Saturday, July 28, 2007

Updated: S'pore's bubbly property market

The Singapore private property market is experiencing its biggest boom, after the 1996 crash that pulled the market down for a decade. Prices of private apartments and condominiums have since recovered strongly in the last two years. Public housing is not spared either.

Prices of many private homes in high-end areas such as Districts 9, 10 and 11 have surpassed the previous records with headline prices generally ranging from S$2,500 per square foot to as much as S$4,000 per square foot. The previous record of about S$2,400 per square foot for a posh apartment in the Orchard Road area looks like a steal.

Prices of apartments in less prime areas have also shot up but many are still priced below their peak in 1996. Check out the graph, based on statistics from the Urban Redevelopment Authority, showing recovering prices that are still below the 1996 high.

Such runaway prices have prompted endless speculation that the government is set to step in to cool the sizzling property market.

The speculation was partly triggered by Minister Mentor Lee Kuan Yew's earlier comments that Singapore must check property prices to help maintain the country's overall competitiveness.

"We must check this spike in rents for office and residential space or we will lose our competitiveness," he was quoted as saying on July 9 by The Sunday Times.

The recent hike in the development charge (a charge levied by the government when a developer proposes to enhance the usage of the land) and the government move to step up land sales to help increase supply have lent credence to the view that the government is determined to rein in the property market. Such measures are not likely to cause the market to collapse as property deals will still be market driven.

A bigger concern is whether the government will introduce drastic fiscal measures such as a capital gains tax, which was slapped on property transactions in 1996. The tax and other financing restrictions sent the property market into a tailspin and caused many to suffer negative equity in their property purchases. Instead of cooling it, the government measures sent the property market into a prolonged slumber.

But there is also the view that the government will not unveil drastic measures this time around. The government won't want to be accused of causing the property market to collapse again. After all, it has done so much to help nurture the recovery of the Singapore economy through many new projects and measures to attract foreign capital in the last few years.

While the government is stepping up the supply side to help moderate prices, there is a possibility that it may still press the eject button should things get out of control.

Kuan Yew has again provided the hint that the government may have something up its sleeves. While in Indonesia, he was asked whether the government was planning any regulatory moves to curb prices in the Singapore property market.

His response, reported in BT today: "This is market-sensitive information...surely we are not going to discuss with the newspapers. But I think we also know that there are certain market forces at work, and we just let it run its course."

Instead of an outright denial, his comment about market-sensitive information suggests that there could be some measures in the pipeline. But he also qualified it by saying that the government should let the market run its course, suggesting no government interference.

So the overall message seems to be: The Singapore government will continue to allow the private property market function through market forces. But it may step in should prices hit the roof again.

Disclosure: Sophie lives in a private condominium in a not-so-prime part of the city that has also seen a sharp spike in property prices. Agents have been knocking on our door, offering some 40 per cent more than the purchase price earlier this year.

Latest: Housing rentals in Singapore are still lower than those in other major cities, according to The Sunday Times on July 29. According to a report cited by the newspaper, Singapore is ranked 15th in terms of rentals in the world -- below major cities like Hong Kong, Tokyo and New York. But a recent ST report also noted the trend of expatriates relocating to cheaper areas in Singapore due to fast rising rentals. I guess prices or rentals are all relative.