Another warning on property market puts developers on the defensive

Fri, Dec 01, 2017

Lynette Khoo

THE central bank has joined National Development Minister Lawrence Wong in firing a shot across the bow to developers, homebuyers and lenders, warning about the risks of "excessive exuberance" in the property market.

But market players were quick to respond that any policy move by the government now would be premature.

Flagging how recent developments have posed risks to market stability, the Monetary Authority of Singapore (MAS) on Thursday pointed to the possibility of a supply-occupation mis-match. It cited a looming surge in private housing stock and higher land prices in the current en bloc fever, which may not be accompanied by an improvement in occupation demand.

DBS senior economist Irvin Seah felt that such reminders are like "moral suasion" from the government before they decide to take any policy action.

Based on their reading of the market data, market watchers believe the government would not intervene in the market for now, until conditions prove to be unsustainable.

President of the Real Estate Developers' Association of Singapore (Redas) Augustine Tan noted that it would be "premature to come up with any measures" when the market has only started to recover.

"Now, we are only seeing volumes coming back and a 0.7 per cent price increase in the third quarter. This can hardly be called excessive exuberance where buyers are concerned," he said.

That price uptick in the third quarter broke a falling streak of 15 quarters, but transactions in the first 10 months this year have already exceeded that for the whole of last year. This has coincided with a flurry of en bloc sales this year.

In its 2017 Financial Stability Review published on Thursday, MAS urged market players to take a medium-term view because of a potential gap between private housing supply and occupation demand.

The development of en bloc sites and government land sales (GLS) sites could add another 20,000 new units in the next one to two years. This will more than double the current supply in the pipeline, assuming the inventory of some 17,000 units with planning approvals remain unsold.

But given slower population growth, there is "considerable uncertainty" if existing vacancies of over 30,000 homes and the new supply can be fully absorbed by the market.

If occupation demand is insufficient for the completed homes, a supply imbalance could result and exert downward pressure on prices and rentals in the medium term, the MAS said.

The regulator also told banks to maintain prudent underwriting standards and review their valuation practices to ensure property appraisals remain realistic and substantiated.

These warnings from MAS echo recent comments from Minister Wong in parliament and at a dinner gathering of real estate players last month, urging prudence among developers and prospective homebuyers.

Savills Singapore research head Alan Cheong noted that although the official private property price index has just started to turn, the market is already reading future price directions based on recent land bid prices.

"There is nothing wrong with rising land or property prices. The issue is whether the rate of increase will destabilise the real estate and financial markets," Mr Cheong said.

But it remains to be seen if government warnings are effective in deterring aggressive land bids over time given that there is still much liquidity looking to be deployed into real estate, he added.

Holding a different view, Mr Tan of Redas said that existing cooling measures are still in place to prevent any over-exposure to real estate by home-buyers. Developers too have displayed varying risk appetites in their land bids and some of their price assumptions remain untested.

In the current en bloc upcycle, the redevelopment of some 23 collective sale sites sold in 2016-2017 is expected to remove some 3,400 units from the market in the near-term, while adding over 11,600 units in the medium term.

Maybank Kim Eng Research noted that this en bloc cycle is relatively modest in magnitude compared with the 2005-2007 en bloc fever that removed about 12,100 units from the market.

Maybank Kim Eng Research senior economist Chua Hak Bin said: "Whether the new supply in 2019-2010 can be well absorbed will depend critically on a stronger recovery in Singapore's employment and overall population growth. There are tentative signs of a recovery in the job market going into 2018."

MAS flagged on Thursday that while employment outlook is expected to improve next year, wages are not expected to rise rapidly as the existing labour slack will take time to be absorbed. Population growth has moderated to a compounded annual rate of 1.1 per cent from 2012 to 2017, down from 3 per cent in the 2007-2012 period.

The rental market remains soft as vacancy rate stayed elevated at 8.4 per cent at end of the third quarter, compared to an average of 6.5 per cent over the past decade; rents were flat in the third quarter, also after falling for 15 quarters.

Nevertheless, MAS noted that the asset quality of housing loans continues to be strong; its stress test results indicate that the banking system can withstand a 50 per cent drop in property prices over three years.

Household balance sheets are also strengthening, with net wealth growing 6.6 per cent year on year in the third quarter, up from 5.8 per cent growth a year earlier, due to a rise in financial and property assets.