Published September 4, 2009

Preventing a property market bubble

THAT the government is sending a second signal in the space of two months that it is watching developments in the property market underscores its unease over the current real estate boom. And this time, the government has upped the ante a notch, after the earlier caution appeared to have made little impact on the market.

On Wednesday, Minister for National Development Mah Bow Tan said that there is a 'definite possibility' that the government will re-introduce land sales through its confirmed list system from next year - thus increasing the potential supply of homes - and that it was 'a question of how much we put on the confirmed list'. Sale of state land under the confirmed list was suspended for the first half 2009 Government Land Sales Programme to help stave off oversupply risk as the property market here was then on a downtrend. This came after Mr Mah warned earlier in late July that speculation was trickling back into the property market. The government was watching the situation closely, he said then, and will take action should the market overheat. But that seemed to have made little impression on sentiment, and was followed by several 'hot' property launches where queues formed and units were snapped up immediately.

It is clear that the government's central concern remains: a galloping property market that is out of sync with Singapore's deepest recession. In July, developers sold a whopping 2,767 units of new private homes, smashing the record of 1,825 units set only in June. These are numbers that have never been seen in Singapore - not even during the height of the last property boom which took place during a period of economic growth. In just two months this year, developers have sold 328 more homes than in the whole of last year.

To be sure, things are looking up for the economy. According to the latest Monetary Authority of Singapore survey, the median forecast for this year is now a 3.6 per cent contraction in GDP, a much brighter outlook than the 6.5 per cent decline forecast in June. Expectations for next year's GDP growth have risen to 4.5 per cent as well. But economists are still warning that this is a nascent recovery still, subject to risks, and that a clearer picture will form only several months down the road. And while the jobs front has held up better than expected, this is due in large measure to the government's schemes to support employment, rather than a recovery in orders.

The market is taking comfort in the government's graduated response so far, but there is no doubting that it will take stronger action if it deems necessary. While the measures indicated now are supply-oriented, demand-side measures, such as curbs on mortgages, cannot be ruled out if there is real danger of a property bubble forming. Much will depend on the level of competition of bids for government sites going forward, the take-up of mid and mass-market projects, as well as macroeconomic indicators. The property market has been sufficiently warned.