Central bank in Singapore warns the property prices are too high and set to rise again
Property prices in Singapore, generally accepted as already being too high, are set to rise again, according to the country’s central bank.
It says that 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 is a risk that financial institutions may ease lending standards and extend more loans to make up for narrowing interest margins, the Monetary Authority of Singapore said in its latest Financial Stability Review. Buyers may also take on ‘excessive leverage’ amid expectations of a sustained period of low rates, the central bank added.
In August the government increased down payments for second mortgages and imposed a stamp duty on property held for less than three years to curb speculation but so far it does not seem to be having much of an effect.
‘There is a possibility that transaction activity and prices could pick up again given the current global conditions of flush liquidity and low interest rates. The government will continue to be vigilant in monitoring developments in the property market, and if necessary, adopt additional measures to promote a sustainable property market,’ the central bank said.
The government has made more land available for development in a bid to further cool the market. Some 17 sites on its list of property are to sell for residential developments in the first half next year. About 8,100 apartments can be built on the sites, comparable to the supply in the second half this year, the most since it started its current land auction system in 2001. Another 13 sites are being considered for release that could yield a further 6,200 homes.
Despite these measures private residential property prices increased 2.9% in the third quarter of 2010 from the previous three months, when they climbed 5.3%, figures from the Urban Redevelopment Authority show. Singapore’s government forecasts economic growth of 15% this year and expansion of 4 to 6% in 2011.
‘As the property market is sentiment sensitive, a pick-up in activity could lead to rapidly escalating prices. If economic recovery disappoints on the downside amidst continued uncertainties in the global economy and market confidence is dented, prices could fall,’ the central bank added.
‘On the other hand, if the economic recovery continues apace, there could be widespread implications on buyers who overextended themselves when interest rates eventually rise.’