Singapore mulls more measures to avert property bubble

KUALA LUMPUR: Singapore is mulling more measures to avert a property bubble on concerns of renewed escalation of speculative momentum.

The Monetary Authority of Singapore (MAS) said on Monday, Nov 9 that despite the lingering uncertainties in the domestic and global economy, domestic
property market activity has taken on its own dynamic.

In its financial stability review, the government said it had introduced several measures in September 2009 to temper the exuberance in the market and pre-empt any speculative bubble from forming.

"As Singapore emerges from recession and with the market expecting low interest rates to persist for some time, the risk of a renewed escalation of speculative momentum cannot be discounted.

"More measures might then be necessary. The nature and timing of such measures would have to be balanced against the still uncertain path of economic recovery," it said.

MAS said as the economy recovers, it would continue to monitor global and domestic developments closely and was ready to address any potential threat to Singapore’s financial system.

Under its review, the MAS said as a small open economy, Singapore was not immune to the financial turmoil but has also benefited from the global recovery. After hitting a
trough in March 2009, the domestic equity market has mounted a sharp rebound, in tandem with global and regional equity markets.

The US dollar funding strains in the Asian Dollar Market, which emerged in the immediate aftermath of Lehman’s failure, have abated. On the economy, it said for the whole of 2009, GDP growth was projected to be between -2.5% and -2%, a much less adverse outcome than expected early this year.

As for the local banks, it said their earnings had dipped but remained above market expectations. This, together with successful capital raising efforts during the crisis, should enable the local banks to absorb further credit losses in the coming quarters.

It said the domestic financial conditions should continue to improve as the economy recovers. However, the situation in the domestic financial system was not without downside risks.

"First, the sustainability of the global economic recovery remains uncertain and any adverse shock would weigh on the performance of the Singapore economy given its openness. Should economic recovery stall, corporate earnings may come under renewed strain and corporate refinancing may become more difficult," it added.

It also cautioned unemployment might also rise if the economy slows again. The knock-on effects on consumer and corporate repayment capability could impair banks’ asset
quality, resulting in higher non-performing loans (NPLs) and provisioning charges. Loan growth could moderate again, holding back the recovery.