Commentary: Property cooling measures may cause knee-jerk reaction, but intervention was necessary

RISK OF RECESSION

Amid slowing economic growth, rising living costs and interest rates, the property market is now closer to an inflection point.

The final straw that might break the housing camel’s back would be further cooling measures or an outright recession, which is also a current concern of many. This is because during a recession, home borrowing and buying ability are curtailed and distressed sales are also likely to be more prevalent.

There will also likely be downward pressures on prices to move inventories. Eventual reductions in property valuations would impact financing, resulting in a hit to property sentiment and setting off a chain reaction.

Ultimately, it is important to remember that this fresh round of measures is intended to introduce prudence to every segment of the housing market, especially since Singapore’s interest rates are pegged to the United States’ Federal Reserve rates.

The policy objective and public mantra of the authorities have always been a healthy and sustainable property market.

The growth of the market is hardly frowned upon, except when prices run afar of fundamentals.

In the current property climate, while prices are generally still affordable, pre-emptive steps are necessary to ensure sufficient prudence within the banking system.

Should a recession and property downturn emerge, there is no doubt that the authorities have an arsenal of tools to cushion the fall by rolling back earlier measures.  

Lam Chern Woon is head of research and consulting at EDMUND TIE.