MAS says property market not overheated, but it will watch rising prices closely

Jun 30, 2021


THE Monetary Authority of Singapore (MAS) remains "highly vigilant" to the risk of a sustained increase in housing prices relative to income trends, with a prolonged divergence seen as unsustainable, Monetary Authority of Singapore (MAS) managing director Ravi Menon has said.

In his opening remarks at the launch of the MAS' annual report, he noted that the property market has been "remarkably resilient" in the face of the pandemic. The residential property price index rose by 1.6 per cent in 2020, even as nominal gross domestic product (GDP) contracted 8.2 per cent.

As at the first quarter of 2021, the property price index was 5.6 per cent above its pre-pandemic levels, while nominal GDP was about 4 per cent below, he noted.

When asked by the media, Mr Menon said that the property market is not considered overheated at this juncture.

"We will never tell in advance whether we would implement (property cooling) measures because that defeats the purpose of implementing the measures," he said.

"We hope the market will continue to remain stable and that we don't have to make any moves.

"But we have said many times that we are just as determined to make sure that the market remains stable, and prevent overheating from happening."

On whether there is a possibility of an asset bubble being formed on the back of flush global liquidity, he said that this is a "big issue" for central banks and regulators around the world.

With central banks adopting very highly accommodative monetary policies such as low interest rates, a good part of this liquidity has gone into financial asset markets and real estate markets.

"This is a big problem," he noted.

That being said, Singapore has a comprehensive set of macroprudential policy tools to keep the property market here from over-inflating, and this has resulted in relative stability in the market in the past five years, said Mr Menon.

He added that this is something that MAS will continue to watch closely.

In response, Christine Sun, senior vice-president of research and analytics at OrangeTee & Tie, noted that while rumours of cooling measures might have introduced panic buying, Mr Menon’s earlier statement could help to stabilise the market “by providing more clarity and certainty”.

“It appears that the probability of property curbs being implemented in the near future may not be high since they do not deem the market to be overheated,” she said.

Lee Nai Jia, deputy director of the Institute of Real Estate and Urban Studies (​IREUS) at National University of Singapore, added that the possibility of a market correction “should not be ruled out”.

“US economists have anticipated the Fed rate to be raised, even as early as 2022, which will in turn trigger other central banks to raise lending rates. The increased cost of credit may flatten the uptrend on home prices,” he said.

However, if property cooling policies are enacted, he anticipates the measures to be “highly targeted rather than broad and sweeping”.

“Regulations may, for example, target joint-owners who, in a bid to avoid additional buyer’s stamp duty (ABSD), are decoupling to purchase an additional property, and may as a result overextend themselves,” noted Dr Lee.

Sing Tien Foo, director of IREUS, added that it is important for the government to monitor foreign flow of capital, especially into the luxury segment, as it could generate spillover effects into the mass market and HDB resale market. He believes potential cooling measures could reduce the current loan-to-value ratios or increase the ABSD.

“A more stringent measure will be to restrict the demand from foreign buyers, such as barring more than one purchase in private property in the local market,” he said.

That said, Ms Sun added that cooling measures can only help to slow down the pace of price increase temporarily, as prices of homes could continue to rise if demand is persistent, especially in suburban areas.

She noted: “The authorities may want to consider releasing more land parcels, especially in the suburban regions, to better address the supply-demand imbalance that is facing the market now.”

In Q1 2021, private home prices rose 3.3 per cent quarter on quarter, steeper than the 2.1 per cent growth in Q4 2020, say Urban Redevelopment Authority (URA) figures.

This was the fourth consecutive quarter-on-quarter quarter rise. Meanwhile, flash estimates for Q2 2021 private home sales will be released on July 1.

In public housing, HDB resale prices rose 1.2 per cent in May 2021 from the previous month, making it the 11th straight month of price growth, says flash data from real estate portal SRX Property.

Year on year, the overall price increase for HDB resale flats grew 12 per cent in May, although it remained 2.6 per cent lower than the peak in April 2013.