SINGAPORE: The "euphoria" in the local property market calls for caution, the managing director of the Monetary Authority of Singapore said on Wednesday (Jul 4).
While the resurgence in property prices and rise in the number of transactions over the past year is welcomed, it should not decouple from economic fundamentals, said Mr Ravi Menon on the back of the release of the central bank's annual report.
“As I said, the recovery is welcomed - why would anyone want the property market to continue sliding?”
However, this needs to be kept in line with economic fundamentals and not get ahead of income growth, he stressed.
For one, the central bank remains mindful of the demand and supply dynamics in the property market.
In its annual review of financial stability last November, MAS said the redevelopment of en bloc sites sold in 2017, coupled with supply from the Government's land sales programme, could see the possible addition of 20,000 new private homes in the market.
This will more than double the number of unsold units within the next one to two years, it said.
“We have to ask ourselves if demand can match the supply that is coming on stream in the next few years,” said Mr Menon. “That is our concern.”
With that, the central bank is “sounding caution” to developers, individual property buyers and banks to be sober, balanced and exercise good judgement amid the “euphoria” in the market.
Developers, for instance, should be cautious when making their land bids, bearing in mind the supply coming through.
The central bank is also reminding individual investors to be cautious of debt servicing burdens amid a rising interest rate environment, and avoid taking on too much leverage for property purchases.
Banks also have to be careful when underwriting and should perform stress tests for future scenarios, said the central bank chief.
Flash estimates released by the Urban Redevelopment Authority (URA) earlier this week showed private home prices rising to its highest point in four years over the second quarter. Analysts have predicted that prices could recover to 2013 peak levels soon.
Meanwhile, the number of property transactions over the last 12 months was around 25 per cent higher than during the previous 12 months, according to Mr Menon.
New housing loans over the last 12 months have also risen by 34 per cent year-on-year.
Mr Menon said the MAS, alongside the Ministry of National Development and the Ministry of Finance, are closely monitoring developments in the residential property market and remain committed to ensuring a sustainable market.