Feb 18, 2014

    Cooling measures still relevant

    IN THE commentary "Cooling measures may cost Singapore" (MyPaper, Feb 13), the writer noted that from 1997 to last year, the annual increase in property prices of 4 per cent had been consistent with annual economic growth of 5.7 per cent.

    Hence, he called for a review of the property cooling measures, as he may have believed that there is no evidence of a property bubble.

    The writer's use of statistics is misleading in two aspects.

    Firstly, 1997 is the peak of an earlier property cycle. A higher base would have resulted in a lower annualised return being computed.

    Secondly, the growth in Singapore's gross domestic product (GDP) is also partly a result of the increase in immigration. Therefore, a more meaningful comparison would have been to use the GDP per capita.

    My calculation reveals that from 1995 to last year, the annualised return of non-landed private homes is 4.8 per cent, versus 3.7 per cent growth for GDP per capita.

    Most importantly, the key objective of the cooling measures is to restore the balance in the risk-reward equation and remove the confusing signals from the property market, which the writer agrees would have a negative impact on Singapore's long-term strategic growth.

    The various episodes of property bubbles, be it Japan in the 1990s, the Asian financial crisis in 1997, sub-prime crisis in 2009 and the current growing problem in China's property sector, are painful lessons that we should not forget.