It's a question of timing

New curbs welcome, but why change rules only now?

WHILE the news of steps to curb excessive speculation in the property market should be welcomed by most, some will question its timing.

After all there are many, including developers, who bought properties in the belief that prices would continue to rise. For them, changing the rules of the game every now and then cannot be good.

Some, including investors in property stocks, suffered from the bursting of the previous bubble and were hoping to recover part of their losses from the current buoyant market. In fact, yesterday's announcement caused some air to be released from the current bubble as property stocks saw significant drops in their share prices.

But I guess these curbs have to be introduced for the overall public good. Few stand to gain from a burst bubble. Worse, the adverse repercussions often have long-lasting impact beyond those responsible for the bubble in the first place.

Developers whose land banks have been exhausted or near depletion will laud Mr Mah's move to release more land next year.

However, the move to ban the Interest Absorption Scheme and the Interest-Only Loan appears almost akin to bolting the barn door after the horses have fled.

Both schemes were bank innovations following the ban on the deferred payment scheme (DPS) in Oct 2007, when property prices were rising rapidly.

The two schemes are somewhat similar, in that they eliminate or greatly lower regular instalment payments for property buyers in the first few years before the projects are completed.

So why did the Monetary Authority of Singapore allow these two schemes to be introduced, if they were meant to thwart the DPS ban?

In any case, the ban on these schemes is likely to have little impact on the market, apart from being a temporary psychological setback. In the present low interest regime, relatively few appear to have subscribed to the two schemes.

What would likely make a bigger dent, would be to curb the ability of speculators to make the initial payment of just 5 per cent or less to book a property and then have up to eight weeks to come up with the balance of the 20-per-cent initial deposit.

Even for that 20 per cent, currently, you do not have to stump out your own cash - you can get a revolving credit line or some other loan from a bank. Addressing this speculators' leeway could go further to pre-empt that bubble.

Still, the new measures are a step in the right direction. Better to introduce the curbs now before too many people get their fingers burnt.

Source: Today, 15 Sep 2009