14 SEPTEMBER 2009

Question No. 164
Question by: Mdm Ho Geok Choo

Mdm Ho Geok Choo asked the Minister for National Development: In view of the current buying frenzy in the market-driven property sector, whether a property bubble is forming in Singapore and, if so, how can the Ministry help to prevent the property bubble from bursting.

Answer

1      As I have said publicly, the Government has been monitoring the property market very closely.

2      It is in everyone’s interest to have a steady property market where prices move stably in line with economic fundamentals. If excessive speculation develops and a property bubble forms, eventually a severe correction must take place.  This will have serious consequences for the economy, for the property market and for property owners.

3      We are currently seeing signs of heightened speculative activity, although the level of speculation is not yet extreme.  The proportion of buyers sub-selling their units has increased.  Demand has rebounded very strongly since early 2009.  Developers sold 10,000 units in the first seven months of 2009, more than the 4,300 units sold for the whole of 2008.  At this take-up rate, the total sales for 2009 may well exceed the historical high of 14,800 units in 2007.  Prices for some projects are also increasing in tandem with the strong demand. Based on the caveats lodged for property transactions, overall private housing prices have started to increase significantly since June.

4      The current low interest rate environment has also drawn more buyers into the market. Global interest rates are at a historical low. Governments and central banks around the world have taken extraordinary measures, in response to the most serious financial crisis since the Great Depression.  Large fiscal stimulus packages were implemented, and central banks in major economies lowered policy rates to near zero and directly injected liquidity into the financial system and the economy.  In the light of continuing weakness in the US economy, this monetary accommodation could persist for some time.

5      In this low global interest rate environment, Singapore’s domestic interest rates have also come down.   Key reference domestic interbank rates used for pricing housing loans, the Singapore Interbank Offered Rate (SIBOR) and Swap Offer Rate (SOR), are near their historical lows at 0.68% and 0.43% respectively, compared to their 10-year averages of 1.83% and 1.91%.   These low interest rates have reduced the cost of property financing and encouraged a steady rise in the volume of bank lending for housing loans.  If unchecked, this trend can lead to a rising spiral of demand and prices as more and more property buyers and speculators are drawn into the market.  Property prices can potentially build up a strong rising momentum under these conditions.

6      Such a development would make the property market vulnerable to the continuing risks in the global economy.  Should growth turn out weaker than expected, property buyers and speculators could face capital losses as the market corrects.  Conversely, if the recovery stays on course, interest rates will eventually rise and drive up financing costs with severe implications for those who have overextended themselves.

7      Given the current market conditions, the Government has decided to adopt several measures to temper the exuberance in the market and pre-empt any speculative bubble from forming.

Reinstating the Confirmed List in 1st Half 2010 GLS Programme
8      Firstly, the Government will reinstate the Confirmed List of the Government Land Sales (GLS) programme in 1st Half 2010. The number of sites on the Confirmed List will be determined later when the GLS programme for 1st Half 2010 is firmed up.

9      In addition, we will replenish the supply of Reserve List sites in the GLS programme.  Four sites on the 2nd Half 2009 Reserve List have been triggered to date this year.  While there are still 16 residential sites in the current Reserve List that can be triggered by developers, we will enhance the supply when drawing up the 1st Half 2010 Reserve List to meet possible increase in demand.

10      With reinstatement of the Confirmed List and more sites on the Reserve List, the public can be assured that there will continue to be a steady supply of private housing. MND will announce details of the 1st Half 2010 GLS Programme towards the end of this year.

Disallowing the Interest Absorption Scheme (IAS) & Interest-Only Loans (IOL) for Purchase of Private Residential Properties
11      Secondly, the Monetary Authority of Singapore will disallow the Interest Absorption Scheme (IAS) and Interest-Only Loans (IOL) which are currently offered to buyers of uncompleted private residential properties.  These schemes could encourage property speculation in a buoyant market where prices are rising rapidly.  The IAS and IOL are forms of housing loans that entirely eliminate or substantially lower regular instalment payments for property purchasers in the first few years before the properties are completed.  Under the schemes, a property purchaser will not have to make any significant payment, apart from the upfront 10-20% down-payment, until the housing project is completed.

12      Genuine home-buyers can continue to purchase private housing under the standard payment scheme. Purchasing a property and taking up a housing loan are long-term financial commitments.  The removal of the Interest Absorption Scheme and Interest-Only Loans will encourage prospective home-buyers to consider carefully their ability to afford the properties over the long term and not rush into any purchases.

13      The removal of the Interest Absorption Scheme and Interest-Only Loans will take immediate effect for all private residential projects.  We will continue to allow the IAS for projects which had already been offered for sale and which had been offering the IAS before this announcement.  Interest-Only Loans will be disallowed with immediate effect.

Property-Related Budget 2009 Assistance Measures
14      The Government announced a number of assistance measures in Budget 2009 earlier this year to help stabilize the property market in view of the sharp fall in demand at the time and looming oversupply.  These include allowing developers more time to complete their housing projects and allowing the re-assignment of Government sale sites.  These assistance measures are no longer needed in view of the recent strong demand for private housing and improved conditions in property market. As such, the measures will not be extended when they expire, which will mainly be in January 2010.

15      The details of these policy adjustments will be provided in a press release issued jointly by MND, MOF, MinLaw and MAS today. The Government has decided to take these measures in view of the current market conditions.  Taken as a package, they will help to pre-empt any excessive price swings and promote a healthy property market.

16      The Government will continue to monitor the property market closely and will introduce additional measures if required, to promote a stable and sustainable property market.

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