head of research at Knight Frank Singapore.

The Real Estate Developers' Association of Singapore (Redas) reacted cautiously. "It is too early to ascertain the impact QE3 may have (if any) on the Singapore property market. Redas is of the view that last December's ABSD measure has so far been effective in curbing asset inflation in the real estate sector resulting from sudden influx of foreign funds."

While high property prices are still a cause for concern, recent transactions were mainly contributed by local buyers, pointed out Knight Frank's Mr Png. The proportion of foreign buyers in H1 2012 for residential properties of up to $1.5 million in value was 4.7 per cent, while foreign buyers constituted 14.3 per cent of transactions above $3 million.

Chua Yang Liang, head of SE Asia research at JLL, said: "The current policies we have are sufficient to keep out speculative money from the residential market . . . We have entered a soft policy era."

He reckons that there was sufficient free-play in the existing policies that the state could tweak to gain more traction on the market where necessary.

It is also important that the government successfully negotiate the "tightrope" between penalising speculative investment, and not hurting owner-occupiers, pointed out Credit Suisse economist Michael Wan. "I think the next most likely measure would come in the form of differentiated property taxes between owner-occupied and non-owner-occupied properties, to cream off excessive rental yields."

Real estate demand in Singapore is not merely a consequence of interest rate environments, noted Savills Singapore research head Alan Cheong. The market has also been propped up by strong immigration numbers, and a higher volume of transactions with developers selling smaller-format homes with a lower absolute dollar value.

"For Singapore, which has no capital controls, should the authorities wish to sterilise the excess liquidity entering the real estate sector, policies, if any, would require creativity and analytical rigour to ensure that it still allows a smooth functioning of the entire system and yet easy to disassemble when no longer needed."

The government has repeatedly stated that it remains ready to take further action to cool the property market should the situation call for it.