Property Market Less Jittery For Now But Uncertainty Lingers

Source : The Straits Times, Aug 1, 2007

Despite Govt's reassurance, sector still wary about steps it might take

THE Government's assurances on Monday that it is not inclined to cool the property sector for now has gone some way to soothe market jitters.
But it has not eliminated the uncertainty in the air over eventual government action, say industry watchers.

In fact, some add that the latest comments may be seen as mixed signals that could lead to confusion and volatility in the market.

National Development Minister Mah Bow Tan said on Monday that the Government would not intervene in the sector and would 'let market forces work' instead.

'We will try to avoid interfering...if we can,' he said.

Some property consultants see this as a guarantee that the Government will not step in to calm the market, at least for the time being.

'I think we are safe for now until the next set of Urban Redevelopment Authority price statistics comes out in October,' said Mr Nicholas Mak, director of research and consultancy at Knight Frank.

Indeed, property stocks rallied yesterday after Mr Mah's comments. City Developments gained 60 cents to close at $15.20, while United Overseas Land and GuocoLand were up 10 cents each at $5.40 and $5.15 respectively.

But not all property experts were convinced that the Government's words should be taken at face value.

'It did say it would lay off cooling measures for now but I think in reality it is leaving the door open,' said Citigroup economist Chua Hak Bin. 'I think the measures aren't so far away.'

Some analysts noted there had been little warning before the Government raised development charges (DC) two weeks ago, a move that caught the market by surprise and sent investors into a tizzy.

Although the actual impact of the hikes was minimal, the market pulled back as it tried feverishly to guess the Government's next step.

But one analyst, who declined to be named, suggested that the pullback was actually good for the market.

'After the DC hikes, the market sat up and started to worry, which generally meant people moderated their expectations,' he said.

'That was good because we need moderate, sustainable growth.'

He added that 'just the perception of potential intervention itself is a very strong soft measure. That's what we need now'.

Mr Mah also said on Monday that the current tightness of home and office space is a short-term problem, and the Government would not 'use long-term solutions to try to solve short-term problems'.

But analysts found it difficult to determine what exactly 'short-term' and 'long- term' solutions might translate into.

On the one hand, most short-term steps, such as transitional sites and temporary homes for lease, have already been used and may impact only certain segments of the market, they said.

Yet long-term solutions such as changing the masterplan to intensify land use will have little immediate effect.

The measures that most concern market watchers fall somewhere in between. They include changes to deferred payment schemes for homes and capital gains taxes - both could apply immediately and have long-term consequences, making it hard to decide which category they fall into.

'When it comes down to it, anything that can be introduced immediately and removed the next day can be seen as a short-term solution,' noted CIMB-GK economist Song Seng Wun.