Published November 27, 2010
News analysis
The hazy mix of cooling measures, excess liquidity and real demand
With govt intending to tighten immigration, release of new sites may not be readily absorbed; developers welcome the new supply and predict prices will hold
By UMA SHANKARI
THE government's move to roll out a bumper supply of new residential sites for development in the first half of 2011 was largely expected by the industry.
But on top of that, there is also an increasing sense that more demand-side measures to cool the property market are on the way.
Home buyers, developers and the stock market have all largely shrugged off the last round of anti-speculation measures introduced on Aug 30.
On Thursday, Singapore's central bank said low borrowing costs and excess liquidity globally may push the island's property prices higher again, setting back government efforts to cool the market.
There are also risks of buyers taking on 'excessive leverage' amid expectations of a sustained period of low rates, and financial institutions easing lending standards and extending more loans to make up for narrowing interest margins, the Monetary Authority of Singapore (MAS) said in its Financial Stability Review report.
The MAS report comes hot on the heels of recent statements by Prime Minister Lee Hsien Loong and Finance Minister Tharman Shanmugaratnam, leading to speculation that the potential for further government intervention has increased significantly.
'While sentiment was dampened in the weeks that immediately followed the Aug 30 measures, there are signs to suggest the property market is becoming active again,' said Nomura analyst Min Chow Sai. 'These have not escaped the government, judging by the recent comments from officials, including the Prime Minister.'
The government is likely concerned the market appears to have shrugged off the February and August measures relatively quickly. Home sales in September declined after the latest round of anti-speculation measures, but picked up again in October. The private property price index also moderated only slightly in the third quarter, with the quarter-on-quarter change in the index falling from 5.3 per cent in Q2 2010 to 2.9 per cent in Q3.
This is partly due to excess liquidity, as pointed out by MAS. But prices and transaction volumes are also being propelled by genuine demand - just as developers here have been saying.
Much of the current tight supply situation is caused by the large growth in population numbers from 2005 to 2009, said Citigroup economist Kit Wei Zheng. Over those five years, Singapore's population rose by more than 800,000.
But with the government's present intention of tightening immigration, the population is not likely to keep growing at the same pace. So the new supply announced on Thursday - which is likely to come on stream over the next four to five years - may not be as readily absorbed.
'The key sense of uncertainty in the medium term is to what extent the immigration policy will be tightened,' Mr Kit said.
Add possible new demand-side measures into the mix and the whole picture gets even more hazy. One policy change seen as likely is a further reduction in the loan-to-value (LTV) ratio cap.
The supply card has already been played. The Ministry of National Development (MND) plans to offer 17 residential sites, with the potential 8,100 private and executive condominium units, under the Confirmed List of the Government Land Sales (GLS) Programme for first-half 2011. This is close to the record 8,135 units offered under Confirmed List sites in the current H2 2010.
Including Reserve List sites, the H1 2011 GLS Programme will have a total of 30 sites that can generate a record 14,300 residential units - even higher than the record 13,900 residential units offered for H2 2010.
'When put into context of demand take-up, H1 2011 total potential land sales of 14,310 units (12,020 private units and 2,290 executive condominiums) are tracking close to our full-year 2010 estimated take-up of 14,500 private units and are likely to compound the basic picture of over-capacity build-out from H2 2012,' Goldman Sachs analysts Paul Lian and June Zhu said in a Nov 25 note.
But perhaps the more telling number is this: According to MND, the total potential supply of private housing units that can be completed in the next few years will be about 80,200 units.
Real estate stocks fell slightly yesterday in response to news of the new supply and speculation about more impending measures. CapitaLand lost 0.8 per cent, City Developments shed one per cent and Keppel Land ended the day 1.3 per cent lower.
But developers BT spoke to - including CapitaLand, City Developments' parent company Hong Leong Group and Keppel Land - said they welcome the release of more sites, and predicted that prices will hold.
'The government is wise in ensuring adequate supply of residential and commercial property,' said Hong Leong spokesman Gerry de Silva. 'More land supply means that tender prices are likely to be moderated as there will be less aggressive price bidding among developers, who now have a wider variety of choices to tender for and can selectively replenish their land banks. This will be good in ensuring a sustainable property market and will ensure there are no runaway property prices. We expect prices to hold.'
Source: http://www.businesstimes.com.sg/
