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http://www.todayonline.com/business/property-market-near-breaking-point-barclays
By Wong Wei Han- .3 hours 40 min agoSINGAPORE - The property market may be nearing a breaking point as Government cooling measures and increased housing supply put pressure on prices while a potential spike in interest rates is set to further dampen demand, Barclays’ economist Joey Chew warned on Thursday.
And exacerbating the dangers from this triple whammy is the rising household exposure to property loans, which may make Singapore’s economy even more vulnerable, she wrote in the bank’s research report.
“The risk of a major property price correction in the next two years is rising … A potential trigger is a sharp and disorderly increase in interest rates as capital outflows due to QE (quantitative easing) tapering might tighten domestic liquidity and push up mortgage rates.”
Housing supply is also reaching a record high, with 120,000 private and public homes coming on stream in the next three years, Ms Chew noted. “Meanwhile, the Government and the Monetary Authority of Singapore have been incrementally introducing more home loan and purchase restrictions, and raising taxes since 2009. The market may now be approaching a breaking point.”
Ms Chew’s warning came just two weeks after the Housing Development Board imposed new curbs, which include shortening the maximum tenure for HDB housing loans, lowering the mortgage servicing ratio limit, as well as restrictions on new Permanent Residents buying resale flats.
Mr Nicholas Mak, Executive Director of Research and Consultancy at SLP International Property Consultants, does not see a large price correction in the near future.
“Interest rate hikes due to the QE tapering will come into play gradually. Likewise, while the housing supply will reach a high, units will only come onstream gradually over the next three years. Whatever pressure these factors will have on the housing market will hence be gradual and moderated, so it’s hard to say that we will see a major price correction in two years.”
PropNex Chief Executive Mohamed Ismail said any price correction wouldn’t be major.
“Because land bid prices have remained high and that means property prices will be stable for at least the next 12 months. Beyond that – and only if land prices fall – we might see a 5 to 10 per cent correction due to the factors mentioned.”
But even a 10 per cent fall in property prices could lead to a 2 per cent fall in private consumption over four quarters and a 6.5 per cent fall in construction investment over eight quarters, Ms Chew said. Household consumption accounts for 40 per cent of gross domestic product while construction-related investment contributes 14 per cent, she noted.
“A bubbly housing market is disruptive for our economy because household and banks’ exposures to the property market are higher today,” she added. “Spurred by the current low interest rates, household debt – most of which are mortgages – stood at 75 per cent of GDP as at second quarter this year, up from 63 per cent in 2010’s first quarter.”
This marks another source of vulnerability for Singapore, which is already open to the impact of uncertain economic conditions in the region.
“One of our economy’s main strengths, its extreme openness, is also its Achilles heel. Any shock from the ASEAN4 – Indonesia, Malaysia, Thailand and the Philippines – would quickly affect Singapore through its extensive trade, investment and financial links,” Ms Chew said.
Major ASEAN economies have been hit by financial market volatility and currency depreciation in recent months as fears of QE tapering pile pressure on their already fragile growth.
“Indonesia’s problems are particularly of concern as it’s not only one of our biggest export markets but also a major source of tourism income, which also affects many industries here,” UOB economist Francis Tan said.
“But luckily the situation is stabilizing. The depreciation of the Malaysian ringgit is arrested and the Indonesia’s central bank has just raised its benchmark reference rate, signalling the government’s determination to stabilize the economy,” he said.
By Wong Wei Han- .3 hours 40 min agoSINGAPORE - The property market may be nearing a breaking point as Government cooling measures and increased housing supply put pressure on prices while a potential spike in interest rates is set to further dampen demand, Barclays’ economist Joey Chew warned on Thursday.
And exacerbating the dangers from this triple whammy is the rising household exposure to property loans, which may make Singapore’s economy even more vulnerable, she wrote in the bank’s research report.
“The risk of a major property price correction in the next two years is rising … A potential trigger is a sharp and disorderly increase in interest rates as capital outflows due to QE (quantitative easing) tapering might tighten domestic liquidity and push up mortgage rates.”
Housing supply is also reaching a record high, with 120,000 private and public homes coming on stream in the next three years, Ms Chew noted. “Meanwhile, the Government and the Monetary Authority of Singapore have been incrementally introducing more home loan and purchase restrictions, and raising taxes since 2009. The market may now be approaching a breaking point.”
Ms Chew’s warning came just two weeks after the Housing Development Board imposed new curbs, which include shortening the maximum tenure for HDB housing loans, lowering the mortgage servicing ratio limit, as well as restrictions on new Permanent Residents buying resale flats.
Mr Nicholas Mak, Executive Director of Research and Consultancy at SLP International Property Consultants, does not see a large price correction in the near future.
“Interest rate hikes due to the QE tapering will come into play gradually. Likewise, while the housing supply will reach a high, units will only come onstream gradually over the next three years. Whatever pressure these factors will have on the housing market will hence be gradual and moderated, so it’s hard to say that we will see a major price correction in two years.”
PropNex Chief Executive Mohamed Ismail said any price correction wouldn’t be major.
“Because land bid prices have remained high and that means property prices will be stable for at least the next 12 months. Beyond that – and only if land prices fall – we might see a 5 to 10 per cent correction due to the factors mentioned.”
But even a 10 per cent fall in property prices could lead to a 2 per cent fall in private consumption over four quarters and a 6.5 per cent fall in construction investment over eight quarters, Ms Chew said. Household consumption accounts for 40 per cent of gross domestic product while construction-related investment contributes 14 per cent, she noted.
“A bubbly housing market is disruptive for our economy because household and banks’ exposures to the property market are higher today,” she added. “Spurred by the current low interest rates, household debt – most of which are mortgages – stood at 75 per cent of GDP as at second quarter this year, up from 63 per cent in 2010’s first quarter.”
This marks another source of vulnerability for Singapore, which is already open to the impact of uncertain economic conditions in the region.
“One of our economy’s main strengths, its extreme openness, is also its Achilles heel. Any shock from the ASEAN4 – Indonesia, Malaysia, Thailand and the Philippines – would quickly affect Singapore through its extensive trade, investment and financial links,” Ms Chew said.
Major ASEAN economies have been hit by financial market volatility and currency depreciation in recent months as fears of QE tapering pile pressure on their already fragile growth.
“Indonesia’s problems are particularly of concern as it’s not only one of our biggest export markets but also a major source of tourism income, which also affects many industries here,” UOB economist Francis Tan said.
“But luckily the situation is stabilizing. The depreciation of the Malaysian ringgit is arrested and the Indonesia’s central bank has just raised its benchmark reference rate, signalling the government’s determination to stabilize the economy,” he said.
