MAS chief advises caution, sounds warning on ‘euphoric’ property market

SINGAPORE – The Monetary Authority of Singapore (MAS) managing director Ravi Menon has advised developers, home buyers and banks to exercise caution amid “euphoria” in the current property market.

Mr Menon said that while the recovery seen over the past few quarters is welcomed, the rise in property prices should be in line with economic fundamentals and not get ahead of income growth.

“There is euphoria now. Everything looks good… Basically, we’re sounding cautions to everyone to be sober, to be balanced and exercise good judgement,” Mr Menon said.

Speaking at the central bank’s annual report media briefing on Wednesday (July 4), Mr Menon said developers should bear in mind the increase in supply of new residential units coming on stream when they make their land bids.

 “We’re also telling individuals who purchase property to be careful, to be cautious, interest rates are rising, to be cautious of debt servicing burdens, so as to avoid taking on too much leverage when they buy houses,” he added. 

He also advised banks to be careful when assessing whether to approve mortgage loans to their clients and to make sure that they subject their underwriting to stress tests against future scenarios.

A rapid increase in prices also raises the risk of a destabilising market correction later when additional supply comes on-stream, he noted.

Mr Menon's warnings come on the back of a gradual rise in property prices since its trough in the second quarter of 2017. Prices have risen 9.1 per cent since then, which has mostly offset the 11.6 per cent accumulative decline over four years between mid-2013 and mid-2017. 

MAS statistics showed that the number of property transactions over the last 12 months was 25 per cent higher than during the previous 12 months, and new housing loans over the last 12 months have also risen by 34 per cent year-on-year. 

Mr Menon said the MAS, along with the Ministry of National Development and Ministry of Finance, is closely watching the property market.  

“We have to ask ourselves whether demand will be able to match the big supply that is coming onstream in the next few years. … We do not (want to) see big swings upwards and then crashes downwards and then upwards. That’s what we are trying to avoid,” he added.  

On Monday, flash estimates from the Urban Redevelopment Authority showed that in the second quarter of this year, private home prices jumped to the highest in four years. Although private home prices are approaching peak levels on a per square foot basis, analysts had said that it was premature for Government intervention at this point in time. 

On Wednesday, Knight Frank executive director Dr Tan Tee Khoon reiterated that he did not “foresee the necessity” of additional moves to cool the market, given that several measures including the total debt servicing ratio framework introduced in 2013 is still in place. 
Nevertheless, ERA key executive officer Eugene Lim noted that prices have been increasing at a pace that is out of sync with economic growth. “If it continues to see rapid growth into next year, there is a danger that the government may step in,” he added. 

Going forward, analysts expect prices to increase further, fuelled by the surge in en bloc sales as well as record-high prices submitted in government land bids over the last two years.