Real estate bubbles can develop quickly and authorities are determined to deal with these risks, said the Monetary Authority of Singapore (MAS) MD Heng Swee Keat.
In dealing with asset bubbles, policymakers must communicate their willingness and resolve to take tougher measures when needed, said Mr. Heng at the launch of EDHEC-Risk Institute Asia.
“Many parts of Asia are vulnerable to property bubbles, not only because of current liquidity conditions but also because many investors believe that in a growing economy, the property market can only move up,” he said.
Many have overlooked how the real estate markets in the region crashed during the 1997 / 1998 Asian Financial Crisis, he added.
There has been debate regarding the types of policy tools to be used in dealing with potential asset bubbles.
A combination of simple and easy to understand tools that deal with the different aspects of the issue is needed, said Mr. Heng. “More importantly, for these tools to be effective, the intention of the authorities has to be clearly communicated,” he added.
“Policymakers must leave no doubt of their resolve to tackle the potential build-up of risks. This may mean, for instance, the willingness to take progressively tougher measures where the situation warrants.”
This month, the government announced a new set of measures, which include raising the holding period for seller’s stamp duty (SSD) from three years to four, and requiring cash of up to 50 percent to purchase property, in some cases.
The latest measures are not an alternative to banks’ risk assessment processes and banks should still maintain cautious lending practices, he said. “This includes taking into account potentially higher interest rates in their credit assessments and not assuming that current low interest rates will last indefinitely.”