Too early to relax property curbs, says MAS

Risks remain, it says; modest pick-up in overall economic growth expected

Property cooling measures of recent years are helping to rein in housing prices and household debt, but it is too soon to ease restrictions, a top official says.

Monetary Authority of Singapore (MAS) managing director Ravi Menon, speaking at the release of the MAS annual report yesterday, noted that housing prices have moderated but that risk factors are largely unchanged.

"Property prices remain at elevated levels... Prices have gone up 60 per cent in the past four years, and they've declined just 3.3 per cent in the past three quarters," he noted. "Global interest rates are still extremely low, and if you relax property measures in the current, very easy liquidity environment, it might set off another spiral of price increases."

Also, high-debt households are still cleaning up their finances and need time to pay off their loans.

Still, he said, property cooling measures have helped strengthen overall household balance sheets.

First, household debt growth has moderated. In the third quarter of 2011, for example, households took on 13 per cent more debt than they did in the same quarter of 2010. But in the first three months of this year, debt grew just 5.5 per cent.

Second, new housing loan borrowers are better placed to repay loans. Almost all new housing loans granted since the introduction of the total debt servicing ratio - designed to stop borrowers from overextending themselves - were within the 60 per cent limit.

The moderation in property prices, along with a fall in car prices, has seen MAS narrow its forecast range for headline inflation to 1.5 per cent to 2 per cent, from 1.5 per cent to 2.5 per cent before.

This comes amid a somewhat brighter economic outlook, with growth set for a modest pickup in the second half, Mr Menon said.

The economy is on track to grow 2 per cent to 4 per cent this year, with both major engines of world growth, the United States and China, holding up, he said.

Sectors relying on regional demand, including some financial services, business services and chemicals, should do well, he added. And those looking to the home market should stay resilient.

But the likes of electronic production will keep seeing slower growth as economic restructuring forces firms to face a new reality of higher labour costs, he said.

"What is happening now is the 'servicisation' of manufacturing, where production is shifted offshore but control centres continue to be located here."

Looking at the Middle East, Ukraine and Thailand, CIMB economist Song Seng Wun noted that external risks remain.

Even so, Singapore has fared well as a financial centre. Financial and insurance services grew 10.8 per cent last year.

MAS, which manages Singapore's foreign reserves, reversed a $10.6 billion loss to post an overall profit of $15.8 billion for the financial year. Stripping away the effect of currency translation, it made foreign investment gains of $10.6 billion, up slightly from $9.4 billion previously.

yasminey@sph.com.sg