Any relaxation of Singapore’s property curbs, such as stamp duties and borrowing limits, is likely only in the second half of next year, Bank of America Merrill Lynch said in a report yesterday.
By then, some pain may have been felt.
Home prices would probably have declined by more than 10 per cent by the middle of next year while households would have cut their debt levels sufficiently, said Bank of America Merrill Lynch economist Chua Hak Bin.
That is also when interest rates in the United States and mortgage rates here might begin rising.
“An earlier relaxation would probably require property prices to fall more sharply or the economy to slip into a recession,” Mr Chua added.
Property prices are set to fall 20 per cent by 2016 because of oversupply of new units, Bank of America Merrill Lynch had said in a separate report last Friday.
Other market observers were more circumspect about when the property curbs might be relaxed.
OCBC economist Selena Ling said: “What we are seeing today is a very modest slide (in prices). If mortgage rates adjust, then it’s possible that prices would slide further and faster but there is not much clarity on when the US will raise its interest rates.”
Mr Colin Tan, director of research and consultancy at Suntec Real Estate Consultants, agreed.
“It is possible that property prices could fall 10 per cent by the middle of next year, but any prediction of a significant drop in property prices is premature until the interest rate situation in the US is very clear,” he said.
Dr Chua said there are already some indications that the property market is stabilising and that the Government’s cooling measures of recent years are working.
A stress test of banks by regulators shows that the banking system remains resilient against various stress scenarios.
Household balance sheets are also in better shape with the growth in household debt moderating.
However, he noted, the Monetary Authority of Singapore argued in July that it was too early to unwind cyclical property cooling measures as risk factors have not changed.
Cyclical measures, such as loan-to-value borrowing limits and stamp duties, are designed to prevent households from over-extending themselves when buying property during periods of rapid price increases or elevated prices.
Property prices remain elevated. After having risen 30 per cent over the last five years, they are down by just 3 per cent over the last three quarters. Global interest rates are still at historic lows.
“Relaxing property measures in the current easy liquidity environment may set off another spiral of price increases,” Dr Chua noted.
He also outlined how other government policies could dampen the property market.
The restructuring process and stricter foreign worker and immigration policies are lowering the economy’s potential growth, while curbs on the inflow of working-age foreigners will exacerbate Singapore’s ageing demographics.
While he does not expect the Government to reverse course on these policies, a pause “may be in order”, as companies, particularly small and medium-sized enterprises, are having trouble adjusting to the speed of the tightening.
This article was first published on September 10, 2014.