Calling for prudence, MAS warns of ‘excessive exuberance’ in property market

SINGAPORE — The Monetary Authority of Singapore (MAS) on Thursday (Nov 30) warned that recent developments – including the rise in prices and volume of transactions, the en bloc fever and high interest from developers in government land sales – could pose risks to the property market, and developers, potential buyers and banks "should proceed cautiously".

Pointing out that the supply of private housing will increase significantly over the next few years, the MAS said in its financial stability review that units available for sale will more than double in the same period.

Market players should take a "medium-term view" of supply-demand dynamics and act with caution, the central bank said.

The private residential property market in Singapore has picked up in recent quarters, with increases in both prices and transactions. The demand in the market has been "firm", underpinned by an improvement in buyer sentiment and low interest rates, the MAS said. It also noted that developers have "participated actively" in en bloc sales and the Government Land Sales programme to replenish their land banks.

"Over the medium term, as these development projects are progressively completed, the private housing stock will grow. If this is not matched by increased occupation demand, it will add to existing vacancies that are already relatively elevated and weigh on rentals and property prices," the MAS warned. It stressed that the large supply in the pipeline could lead to "a supply imbalance over the medium term if not matched by occupation demand".

"Prospective buyers should therefore remain prudent in their buying decisions. They should also factor in potential increases in their debt servicing burdens if interest rates rise and rentals fall given current elevated vacancy rates," the MAS said. Banks should also continue to maintain prudent underwriting standards and review their valuation practices to ensure that property appraisals remain realistic and substantiated, the MAS said. It added that it will continue to monitor market developments and where necessary, take "appropriate actions" to maintain a stable and sustainable property market.

Property experts whom TODAY spoke with agreed with MAS' warning, with some adding they were surprised by the "insatiable appetite" of developers for land.

Mr Donald Han, managing director for Hospitality Strategies Asia Pacific, said the MAS report was a "timely reminder", following National Development Minister Lawrence Wong's recent comments that the Government has "levers" to ensure stability of the property market".

Earlier this month, Mr Wong noted the improvement in overall sentiments in the property market, and reiterated that the housing supply will be "more than sufficient" to cater to Singaporeans' needs. He also pointed out that the number of private residential units available for sale will "more than double" over the next one to two years.

Ms Christine Li, director of research at Cushman & Wakefield, said it is in the interest of the Government to call for prudence when the market is on the up. "The authority is particularly worried about the end-user demand in view of that spike in the number of new homes arising from the en bloc sales, which could easily double the existing number of homes in these older developments," she said.

She noted that some developers are willing to pay a premium of 10 to 20 per cent above the last transactions, in order to secure land parcels in choice locations. This might not be aligned with the market fundamentals, she said.

Mr Eugene Lim, key executive officer of ERA Realty Network, said the supply in the pipeline appeared to be daunting. Nevertheless, developers will space out their projects to avoid competition, he said. "Although land prices are high, developers will also be mindful not to price their projects above what buyers can afford," he added.

HOUSEHOLDS, FIRMS, BANKS 'SHOULD REMAIN VIGILANT'

Apart from the property market, the MAS said in the 104-page report that corporate profitability has remained broadly stable, supported by an uptick in the global economy.

Meanwhile, Singapore's banking system remains resilient with strong capital and liquidity buffers to withstand shocks. Nevertheless, the banks should continue to proactively manage their risks by monitoring portfolio vulnerabilities and setting aside adequate provisions, said the MAS, adding that the lenders continue to face heightened credit risk from the marine and offshore engineering subsector.

The report also noted that household debt growth remains in line with income growth over the past year. "While the overall employment outlook is expected to improve in 2018, wages are not expected to increase rapidly given that the existing slack in the labour market will take time to be absorbed," it said. Against this backdrop and the prospect of higher interest rates, households should stay financially prudent and assess their ability to service debt in the longer term, MAS added.

MAS deputy managing director Ong Chong Tee said: "Near-term financial stability risks may have receded with the stronger global economy. However, financial institutions, households and corporates should remain vigilant to the risks highlighted in the report, including the impact of rising interest rates, geopolitical developments, and excessive exuberance in the property market."