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PR Newswire
19-01-2013, 09:20 AM
The Straits Times
www.straitstimes.com
Published on Jan 19, 2013
EDITORIAL
Averting a property bubble
THE latest measures to cool the property market, unveiled by Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam, underline the seriousness of the Government's intention to prevent a property bubble from forming. The economic rationale for the move is clear: Asset inflation can have a devastating impact if it runs ahead of economic fundamentals. Not only will this distort the real economy but it also poses a grave threat down the road - an inevitable correction will be destabilising and painful.
When the Japanese asset price bubble of the mid-1980s was pricked, it led to a Lost Decade. The bursting of the real estate bubble in Thailand, to which large capital inflows had contributed, compounded its vulnerability during the Asian economic crisis of the late 1990s. The price of irresponsible economic behaviour, in both the housing and credit markets, was seen in the sub-prime mortgage crisis in the United States just a few years ago. Triggered by the collapse of the housing bubble, it precipitated a national crisis of defaults and foreclosures.
Singapore must avoid such boom-and-bust cycles. Property prices are an expression of confidence in the economy but that logic is turned on its head by the ever-present temptations of over-borrowing and speculative buying. Whether as a hedge against inflation or for other reasons, the runaway mood seen lately calls for caution.
Mr Shanmugaratnam has acted pre-emptively in the face of very low interest rates, both globally and in Singapore, that were also contributing to demand. Such borrowing could become precarious in a prolonged economic downturn. Consumers who were snapping up offers even at the last minute, before the curbs took effect, could be hit hard later trying to service large loans for a second or third property.
While regulations should be broad-based in an over-heating property market, it is right and proper to support first-time buyers and citizens. Profit-seeking investors, whether local or foreign, should be discouraged, of course. As with health-care subsidies, property-market policies are often calibrated in favour of citizens in many places. Hence, the latest moves should not be seen by permanent residents as eroding the value Singapore places on attracting skilled people here to help strengthen its standing as a vibrant global city.
It is important to resist calls to make the market-cooling measures permanent. Some see this as the panacea for volatility, but its cost could be a crashing market that would hurt home buyers along with speculators. It is better to give regulators leeway to do periodic reviews and intervene strategically.
www.straitstimes.com
Published on Jan 19, 2013
EDITORIAL
Averting a property bubble
THE latest measures to cool the property market, unveiled by Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam, underline the seriousness of the Government's intention to prevent a property bubble from forming. The economic rationale for the move is clear: Asset inflation can have a devastating impact if it runs ahead of economic fundamentals. Not only will this distort the real economy but it also poses a grave threat down the road - an inevitable correction will be destabilising and painful.
When the Japanese asset price bubble of the mid-1980s was pricked, it led to a Lost Decade. The bursting of the real estate bubble in Thailand, to which large capital inflows had contributed, compounded its vulnerability during the Asian economic crisis of the late 1990s. The price of irresponsible economic behaviour, in both the housing and credit markets, was seen in the sub-prime mortgage crisis in the United States just a few years ago. Triggered by the collapse of the housing bubble, it precipitated a national crisis of defaults and foreclosures.
Singapore must avoid such boom-and-bust cycles. Property prices are an expression of confidence in the economy but that logic is turned on its head by the ever-present temptations of over-borrowing and speculative buying. Whether as a hedge against inflation or for other reasons, the runaway mood seen lately calls for caution.
Mr Shanmugaratnam has acted pre-emptively in the face of very low interest rates, both globally and in Singapore, that were also contributing to demand. Such borrowing could become precarious in a prolonged economic downturn. Consumers who were snapping up offers even at the last minute, before the curbs took effect, could be hit hard later trying to service large loans for a second or third property.
While regulations should be broad-based in an over-heating property market, it is right and proper to support first-time buyers and citizens. Profit-seeking investors, whether local or foreign, should be discouraged, of course. As with health-care subsidies, property-market policies are often calibrated in favour of citizens in many places. Hence, the latest moves should not be seen by permanent residents as eroding the value Singapore places on attracting skilled people here to help strengthen its standing as a vibrant global city.
It is important to resist calls to make the market-cooling measures permanent. Some see this as the panacea for volatility, but its cost could be a crashing market that would hurt home buyers along with speculators. It is better to give regulators leeway to do periodic reviews and intervene strategically.
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