The number 7351 is how one could express the Singapore government’s policies towards the residential property market. Seven is for the number of property market cooling measures introduced by the government, three years the time period in which they were issued, and 5.1 months the average length of time between the issuance of each policy.

Clearly the state has changed from taking a heavy-handed position as in 1996 to a much softer, “feel the market” approach – reflecting the more consultative governance of today. The results of these two policy approaches are remarkably different. Looking at the island-wide Property Price Index (PPI), the residential market corrected at an average of 2.5% per quarter between 2Q96 and 2Q98 (when the state relaxed its grip). In the current situation, the market has continued to expand at an average of 1.8% per quarter since the first cooling measure was introduced in Feb 2010.

If one subscribes to the view that an effective policy is one that would lead to a correction in the market, then clearly this soft policy stance the state has adopted is ineffective. However I believe the policy intention is not about causing a correction but rather a retardation of the growth. If this is truly the case, then the policy so far has been very successful. The question that begs answering is what is an acceptable level of growth?

In the present economic condition of slow global growth with low interest rates, a property annual growth rate just above the average national inflation rate of 4.0% (over the last five years), is what the state should be comfortable with. In other words, any quarterly growth rate exceeding 1-1.25% could trigger a new policy intervention. For example, the PPI in 4Q12 expanded by 1.8% q-o-q, a rebound from the 0.6% q-o-q in 3Q12. Consequently the state intervened with the 7th round of tightening on January 11. Similarly in 3Q11, the quarterly increase remained at over 1%, and this resulted in the state introducing the 4th cooling measure on December 7, 2011.

Current market murmur is that an 8th policy is inevitable. The social media space was rife with speculative talk of more cooling measures to be introduced last Friday. Sure enough, there was an announcement but more towards enhancing the public housing program rather than targeting the private housing market. I believe that until we see another quarterly increase in PPI exceeding 1%, we are unlikely to face further intervention. If we do, then the state might introduce a cap on the ratio of total debt to household income; tighten the existing policies; and/or introduce a mortgage service ratio into the private housing loan market. Until this happens, the market will continue to show resilience.

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