Minister Mah's job to raise the red flag in a property market never short of thrills
By Esther Teo, Property Reporter
Straits Times on 23 Mar 2011
PROPERTY - the word alone sets the Singaporean heart racing. Those capital gains, the own-your-own-home dream all make for a potent elixir.
Every now and then, National Development Minister Mah Bow Tan has to raise a red flag when real estate gets over- heated and prices threaten to enter the realm of the ridiculous.
He can never please everybody: owners and developers love soaring prices - it means cash in their pockets; but buyers want affordable homes - until they buy one of course.
The hot-button issues don't stop there. What about the huge number of shoebox flats hitting the market, foreigners buying up property, stamp duty increases? Wherever you look, there is a mine waiting to go off.
So how to balance it all out? 'As the Government, we need to make sure that we look at the overall interest of the economy and everybody concerned, including the developers, real estate agents, buyers and then take it not just now but... down the road as well,' he said.
'What we can do is to keep a close eye... We are not trying to micro-manage the market by any means, we're just trying to make sure that the broad directions of the market are in line with how the economy is performing.'
The balancing act has become more difficult of late with a perfect storm of low interest rates, ample liquidity and record-breaking economic growth fuelling the property boom.
Trying to keep a lid on all this has preoccupied Mr Mah, 62, for much of the past 12 months.
A range of cooling measures has been adopted to take the heat out of the market, while large tracts of state land have been released to ensure developers can keep up the supply of homes.
But as the minister told The Straits Times last week, buyers should perhaps curb their enthusiasm as there are already plenty of homes around.
There are about 33,000 uncompleted units that remain unsold, and that is 'a hell of a lot of flats', said Mr Mah, enough to tide over the private market for three years and casting a shadow of a potential oversupply over the housing landscape.
'There is a risk, there's no doubt about it. That's why we have to be careful and the market must take this into account, as we will... We don't want to solve a problem but create another,' he said.
Buyers and developers must take into account this huge supply before making any big-ticket purchase decisions, he added.
Throw in the fact that interest rates will certainly rise at some point and the risk of external shocks to Singapore's economy, and the equation for a potential home-buyer becomes that much trickier.
'So when you buy and you hope to sell after your four-year period is over... don't forget that by that time there may be a lot more people trying to do the same. If your interest rates start to go up, then what do you do?' he said.
'Who would have predicted there would be an earthquake and tsunami and now possibly a nuclear meltdown (in Japan)? So many things are unknown, but at least what you do know you better open your eyes to.'
Huge global uncertainties such as the turmoil in the Arab world could also have a knock-on effect on Singapore, throwing a spanner in the works of rising prices.
But he acknowledges that the supply overhanging the market may not depress prices. If the global economy gets back on track and confidence returns, then demand will keep prices firm.
'Those are judgment calls the market has to make. So developers have to make those calls; if they get it right they will be rewarded, if they get it wrong they will get punished. We will have to watch this carefully,' he added.
The Government has a similar judgment call to make as well as it tries to cope with different scenarios.
If it misjudges and stops land sales due to an anticipated oversupply, then office and residential prices will jump sharply. But the confirmed and reserve lists of the Government's land sales programme help to mitigate these risks, he said.
Confirmed list sites go on sale regardless of interest and are often an indication of the Government's strategic development plans. Land on the reserve list is put up for tender only if developers make an acceptable initial offer.
Some home-buyers believe the authorities got it wrong last year when they failed to stem rising private home prices, which soared 17.6 per cent to reach record levels despite a series of cooling measures.
He concedes that the Government could have tapped on the brakes 'a little bit more earlier', but that finding the sweet spot remains the challenge.
'But if you ask me what I would have done in September 2009 in order to make sure that prices don't rise, I think that that would have been a pretty tough call,' he added.
He said the four rounds of cooling measures have managed to bring the market down to a reasonable level.
'Unfortunately, sometimes people don't realise it. They get caught up in the excitement of the market. They hear friends making a lot of money and they also want to jump in and I think that's the problem with the property market,' he said.
There are others who believe the Government should stay out of the private sector and let market forces reign, but he rejects the free-for-all approach.
'That argument that we should do nothing because it is a private market is quite a flawed one because there's no such thing as a totally free market.'
He cited examples of the United States and Ireland painfully picking up the pieces after their housing bubble burst, causing their economies to tank.
The challenge is in deciding where to draw the line.
One recent measure - levying stamp duty of up to 16 per cent on homes sold within certain periods - has been attacked as being too harsh.
But he pointed out that 1,101 buyers did not find it too onerous, choosing to purchase new private homes last month.
This represented a 'reasonably healthy level of activity in the market' from buyers who were mostly owner-occupiers or looking at the purchase as a long-term investment.
In a booming market with prices heading north, frustrated buyers can get angry and foreigners have been the target of some of this resentment.
But he says Singaporeans are 'over-blaming' them. Foreigners cannot buy public flats - which comprises about 80 per cent of the market - and are restricted in buying landed homes. This limits them to only a narrow sector of the non-landed private market.
The proportion of foreigners buying such homes has not increased over the years, hovering at around 20 to 30 per cent, he added.
Singapore is a small economy and people have argued that because land is limited, the Government should restrict foreign purchases.
'I would argue the opposite. Because we are a small country and a small economy, it's even more important that we keep ourselves open... (and) welcome foreigners to come here to contribute. And if we accept that, then we must allow them to invest and own homes here.'
To build a fence around the entire property market would send a very strong signal that foreigners are not welcome - which will result in even more serious implications for the economy.
Another hot issue centres on calls for more regulations over the sale of homes of less than 500 sq ft - so-called shoebox flats - but this is one the Government has decided to sit out.
'If people want to buy shoebox units and are prepared to pay those prices, why should we stop them? Some have called us to intervene, to prevent people from building and selling such units but how can we do that?... There are many other things to worry about.'
These tiny homes, which can have psf prices of up to 20 per cent more than standard flats, make up only about 5 to 6 per cent of all transactions, he said.
But if sales soar and begin to distort the Urban Redevelopment Authority's private property price index - which is based on the psf prices - the Government may consider a sub-index for shoebox homes.
'That was a valid concern that was raised to us... You don't want to distort the whole index (with) too many of these shoebox units. But I wouldn't be too concerned at this stage,' he said.
The minister is content to let market forces have their way in other areas as well, noting that builders have plenty of incentives to make the same judgment calls as the Government and buyers.
'Developers themselves of course have their own mechanisms. They can delay construction or take longer to put their properties to market or shorten it if the market is hot,' he added.
There have been some big bets made recently. CapitaLand's bid of $550 million - or $869 psf per plot ratio (ppr) - for a Bishan residential site last month is one. Analysts predict an eventual selling price of more than $1,500 psf, which would be a record for the area.
But he noted that high bid prices do not necessarily translate to high selling prices or successful projects.
'You may start launching it at a time when the market is down and if you don't lower your price then you can't sell and if you lower your price then your margins will be affected.
'You cannot assume that it is straightforward... (Developers) take a risk, if they overbid and they can't sell, they will be punished,' he said.
esthert@sph.com.sg
Out now: Mah's book on housing: Money
Q & A
Have we reached the point where we can no longer expect prices to fall below their previous peak?
I think the property market depends on many factors but the most important is confidence, as reflected in the economy - its current state but also what it is going to look like in the next three to five years.
If the economy remains strong, people are confident that Singapore will continue to grow, supply is limited and demand is strong, then prices will go up, but that's a very big if, isn't it?
Our economy also depends on what is happening in the world economy. In 2008 when the world collapsed, we went down with it, and the stock and property markets nosedived. If you had asked anyone in the market in early 2009 to predict prices at the end of the year, none of them, I dare say, would have predicted what happened.
I would be very reluctant to say that prices will keep going up and never go back to what they were before. I hope so, but we should never assume or base our decisions and judgments on that basis.
But long-term, if we continue to grow the economy and Singapore continues to do well with the region and the world growing, then yes of course. But short-term fluctuations, it happens.
What are the specific indicators the Government looks at to determine if another round of cooling measures are needed?
We don't have specific indicators, we don't have an algorithm that says that if this happens then we press a button. It's not on autopilot, it's basically a judgment.
We look at numbers from the Urban Redevelopment Authority, the Monetary Authority of Singapore and listen to market feedback and anecdotes. We also look at what analysts and developers are saying, what reporters are writing, newspaper ads, and take all these into account to have a sense of what is happening.
And then we make a judgment call: Are things getting out of hand? Is there irrational exuberance or not? There is no set of numbers somewhere that says if this happens we act, if this doesn't happen we don't act.
What are the factors that influence the property cycle?
The economy is the main one. But it does have a life of its own sometimes. Like now the property market is rising at a much sharper gradient than the economy. It is very sentiment-driven and it can get carried away. And when people and the market get carried away and the Government says that it's not going to intervene and let the market carry on, that's when trouble starts.
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