Monetary Authority of Singapore: Property prices will continue to grow

Real estate in Singapore is generally though of as being overpriced – but the country’s central bank has said that prices are set to keep rising in 2011.

Low borrowing costs and excess global liquidity may continue to push prices higher in Singapore despite the government’s attempts to cool the market, the Monetary Authority of Singapore said in its latest Financial Stability Review. There is a risk that banks may ease lending standards and make more loans to compensate for decreasing interest margins, the Monetary Authority said. The central bank also said that buyers may take on excessive leverage with expectations of a longer period of lower interest rates.

Cooling measures implemented by the Singapore government in August included increasing down payments for second mortgages and imposing a stamp duty on property held for less than three years. So far the measures have had little effect.

According to figures from the Urban Redevelopment Authority, private residential property prices grew 5.3 per cent quarter-on-quarter in Q2 2010 in 2.9 per cent in the third quarter. Singapore’s government predicts growth of 15 per cent this year and 4 to 60 per cent in 2011.

“There is a possibility that transaction activity and prices could pick up again given the current global conditions of flush liquidity and low interest rates. The government will continue to be vigilant in monitoring developments in the property market, and if necessary, adopt additional measures to promote a sustainable property market,” the central bank said.

The government has also made more land available for development in an attempt to cool the market. 17 residential development sites with room for about 8,100 apartments are set to be sold in the first half of 2011 and another 13 sites with room for about 6,200 units are being considered for release.

“As the property market is sentiment sensitive, a pick-up in activity could lead to rapidly escalating prices. If economic recovery disappoints on the downside amidst continued uncertainties in the global economy and market confidence is dented, prices could fall. On the other hand, if the economic recovery continues apace, there could be widespread implications on buyers who overextended themselves when interest rates eventually rise,” the Monetary Authority of Singapore concluded in its report.