Be wary of euphoria in property market, advises MAS chief

The property market has seen a resurgence in prices and transactions over the past year, Monetary Authority of Singapore managing director Ravi Menon noted yesterday. He said a property market recovery needs to be in line with economic fundamentals,
The property market has seen a resurgence in prices and transactions over the past year, Monetary Authority of Singapore managing director Ravi Menon noted yesterday. He said a property market recovery needs to be in line with economic fundamentals, and not ahead of income growth, adding that a rapid increase in prices also raises the risk of a destabilising market correction later when additional supply comes onstream.ST PHOTO: LIM YAOHUI
MANAGING DIRECTOR RAVI MENON
MANAGING DIRECTOR RAVI MENON

He says developers, buyers and banks should be cautious, given supply coming to market

Developers, banks and home buyers should be wary of the euphoria in the property market, warned Monetary Authority of Singapore managing director Ravi Menon yesterday.

He told a briefing that developers should be cautious when making land bids, given the supply of homes coming onstream.

"We're also telling individuals who purchase property to be careful. Interest rates are rising, be cautious of debt servicing burdens, avoid taking on too much leverage when buying a house," he added.

"We're also telling the banks to be careful when underwriting; there's euphoria now, everything looks good."

Mr Menon also suggested that banks should conduct stress tests when underwriting to take into account future scenarios.

"We need to be mindful of the supply and demand dynamics, and we have to ask ourselves whether demand will be able to match the big supply that's coming onstream in the next few years," he noted.

There has been aggressive bidding by developers both in collective sale tenders and government land site bids. This is expected to more than double the number of units available in the near term. If left unsold, these could result in a supply imbalance and weigh on the market, he said.

The property market has also seen a resurgence in prices and transactions over the past year, said Mr Menon, who was speaking at a briefing for the central bank's annual report.

THINK AHEAD

We need to be mindful of the supply and demand dynamics and we have to ask ourselves whether demand will be able to match the big supply that's coming onstream in the next few years.

MONETARY AUTHORITY OF SINGAPORE MANAGING DIRECTOR RAVI MENON

Prices of private homes have increased by 9.1 per cent since the trough in the second quarter last year. This has mostly offset the cumulative price fall of 11.6 per cent between mid-2013 and mid-2017.

Transactions over the past 12 months were around 25 per cent higher than during the previous year, while new housing loans over the same period rose by 34 per cent.

"As I said, we welcome the recovery - why would anyone want the property market to continue sliding," said Mr Menon. But "it needs to recover in line with economic fundamentals, not ahead of income growth".

A rapid increase in prices also raises the risk of a destabilising market correction later when additional supply comes onstream, he added.

A version of this article appeared in the print edition of The Straits Times on July 05, 2018, with the headline 'Be wary of euphoria in property market, advises MAS chief'. Print Edition | Subscribe