Friday, Apr 19, 2013

SINGAPORE – Property prices remain high but they are moving in the right direction, said Deputy Prime Minister Tharman Shanmugaratnam, and the Government has no plans for another round of cooling measures for now.

The Government is determined to lower the prices of homes relative to incomes, he said, but does not want to cause a crash in the short term.

“We’re not planning another round of measures, but it depends on market conditions,” said Mr Tharman, who is also Finance Minister.

“We’re determined to achieve our objective of having prices come down relative to incomes. And that can be achieved both through income growth as well as some stabilisation or even cooling of prices.”

Mr Tharman was replying to a question on how the Government can manage inflation in a wide-ranging video interview with The Straits Times.

The question had picked up the third most number of votes from readers in an online poll on Singapolitics carried out over seven days.


ST: Singapore’s economy seems to be entering an area of low growth and persistently high inflation even as we have full employment. I think the economists have called it “mini stagflation”. Where do you think the economy is headed in the next 3 to 5 years? What are our policy options in managing slow growth and high inflation?

A: Well, there are 2 parts to our inflation. One has to do with assets, especially houses, and cars. Second, regular inflation, what MAS calls core inflation or what basically, you know, people think of in terms of regular shopping, what you buy in the supermarkets, what you pay for education, for health, the rest of the CPI basket.

Housing, we’re still facing pressures on prices. It’s slowing down. There’s some stabilisation taking place in the market and we’ll have to see how it goes, but we’re determined to cool the housing market. Cars, we’ve taken a significant set of measures. They’re not permanent, they’re temporary. But I think it’s having some effect and we’ll have to see how COE prices and car prices evolve over the next several months. So (housing and cars) are 2 distinct problems and they alone have accounted for about half of our CPI inflation. The rest of CPI inflation I think we’re getting under control. If you take the top 20 items in

NTUC FairPrice, for instance, inflation is running at no more than 2 per cent. In fact a little below 2 per cent. Fiscal policy is important to help the poor and the middle income group because even with inflation being at manageable levels, excluding cars and houses, you still have problems for older folk and poorer folk, and we use fiscal policy, especially the GST voucher, but also other subsidies in health care and education to make sure that we can help the low and middle income group with the cost of living. But asset prices are not unimportant. They’re not unimportant and we’re determined to cool both housing prices and car prices.

ST: You said you’re determined to cool the property and the car market. Can we expect more property cooling measures? There’s been speculation that we could expect an 8th round.

A: Well, I never comment on speculation about further rounds of property measures. We’ve made our objective very clear. The prices have run up too quickly relative to incomes, particularly for younger families. And there are two ways of correcting that. One is you can stabilise prices while incomes gradually grow. But if prices in fact correct and soften, I think it’s not a bad thing because there’s nothing natural about the current level of prices. I think it ran up very quickly. There was a surge of demand when we came out of the crisis and we still haven’t caughten up with demand, but over the next two years, there’s a lot of supply coming on the market and I think there’s bound to be some softening in prices.

ST: But are you satisfied with the slowdown that has taken place so far? A: I think it’s moving in the right direction. But prices are still at a very high level.

ST: What do you make of this recent debate about the need to reprice HDB flats and how does that relate to the government’s management of the property market? What are your views?

A: That’s a longer term issue. We shouldn’t engineer a crash in the short term. You don’t want to engineer a sharp correction in prices through policy changes. But over the longer term, I do think that we will be better off with housing prices being a smaller multiple of incomes for the average person especially. For the low income group, we’ve got very substantial grants and subsidies. But for the average family, average young family, including those who are in the upper middle income group, and those who go for private condos included, we’ll be better off as a society and as an economy in having a more steady growth of property prices and the multiple of property prices to incomes being somewhat lower.

Many cities are facing this problem. In fact, the multiple of prices or the ratio of prices to income is even higher in places like Seoul and Taipei and of course Tokyo and Hong Kong. But I think for Singapore because we’re just one, we’re not just a city in a larger country, we’re just a one-city country, it’s important for us to keep prices in check so that younger families feel that housing is affordable and don’t have to put so much of their disposable income into servicing their loans. I think that’s the right long-term objective. ST: Considering how interlinked the public housing market is to the private housing market and how the public housing market provides that floor, how do you think you can actually work towards reducing the multiple at the middle or lower end without severely affecting the private property market?

A: Yes. Well, first, we would not want to make moves in haste. It’s a longer term strategy.

ST: What sort of time frame are you looking at?

A: We haven’t actually decided on the actual level of prices relative to incomes. We’ve indicated the direction we’d like to see the housing market move over the long term. And we have to think through our strategies – supply strategies, how much of a buffer above demand we’d like to have. We’d have to think through our tax strategies – stamp duties and so on. So it involves many policy levers. But we wouldn’t want to make a sharp adjustment in the public housing market. I think it’s better to go for an evolution, go for an evolution in our housing market.

ST: In the short-term, what else is in the government’s toolkit to cool the property market? Would you consider raising mortgage spreads?

A: We don’t directly control mortgage spreads but obviously MAS’s prudential requirements of banks would influence that. Not just the spreads, but the criteria they use in giving loans. We’ve a range of tools. Supply is the main policy measure – increasing supply, both HDB as well as private. We’ve got some fiscal tools – the stamp duties in particular. And we’ve had both the seller’s stamp duty as well as the buyer’s stamp duty being enhanced. We’ve got loan-to-value ratios on the part of the MAS which have been tightened very significantly. Whether we do anything more on the MAS front, on the fiscal front or on supply measures depends on market conditions. We don’t rule out any measure. So we’re not planning another round of measures (but) it depends on market conditions, but we’re determined to achieve our objective of having prices come down relative to incomes. And that can be achieved both through income growth as well as through some stabilisation or even cooling of prices.

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