Forum: Decisive cooling measures needed to maintain stable property market
The Straits Times - 4/6/2021; Last Update - 4/21/2021

I urge the Government to institute decisive private property cooling measures before it is too late (Sharp rise in prices for HDB resale flats, private homes, April 2).

The nominal median income for residents fell by 0.6 per cent over the year to last June, the first decline since 2004. Meanwhile, private home prices increased by 2.2 per cent last year.

In the first quarter of this year, private home prices rose 2.9 per cent, the steepest quarterly increase since the second quarter of 2018.

This is clearly not in line with the growth of resident income and economic fundamentals.

The Government must act promptly to maintain a stable and sustainable property market for Singaporeans.

One measure it could consider would be to tighten the total debt servicing ratio (TDSR) limit further. This would have multiple benefits.

First, the current interest rate environment can lead to a significant mispricing of assets, and tightening the TDSR would reduce the risk of Singaporeans overleveraging to purchase properties.

This, in turn, would lower the systemic risk that may be posed to the financial system by overleveraged individuals, given continued uncertainty about the pace of economic recovery and the direction of interest rates.

Second, reducing the amount of capital locked up in property allows it to be deployed to more productive uses. This capital could be used instead to invest in businesses to help them grow.

Spending less on property would also result in a rise in discretionary income. This could be spent on goods and services, with the dual benefit of improving the quality of life of Singaporeans and providing a much-needed spending boost to the economy.

Alternatively, retirement adequacy could be improved if individuals put the additional funds towards achieving their Central Provident Fund (CPF) Life Enhanced Retirement Sum.

Third, the TDSR has been shown historically to have been the most efficacious cooling measure, with the longest-lasting effects.

It was the TDSR which finally allowed property prices to begin moderating in 2013, and when it was announced, it was stated that the Monetary Authority of Singapore would monitor and review the 60 per cent threshold over time, with a view to further encouraging financial prudence.

It is therefore timely to review the current TDSR limit and lower it further.

The CPF Board has recommended a 3-3-5 rule when it comes to property purchases, stating that monthly mortgage payments should ideally not exceed one-third of monthly salary.

This being the case, there is room for the TDSR to be tightened further to a range of 40 per cent to 45 per cent.

Between 2009 and 2013, it took more than eight rounds of cooling measures before the spike in property prices, brought about by the ultra-low interest rates after the 2008 financial crisis, was brought under control.

While the future direction of interest rates is still uncertain, the current low interest rate environment has already caused a spike in property prices.

I hope that the Government will act boldly and decisively to encourage financial prudence and continue to allow young Singaporeans to fulfil their aspirations.

Jeremy Teo Chin Ghee (Dr)