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Easing cooling measures won't stop prices from falling: Fitch
Measures to cool Singapore's housing market are likely to be eased gradually over the coming years to support demand, Fitch Ratings said in a Wednesday report. Despite this, it believes that home prices will likely continue to fall because of the oversupply situation and rising interest rates in the market.
"The latest changes are unlikely to have a significant impact on Singapore's housing market. Macro-prudential settings are still tight, while high vacancy ratios, a slower pace of immigration, subdued economic conditions and a weakening labour market are all likely to continue weighing on prices," the credit rating agency said.
"We expect further gradual loosening over the coming years as the authorities balance supporting the market with guarding against risks."
Fitch added that local interest rates are set to rise from their current low levels, as the US Federal Reserve tightens policy. House prices in Singapore are still likely to fall by another 2 to 5 per cent over the next two years, it said.
Last Friday, the Singapore government announced its decision to stop applying the total debt servicing ratio (TDSR) framework to mortgage equity withdrawal loans with loan-to-value ratios of 50 per cent or less, in a stunning move to help those who need to monetise their assets.
It also decided to pare the seller's stamp duty (SSD) by shortening the holding period from four to three years and by lowering the rate by four percentage points for each tier.
On the other hand, a new form of stamp duty, called the Additional Conveyance Duty, was introduced for the transfer of equity interest in entities holding residential properties in Singapore.
Fitch noted that Singapore's efforts in curbing property speculation in an environment of low global interest rates have been effective, and much more so especially when compared to other countries.
Speculative purchases have declined from 2009, as restrictions on mortgage lending were made progressively tighter and stamp duties were raised.
"House prices have now fallen in each of the last three years and housing loan growth has slowed steadily since 2011," it said.
"The impact contrasts with Hong Kong, where macro-prudential tightening began around the same time as in Singapore, but prices have continued to rise and mortgage growth has shown no clear downward trend.
"House price growth has also remained rapid in New Zealand, where tightening began in 2013, and Australia, where it started in 2014."
Fitch believes that Singapore's regulators should have room to change the direction of price declines by reversing macro-prudential tightening.
Regulators in Hong Kong, Australia and New Zealand are still some way off loosening property market restrictions for now.
The tight regulatory stance has protected banks in Hong Kong and New Zealand against potential property-price shocks.
Loan-to-value ratios in Hong Kong are among the lowest across Asia-Pacific and, like in Singapore, the authorities have the flexibility to soften a potential dip in the property market by unwinding restrictions, Fitch said.
Singapore's banks are well-positioned to withstand a sharper drop in property prices, with their low average loan-to-value ratios, adequate loan-loss coverage, and strong capital and liquidity buffers.
In comparison, banks in Australia would be more susceptible to deterioration in asset quality in the event of a sharp decline in house prices.
Adapted from: The Business Times, 16 March 2017
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