[Singapore] Why Khaw is worried...

by Ong Dai Lin
04:47 AM Jun 10, 2011

Sharp property price increases cannot go on forever, he says

HDB flats in Yishun. TODAY FILE PHOTO

SINGAPORE - Since he began his housing blog, he has announced policy changes and reviews, updated public housing supply numbers and asked for ideas. In his eighth post, National Development Minister Khaw Boon Wan hit the alert button.

Yesterday, as the Urban Redevelopment Authority (URA) announced a strong supply under the Government Land Sales Programme for the second half of this year, Mr Khaw shared his worries that "things can go very wrong suddenly", possibly over the next two years.

This, even as the authorities now tackle the issue of housing affordability. But Mr Khaw not only noted that "sharp property price increases cannot go on forever", he cautioned that mishaps could befall those seeking to invest or upgrade in the months ahead.

And the factors that could cause this were laid bare in his blog.

Mr Khaw first cited how 35,000 private homes have been sold these few years, and are now under construction, while another 45,000 units are waiting to be built and sold. Coupled with the supply announced yesterday by the URA, 53,000 homes "will be looking for buyers over the next couple of years or so". "This isn't a trivial number," he said.

The external situation is "not exactly bullish" either. He said Europe's sovereign debt woes will take a long time to clear, and the Middle East crisis "can still go ugly", which may lead to a spike in oil prices and affect economic recovery in Asia and Singapore.

Disclosing that foreigners comprised 16 per cent of private property buyers between January and March, Mr Khaw had this message for Singaporeans who buy properties in the hope of renting to those coming here: "In the event of any external shock, both foreign demand and rental demand can fall quite quickly. The impact can be serious if (it) happens at a time when there's a substantial increase in supply."

His final caution was that interest rates will not remain low forever.

"It is my duty to sound an alert," said Mr Khaw.

"We've always recognised that unsustainable, rapid price increase brings with it enormous risks and that got us to act earlier on. While sharp rises are painful, sharp declines are just as disastrous. Those who borrow to go into properties thinking that prices will continue to rise, will be thrown into financial hardship should prices drop and banks start calling."

Analysts told MediaCorp the message of prudence to potential buyers was not new and would have minimal impact on the market. Of greater importance, they said, are the prices that developers will pay for land during the land sales.

ERA Asia Pacific associate director Eugene Lim said different parcels of land will get varied responses from developers, and some will attract high interest. "Because of the high land price and high construction costs, there's no choice that units will be sold at high prices," he said.

Chesterton Suntec International research and consultancy director Colin Tan said the liquidity in the market gives people "no choice but to put their money in property".

"We must somehow reflect the true cost of buying property. Low interest rates won't be forever. We must get interest rates to reflect the true cost over the loan period," he said.

Meanwhile, Dennis Wee Group director Chris Koh noted: "What Mr Khaw is doing is to ask everybody to exercise financial prudence ... He's trying to assure the public that he's not only looking at public housing but also private housing."


Via: http://www.todayonline.com/Singapore/EDC110610-0000038/Why-Khaw-is-worried-,,,