Thursday, November 27, 2014

More Property Related Government Policies Coming?

I just read this news piece on Reuters, "Singapore c.bank says it might do more to contain household debt".
"The risk of a downturn in the global economy even as the supply of new housing comes onstream and rental markets weaken could put further downward pressure on the property market,"
The central bank said it will continue to monitor the property sector and take appropriate steps to maintain a stable and sustainable market. Private property prices remained at an "elevated" level even though they have moderated, it said.
it will take more steps if needed to keep household debt at manageable levels.
In other countries, the central banks, legislative and administrative branches of the governments are so poorly structured and run, it is near impossible to agree on a policy decision, let alone pass it and put it in place within a realistic timeframe.

Singapore is a unique country that benefits ironically from it's "smallness". Because of its size and structure, policies can be changed quickly and enforced quickly as well.

If Singapore ever wanted all the MRTs to run in the opposite direction, it could be done within a week. Public announcements on every media, posters and signboards for a week. Then suddenly overnight they would mobilize a hundred private contractors to switch all the signs and the next day, everything will run like clockwork. Some dumb TRS and Stomp! articles later, and within a month it would be as if it was always running this way.

In most circumstances I would say that government intervention is usually bad. However, when the government is acting on basic, age-old conventional wisdom (logical, non-radical ideas) and in the best interests for their citizens, how can I argue?

So unlike other governments that jawbone, I believe that this is a massive hint, just one step behind the announcement of policy makers actually meeting and discussing this issue. Something will be done.

My take is that the Singapore government feels the property sector is still too expensive. Instead of stemming borrowing, they much rather strike the source of the increasing household debt - rising housing prices. If prices of houses were to go down, new borrowers will be borrowing at much safer levels. 

However, I strongly doubt that the risks to the housing sector is higher interest rates, at least for the next few years. Looking at the tea leaves, we're in a global grind. It is hard to see interest rates accelerating to the upside. Yes, they are very low. Historically low. Weirdly low. But as long as our policy is to play with the central bankers of other developed countries, our interest rates are going to stay low. 

That is not to say that they will not do anything until interest rates rise. I think the report is in fact telling us the opposite. They will do something before that can happen!

So, I wonder how they will be centrally planning and engineering the broad decline of property prices in Singapore? Whether it is due to just the global economy stalling for a while and causing a recession, or through a new government policy, my gut feeling is that property prices are going to head down further from here.

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