Cooling the property market for social harmony

The Singapore government is willing to trade off economic growth for social harmony, said DBS chief executive Piyush Gupta yesterday. Yes, the government’s new goal is sustainable growth, not high growth. And it comes at a cost.

Singapore’s mainstream media don’t want to sound alarmist. Maybe that’s why the Business Times says about the property market cooling measures: “The more dire estimates expect property prices to fall by up to 10 per cent …”

However, property prices could fall even more sharply, by almost a quarter, according to one analyst quoted in the Wall Street Journal. It says:

David Lim, a property analyst at Daiwa, said the new rules might “finally set a prolonged chill in the market”, tipping home prices to drop by 20-23% from now to the end of 2014. He maintained a negative investment rating on Singapore’s developers, citing a large supply of unsold apartments, rising vacancies in the rental market and the continued risk of more government intervention.

This, the seventh round of property cooling measures, is “likely to have a lot more teeth than anything we’ve seen so far”, said DBS chief executive Gupta, who sees a 10 to 20 per cent drop in mortgage loans.

He expected Singapore’s economic growth to be on the “low side” of the government’s 1 per cent to 3 per cent forecast, partly because of the property cooling measures, The economy is estimated to have grown by just 1.2 per cent in 2012. However, unemployment was only 1.9 per cent.

Speaking about the government, Gupta said: “You don’t have to be terribly prescient because they’ve been making it very clear now – for some time – that they’re willing to trade off growth for what they call sustainable growth. Which means they’re willing to trade off growth for social harmony.”

The  new measures are to “ensure a stable and sustainable property” and prevent a housing bubble, the finance ministry said. They also benefit first-time buyers, who welcomed the new measures.

Rising property prices were one of the grievances of young Singaporeans and might have cost the ruling People’s Action Party some votes in the May 2011 general election, when its support fell to 60 per cent, a historic low. The PAP lost the subsequent by-election last year when the opposition Workers’ Party retained its Hougang seat. The new property cooling measures were announced last Friday ahead of the January 26 by-election in Punggol East.

The government wants to “ensure that housing remains affordable to Singaporeans”, the finance ministry said in a statement announcing the new measures.

The government had a more ambitious public housing goal earlier: Give everybody a home below cost so that they got richer as property values rose. That is what Lee Kuan Yew was quoted as saying in this Channel NewsAsia report in November 2012:

Former Minister Mentor Lee Kuan Yew said public housing has to keep up with the rising aspirations of Singaporeans and that the facilities and design of older estates should also not fall behind newer ones.

Mr Lee was speaking at a tree planting event at Havelock View on Sunday.

“Everybody owns their own homes and the value of their homes go up as development takes place. Some are unwise enough to sell their homes, thinking they can buy another one, they then find they can’t and have to rent a flat.

“But those who held on to their homes, I’ve seen their property values going up, five times, 10 times, 15 times, 20 times. This was the plan which we had from the very beginning, to give everybody a home at cost or below cost and as development takes place, everybody gets a lift, all boats rise as the tide rises.”