June 21, 2007

Cooling the housing fever

NOT too hot and not too cold is how most people like the property market. Lately though, the market has seen a fevered rise. It prompted National Development Minister Mah Bow Tan to stress the importance - and the challenge for the authorities - of making sure 'property prices do not overshoot or race ahead of real economic growth'. He assured home-buyers that the Government would ensure there is balance in supply and demand. This is a sharp reminder well timed. But it is doubtful whether local buyers of means, speculators and foreign investors think much of galloping asset-price inflation, or the incipient signs, when making purchase decisions. They should. The price collapse of 10 years ago was preceded by the same frenetic bidding for choice properties, although the trigger then was the Asian financial crisis. This time around, Middle East volatility and oil price swings should act as a reality check. If the price spiral in the Central area and its environs is kept up, the ministry, which oversees land sales, might well have to revise its position that 'these people can take care of themselves', as Mr Mah said of the luxury-segment buyers. There is little indication at which point the Government would consider the price curve to be harmful to Singapore's competitiveness as well as to the banking system, for its exposure to real estate lending. But a signal has been sent with the biggest release of land for tender, mainly for suburban condominium projects, since the last market peak in the mid-1990s.

Of particular concern is that the feverishness has begun to infect the HDB resale market as more sellers test the waters by quoting well above valuation prices. This could be an aberration. First-quarter resale prices rose only by 1.3 per cent, while transactions were the fewest since the first quarter of 2004. Still, high asking prices accentuate price psychology. Last week's release of more land outside the Central area, to bring the total to 41 parcels, is meant to reassure mainly those buying private property for the first time. Even though there is a time lag before the increased housing supply comes onstream, land sales are a factor which developers and buyers should take firmly into account. Where the Government can do more is to set aside more land for executive condominiums. Only one piece in the current releases, in Punggol, is so designated. These intermediate properties for upgraders fell out of favour when private condo prices softened after 1997. The reverse situation now applies. Having more executive condos will also keep a lid on super-HDB flats pushing unrealistic levels.