Photographer: Nicky Loh/Bloomberg

In Singapore, a Price Drop Will Help Reverse Property Curbs More Than an Election

  • Analysts say price drop of up to 15% needed for curbs to ease
  • Mortgage rates set to rise as SIBOR rises to highest since '08

For those holding out for a roll back of property curbs after an election victory by Singapore’s ruling party, the wait may be longer than anticipated.

The People’s Action Party’s emphatic win at Friday’s polls won’t be enough to reverse measures put in place as far back as 2009. The pace of decline in the city’s home prices needs to double the 6.7 percent drop from the peak two years ago before any of the restrictions will be eased, according to Chestertons Singapore and RHB Research Institute Singapore Pte.

“The winning of a larger-than-expected margin will not be the main catalyst,” said Donald Han, Singapore-based managing director at real estate broker Chestertons. “When property prices drop by 15 percent from the peak, that will probably instigate the government to roll back certain measures, not a complete removal of any of them.”

Prime Minister Lee Hsien Loong’s party extended its more than five decades of rule after gaining almost 10 percentage points from the 2011 polls with a 69.9 percent victory margin. Earlier speculation the government may ease some of its curbs after being voted back to power is now dissipating.

No Easing

“Despite expectations building up for more pro-growth policies, we do not think any easing, particularly in property, will be done this year,” Ong Kian Lin, a property analyst at RHB, said in a note to clients. “There may also be push-back from the populace if asset prices spike right after elections.”

Lee’s government introduced a slew of measures aimed at cooling a property market that hit a record high in the third quarter of 2013 after rising living costs contributed to his party’s worst election four years ago. The restrictions included a cap on debt repayment costs at 60 percent of a borrower’s monthly income and higher stamp duties on home purchases.

Residential prices need to fall as much as 15 percent before any measures are reversed, Ong said. A data-dependent and gradual approach toward loosening the curbs would make more sense for the new cabinet, the analyst said, starting with the additional stamp duties as prices fall.

Hungry Ghost Month

Singapore’s home prices dropped for a seventh consecutive quarter at the end of June, the longest losing streak in 13 years. Sales fell in August as developers marketed fewer projects in the inauspicious "Hungry Ghost" month of the lunar calendar. Developers sold 495 units last month -- less than a third of the 1,611 homes in July, according to data released Tuesday by the Urban Redevelopment Authority.

“Post-election sentiment is not a major factor in shifting demand patterns," Desmond Sim, head of research for Singapore and Southeast Asia at CBRE Group Inc. "The prospect of a rise in interest rates will in fact play a bigger role. It will be some time before any decision is made on the lifting of cooling measures.”

For Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd., the slump in China’s stock market and prospects of higher interest rates may give the government the impetus to tweak some property measures after the elections. The three-month Singapore interbank offered rate, which is used as a benchmark for mortgage rates, has more than doubled in a year to the highest since 2008.

China’s Wobbles

“The incentive to react has just gone up given the magnitude of China’s wobbles,” Varathan said. “Measures came in when there was a very bullish China property market. So post election, we may see some of the measures rolling off.”

Others such as Citigroup Inc. and Goldman Sachs Group Inc. say any easing of housing measures will depend more on further price declines rather than the election win. Goldman Sachs expects the policy on reining in prices to continue with some adjustments made after "moderations" in housing values.

A property price decline of as much as 10 percent and an increase in mortgage rates above the historical average of 3.5 percent would be needed to trigger any easing of the property measures, Citigroup economist Kit Wei Zheng said in a research note.

“While the government had sought to de-link any correlation with elections, policymakers will be less politically constrained in relaxing property cooling measures once housing affordability is deemed to have been restored, and mortgage rates move closer to historical mean, which suggests that any immediate post-election relaxation remains unlikely,” Kit said.

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