It's still too early for Singapore to unwind the cooling measures in the real estate market, the city state's central bank chief said on Thursday.
"... it is too early to ease property-related measures," Ravi Menon, managing director of the Monetary Authority of Singapore, said at a briefing on the annual report of the authority.
He said that the measures included the two categories of structural measures and cyclical measures. The structural measures such as the total debt servicing ratio and the caps on loan tenures, which aim to ensure that households do not take on financial obligations beyond their repayment capacity, are meant for the long term.
The cyclical measures such as the extra stamp duties announced by the Ministry of Finance and the loan-to-value limit put in place by the Monetary Authority, are designed to prevent households from taking on too much debt during periods of rapid price increases or elevated prices.
He said that cyclical measures can be recalibrated according to market conditions, but nevertheless said that it is too early to unwind the cooling measures currently in place as "the risk factors have not changed."
The property prices declined by 3.3 percent over the last three quarters, however, it has gained an accumulated 60 percent over the last four years.
Menon also said that the low interest rate environment has not changed, and the level of debt among highly leveraged households remains high.
Singapore government put in place several rounds of cooling measures in the property market as prices shot up along with the economic rebound in the aftermath of the global financial crisis. The prices of public housing units have moderated over the last quarters. A separate report released on Thursday showed that the industrial estate market continued to moderate in the second quarter of this year.
Menon said that the authorities have put in place the cooling measures to anchor inflation expectations, support financial stability and encourage greater financial prudence.
The property market have shown signs of stabilization, and the year-on-year growth of household debt has moderated from nearly 13 percent in the third quarter of 2011 to 5.5 percent in the first quarter this year.
The central bank chief said that the Singapore banking system is resilient against various scenarios in stress tests by the International Monetary Fund. The stresses included a combination of domestic interest rates increasing by more than 200 basis points, unemployment rate rising above 10 percent, cumulative decline in equity prices up to 70 percent over three years, and cumulative decline in residential property prices up to 50 percent over three years.
The moderating property prices have also led to less pressure on the inflation front, with the headline inflation falling from an average of 1.9 percent in the second half of the year to 1.7 percent in the first half of this year.
He said that the Monetary Authority have narrowed its inflation forecast range to 1.5-2 percent from the earlier 1.5-2.5 percent. The forecast for the core inflation, which excludes changes in the accommodation costs, remained unchanged at 2-3 percent.
The growth forecast for the Singapore economy remained unchanged at 2-4 percent. Menon said that the domestic demand the regional demand are resilient while the external demand remained sluggish.
There are also geopolitical risks but "barring significant escalation, moderate spillovers to Singapore from these geopolitical developments should be accommodated within current forecast range of 2-4 percent growth," he added.