THE TEMASEK REVIEW

By Shamim Adam from Bloomberg

Singapore’s central bank said it may be “necessary” to implement more measures to counter real- estate market speculation, joining China and Hong Kong in signaling a need to rein in soaring property prices.

Demand for private homes has experienced “strong growth” and unchecked price gains may expose the property market to risks in the global economy, the Monetary Authority of Singapore said in its Financial Stability Review today. There should be “close monitoring” of home prices and transactions, it said.

Singapore property stocks fell on the central bank’s comments. After cutting interest rates to record lows and boosting public spending to counter the global recession, Asian countries from South Korea to Singapore are now fighting rising real-estate values, which threaten to mimic the U.S. mortgage bubble that roiled the world economy.

“Policy makers are trying to learn the lessons from the U.S. crisis,” said Robert Prior-Wandesforde, a Singapore-based senior economist at HSBC Holdings Plc. “A lot of central banks are now taking a more preemptive approach to bubbles and potential bubbles. That’s quite a sensible approach.”

China’s central bank and banking regulator may “soon” issue measures to limit the use of debt in real-estate purchases, Fang Xinghai, the director-general of Shanghai’s financial services office, said in Beijing today. Home prices in the world’s third-largest economy rose at the fastest pace in a year in September.

Public Outcry

In Hong Kong, where a 28 percent jump in home prices this year has sparked a public outcry, Financial Secretary John Tsang said Nov. 4 the government was “very concerned” about the “sharp” rise.

“Despite the lingering uncertainties in the domestic and global economy, domestic property market activity has taken on its own dynamic,” Singapore’s central bank said today. “The risk of a renewed escalation of speculative momentum cannot be discounted. The nature and timing of further measures, if deemed necessary, would have to be balanced against the still uncertain path of economic recovery.”

Singapore has barred interest-only loans for some housing projects and stopped allowing developers to absorb interest payments for apartments that are still being built.

The government is releasing more land for sale in the first half of next year as part of measures to prevent excessive price swings in the property market. Home prices rose 15.8 percent in the third quarter, the most in 28 years, after dropping 25 percent in the previous four quarters.

Property Stocks

CapitaLand Ltd., Southeast Asia’s biggest developer, dropped 1.2 percent to S$4.04 at 2:27 p.m. in Singapore today, even as the benchmark stock index rose 0.3 percent. The stock had risen 59 percent this year before today’s fall. City Developments Ltd., the nation’s second-biggest developer, slid 1.6 percent to S$9.86 and Wing Tai Holdings Ltd. declined 1.8 percent to S$1.63.

Low borrowing costs and the island’s recovery from its worst recession in more than four decades aided the rebound in home prices, the central bank said.

“Should growth turn out weaker than expected, property buyers and speculators could face capital losses as the market corrects,” the central bank said. “Conversely, if the recovery stays on course, interest rates will eventually rise and drive up financing costs with severe implications for those who have overextended themselves.”

Corporate Earnings

The Southeast Asian nation’s economy is forecast by the government to contract as much as 2.5 percent this year. Gross domestic product may expand 3 percent next year, the Straits Times reported today, citing Minister Mentor Lee Kwan Yew.

“Should economic recovery stall, corporate earnings may come under renewed strain and corporate refinancing may become more difficult,” the monetary authority said today. “Unemployment may also rise if the economy slows again. The knock-on effects on consumer and corporate repayment capability could impair banks’ asset quality.”

Singapore may also face some volatility in its stock market, which has surged along with others in the region amid “renewed portfolio inflows from foreign institutional and retail investors on hopes of an early economic recovery,” the monetary authority said.

Global capital flows are likely to recover from this year’s lows as the world economy emerges from the deepest recession since the 1930s, the World Bank said last week. The global equity rally has added about $22 trillion to the value of stocks since this year’s low on March 9.

Market Volatility

“A number of commentators and investment advisers have commented that the domestic equity market might have risen too quickly since there has not been a broad-based improvement in company earnings,” Singapore’s central bank said. “A reevaluation of growth prospects or decline in risk appetite could trigger some market volatility.”

The country’s lenders and insurers remained “resilient” during the global credit crisis which toppled banks in the U.S. and Europe, the monetary authority said today. While domestic financial conditions are expected to improve as the economy recovers, the island is still vulnerable to fluctuations in global financial markets, it said. – Bloomberg

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