VZCZCXRO0010
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGP #0001/01 0040846
ZNR UUUUU ZZH
R 040846Z JAN 10
FM AMEMBASSY SINGAPORE
TO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHC/SECSTATE WASHDC 7606

UNCLAS SECTION 01 OF 02 SINGAPORE 000001 
 
STATE PASS USTR 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV SN
 
SUBJECT:  A BUBBLE IN SINGAPORE PROPERTY MARKET? 
 
¶1. (SBU) Summary: Despite Singapore suffering through its most 
serious recession in decades, the local property market saw a strong 
surge in 2009 that has fueled concerns a new asset bubble could be 
forming.  The resurgent demand is due to a number of factors, 
including pent-up demand remaining from the last run up in housing 
prices, improvement in the global economic outlook, low interest 
rates, strong household balance sheets, and an increasing view of 
real estate as an attractive investment asset.  Concerned over the 
buoyant buying activities and price surge in the private residential 
real estate market, the government unveiled measures in September 
aimed at cooling the market and pre-empting a speculative bubble. So 
far, the measures have succeeded in dampening sales, which have 
slowed since July.  The GOS is monitoring the market and still has 
other administrative measures in reserve to deal with a bubble if 
necessary.  Real estate analysts say prices are not in bubble 
territory yet, but still see upside potential, particularly on the 
luxury end of the market.  End Summary. 
 
Rapid Recovery in Residential Real Estate 
----------------------------------------- 
 
¶2.  (U) Despite Singapore's worst recession since independence in 
1965, the residential real estate market has been booming this year. 
 After an initial drop in prices early in the year during the time 
of greatest economic uncertainty, demand for private residential 
real estate in Singapore has since witnessed strong growth.  The 
number of new private homes sold surged from a low of 108 units in 
January to a record high of 2,772 units in July.  Slightly over 
14,000 units sold from January to November, exceeding the 4,300 
units sold for all of 2008, and may surpass 2007's record sales of 
14,811 units. 
 
¶3.  (U) The surge in demand has driven prices upward, with prices of 
non-landed private residential real estate (condominiums and 
apartments) rising 15.9% during the third quarter of 2009 compared 
to the previous quarter.  The Monetary Authority of Singapore (MAS), 
the de facto central bank, disclosed in its November Financial 
Stability Review that speculative activity in the property market 
had approached levels during the 2007-2008 property boom, though had 
yet to reach levels seen in 1996-7 prior to the Asian Financial 
Crisis.  They also noted reports of long queues to purchase units at 
new property developments and entire development projects that had 
sold out within days.  The MAS concluded that "the risk of a renewed 
escalation of speculative momentum cannot be discounted." 
 
Popping the Bubble 
------------------ 
 
¶4.  (U) In September, Minister of National Development Mah Bow Tan 
unveiled a series of administrative measures aimed at pre-empting a 
speculative bubble and ensuring a stable property market.  The 
government removed its Interest Absorption Scheme which allowed 
buyers to defer payments on purchases of properties that are still 
under construction.  The government also disallowed loans that 
required only interest payments for the first years of the loan. 
These two loan programs had often been used by speculators to 
purchase properties and later flip them at a higher price with 
little financial outlay of their own.  The government also added in 
more land to its yearly land sales to developers to boost supply, 
and decided against extending assistance programs for land 
developers that had been included in the 2009 budget's special 
stimulus package.  If further measures are necessary, a local 
analyst said the government could curb home prices by further 
limiting how much a property's price can be funded with a bank loan, 
from 80-90% now. 
 
¶5.  (SBU) Leonard Tay, Director of Research for property firm CBRE, 
told Econoffs that the government measures had some impact and that 
an unsustainable bubble was unlikely to form.  Tay said the 
government had built experience dealing with asset bubbles and would 
be more likely to employ the measures it had at its disposal if a 
new one were to form.  Unlike during the 2007 real estate boom that 
leaned toward the luxury market, the current boom is driven by 
entry-level properties and the soaring prices are affecting the 
average citizen's ability to buy a home.  With a general election 
due by 2012 but likely to take place as early as mid-2010, Tay said 
the government will want to keep asset price inflation in check. 
Housing sales have cooled since the summer, but Tay predicted prices 
were unlikely to fall as there were relatively few new property 
developments coming on line in 2010.  He added that potential exists 
for further price escalation in the luxury segment of the market if 
foreign investors actively participate in the rally. 
 
Demand Drivers 
-------------- 
 
 
SINGAPORE 00000001  002 OF 002 
 
 
¶6.  (SBU) Tay attributed the rally in the residential real estate 
market to a combination of factors.  There was pent up demand from 
buyers who had been priced out of the market during the residential 
real estate boom in 2006-2007, and the drop in prices early in the 
year lured many buyers back to the market.  After the worst of the 
recession had passed early this year and the stock market began to 
recover (up 90% since March), consumer and investor confidence 
returned.  The investment confidence combined with a healthy 
distrust in other financial instruments that failed during the 
recession, making real estate a more attractive asset to hold.  Low 
interest rates globally and in Singapore made the units that much 
more affordable.  Adding new debt during a recession would 
ordinarily be a concern, but the MAS cited data showing Singapore 
households entered the economic crisis with relatively strong 
balance sheets. In the third quarter of 2009, the ratio of household 
debt to GDP stood at 72%, below the long run average of about 80%. 
 
¶7.  (SBU) Although the current surge in the residential real estate 
market has been driven mostly by domestic buyers, the boom has lured 
foreign buyers into the market as well, led by Indonesians, 
Malaysians and mainland Chinese.  According to the MAS, the share of 
foreign individual buyers and companies purchasing Singapore 
residential real estate has been rising, reaching 12.5% in the third 
quarter, up from 8% in the second. Vikrant Pandey, Senior Investment 
Analyst in UOB Kay Hian Research, told Econoffs that many of these 
foreign buyers, especially Indonesians, bought in on the luxury end 
of the market.  Many are seeking a stable investment location to 
park their assets during the current crisis.  Vikrant added that the 
Singapore property market is attractive to cash rich mainland 
Chinese buyers as unit prices here are generally 30% below their 
counterparts in Hong Kong. 
 
EHRENDREICH