RESIDENTIAL MARKET
Concerns over asset price bubbles in Singapore
The seeds of the next financial crisis could be sown even before the current one is completely over.
That’s the warning from some experts at a conference on asset price bubbles in Singapore at the Singapore Management University.
However, they noted that crisis could be averted, if central banks did a better job of communicating their policy stance to the market.
Property price bubbles are in part driven by uncertainty about savings.
And this happens easily in a global environment of low interest rates, with investors seeking out higher-yielding assets.
Macro-prudential policies also include lowering the loan to value ratio of housing loans – to prevent risky borrowing by individuals.
These measures – along with punitive taxes for housing transactions – have been adopted by administrations in Hong Kong and Singapore to stem sharp property price increases.
Some experts said this is a problem that comes with success.
David Mayes, BNZ Professor of Finance, University of Auckland, said: “Singapore is an extremely successful economy – you’ve got to live with it. This is going to be reflected in that your wealth is going to go up compared to other people.
“Some of this is going to happen in prices. If you’re not allowing it to happen through the exchange rate, it’s going to happen through domestic prices.”
As economies prosper, experts said it is only natural that people look to spend money to improve their standard of living.
But other policy tools – such as transfers to the poor – are needed, to even out the distribution of wealth.
Source : Channel NewsAsia – 8 May 2012
INDUSTRIAL MARKET
Rising prices of industrial property not sustainable: analysts
Prospects of higher investment yields are driving demand and prices of industrial properties.
The robust economic growth since the rebound from the US debt crisis in 2008 has generated a lot more economic activity. This has boosted demand for industrial space in Singapore in the last two years.
Latest URA data shows industrial property prices have bucked the general downtrend and grew by 7.2 per cent in the first quarter this year, compared to the previous quarter. Prices of residential property meanwhile, dipped marginally by 0.1 per cent from the previous quarter.
In the last two years, rentals have gone up an average of 12 to 15 per cent per annum. This year in the first quarter, rents increased 1.8 per cent quarter-on-quarter – a level that is deem by analysts that is unsustainable.
Experts said low-interest rates and high liquidity in the market have kept industrial property prices on the high. Analysts also said that a “healthy” occupancy rate of industrial properties at 93 per cent suggest that a price correction is not on the cards yet.
Meanwhile, analysts are cautious, saying that the uptrend may not be sustainable.
The slowing economy may cause demand for industrial properties to slacken and cause prices to dwindle lower as well. While rentals may come down, yields could still be attractive at five per cent. This is because an industrial unit could cost an investor as low as S$400,000, although the use of CPF is not allowed.
Some have even suggested that the elevated prices have raised concerns of a potential bubble forming.
Analysts do not believe that authorities will implement measures to cool the industrial property market, which makes up only about one-tenth of property transactions. They said any measures may need to be targeted on investors so as to protect businesses that have bought industrial property as a hedge against future rental increases.
Source : Channel NewsAsia – 8 May 2012
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