An inconvenient truth: Property curbs may never be lifted, analysts warn

In order to boost spending, reduce wage inflation.

Market watchers are always racing ahead of each other when it comes to predicting when policymakers will lift property cooling measures. But now a report by Maybank Kim Eng has posed a previously unthinkable question: What if buying curbs become permanent?

The report argued that unless property prices plunge suddenly and dramatically, buying curbs may not be lifted in order to substantially reduce Singapore's unhealthy fixation with real estate.

"Singapore households have SGD840b of capital or 209% of GDP tied up in residential property. This has resulted in lower disposable income which has impeded consumer spending and muzzled entrepreneurship. Another less obvious implication of property 'overinvestment' is that home-price appreciation fuels wage inflation, reducing Singapore’s cost competitiveness," said the report.

Residential properties also remain a wildly popular investment class despite paltry returns in recent years, with investors stashing away bulk of their savings in the expectation that they can one day snap up homes once house prices eventually drop.

"Singapore households are sitting on a cash pile of SGD374b, which has surged since property curbs were rolled out in 2009. We believe that residential properties are sucking in surplus capital, with an increasing number of Singaporeans buying their second and third properties. This is economically non-productive," said the report.

The report argued that the economy will be better off if this idle capital is deployed elsewhere, such as by boosting entrepreneurship and improving consumer spending. Maybank Kim Eng also noted that higher home prices are driving wage inflation, which will impinge on Singapore's labour competitiveness.

Maybank Kim Eng argued that Singaporeans need to be weaned from their age-old aspirations of being landlords earning passive rental income. Investors also need to shed their deeply entrenched belief that investment properties are the best assrt class to hold.

“To ensure Singapore’s long-term survival, we believe that the government should not remove property-cooling measures. A sustained and gradual easing of property prices is necessary to restore business competitiveness, in our view. If part of the monies that has been locked away in anticipation of a bottoming of the property cycle flows towards productive assets or even consumption, we believe entrepreneurship can be enhanced and thrive,” Maybank Kim Eng noted.