SPEECH BY MR MAH BOW TAN, MINISTER FOR NATIONAL DEVELOPMENT AT REDAS’ 46TH ANNIVERSARY DINNER ON TUESDAY, 8 NOV 2005 AT 7.30PM AT ORCHARD HOTEL

President of REDAS, Mr Kwee Liong Keng,

Distinguished Guests, Ladies and Gentlemen,

Good evening, 

Introduction

On 19 Jul this year, I announced in Parliament a package of policy changes affecting the property market.  These changes are intended to achieve specific social and economic objectives, and foster the free and undistorted functioning of the property market.

2      It has been more than 3 months since the announcement and I note that on the whole, the market’s response to these changes has been positive. 

Recovery of the Property Market

3      In 2004, prices of private housing began to stabilise after 4 consecutive years of decline.  In 2004 and the first half of 2005, prices increased by an average of 0.4% per quarter.   After the July policy changes, prices rose by 1.2% in 3Q2005, the highest increase in a single quarter in the past 5 years.

4      In tandem with the recovery in prices, demand for private housing has also improved significantly. For the past 2 years, about 1,200 new units were sold per quarter. Demand started to pick up in 1H2005, with 1,900 new units sold per quarter. In 3Q2005 after the policy changes, demand continued to put up a strong showing with 2,200 new units sold.

5      The property market recovery is not confined to the private housing sector.  All the other sectors of the property market are recovering in tandem with the strong growth of our economy. HDB resale market prices stabilised in 3Q05, decreasing marginally by 0.4% compared to the 4.8% decline in the 2nd Quarter, which was triggered by the introduction of anti-cashback measures in April 2005.  Cashback practices had artificially inflated HDB resale flat prices, and flat buyers in cashback scams were eroding their CPF savings and taking on higher financing risks.  The anti-cashback measures have since helped to restore prices closer to their actual levels.  In the office sector, the vacancy rate has fallen from 17.9% at the end of 2003 to 13.4% in 3Q2005. In the shop sector, the vacancy rate has decreased from 9.8% in 1Q2004 to 8% in 3Q2005 as retail sales increased. In the hotel sector, the average occupancy rate improved from 76% in Dec 2003 to 85% in Sep 2005 with increased tourist arrivals. Last month, the consortium that was awarded the Business and Financial Centre site took up 244,000 sqm of space for the 1^st phase of the project, almost 2.5 times higher than the minimum 100,000 sqm required.  This is another indication of increased confidence in the property market.

Property Market Reflects Economic Fundamentals

6      All sectors of the property market are showing signs of improvement at the moment. However, whether the recovery can be sustained will depend on several fundamental  factors, including  the performance of the economy as a whole, the supply and demand situation, financial liquidity and interest rates and the  external environment.

7      The overall economy has been doing well. According to MAS, GDP growth for the whole of 2005 is likely to be at the higher end of MTI’s growth forecast of between 3.5% and 4.5%. In 2006, Singapore’s GDP is projected to grow by another 3% to 5%. Robust growth in the manufacturing, tourism and financial sectors, and the diversification of our economy into new areas like the life sciences, education and health, are helping to drive growth in our economy. Externally, regional economies such as China, India and the ASEAN countries are all enjoying good economic growth. As their trading and investment partner, Singapore will benefit from the growth in the region. 

8      All of this has translated into job opportunities on the ground. About 78,000 new jobs were created in the first 9 months of 2005.  This pace of job creation is the highest recorded since the economic boom of 2000. With more new jobs created, the unemployment rate has also improved from 3.4% in June 2005 to 3.3% in September. Initial fears that the economic recovery would be a jobless one have been unfounded. 

9      The improvement in the property market is thus backed by economic fundamentals of rising demand, income and jobs.  If the overall economy continues to do well, the recovery in the property market is likely to be sustained. 

Other Factors Affecting the Property Market

10        However, we need to tamper our optimism with caution.  Global events, many of which are beyond our control, could derail our economic growth and thus adversely affect the property market.  The threat of an Avian flu pandemic is becoming an increasing concern world-wide.  The Government views the threat posed by the avian flu very seriously and is taking steps to ensure that we are well prepared if an outbreak occurs.  However, its impact will also depend on how successfully other countries prevent and contain this threat.

11        There is also the threat of terrorism.  Last month, Asia suffered from two major terrorist attacks - the first in Bali, and the second in New Delhi. These attacks are a sombre reminder that terrorism is a real and ever-present danger and that we must remain vigilant and take all necessary precautions.

12        Apart from external shocks, the improvement of the property market also depends on financial liquidity and interest rates. Some of the measures announced in July, such as the increase in the maximum loan Loan-to to-valuation Value limit for housing loans from 80% to 90%, and the reduction in the cash-down-payment requirement for the purchase of private residential properties from 10% to 5%, have improved the liquidity of private housing purchasers.

13        However, many banks have also at the same time raised their housing loan rates, in tandem with the rise in inter-bank rates.  While the current rates are still quite low compared to historical levels, whether banks will raise housing loan rates further next year remains to be seen. 

14        Therefore, even though we are now seeing robust economic growth and recovery in the property market, we should be mindful of the risks and uncertainties that could jeopardise our progress. Despite these uncertainties, we have reason to be optimistic about the future.  Singapore is well prepared to face and overcome these challenges.  Our people and the economy have proven to be resilient in the way we overcame SARS and the Asian financial crisis.  Our economic fundamentals are strong.  Barring unforeseen circumstances, I am confident about the future of our economy and the property market.

Reports on speculation

15        There is also a need to ensure that the recovery in the property market is not derailed by speculative activity.  Recently, the press reported that speculators are making a comeback in the property market. 

16        Based on the number of sub-sale transactions, there is no indication of an increase in the level of speculation for the property market as a whole. But if speculation becomes rampant and property prices rise beyond what can be supported by fundamentals, then the property market will become fragile and its growth will not be sustainable.

17        Genuine home-buyers should also exercise prudence when making property purchases.  Housing is a big-ticket expenditure item, and most buyers would have to take substantial loans that need to be repaid over many years.  Hence, notwithstanding the higher liquidity and the moderate interest rates, buyers should buy a property within their means, and not over-stretch themselves financially.  There is sufficient supply of private housing in the pipeline to meet demand. 

18    The Government will continue to monitor speculative activity in the market.  Our interest is to ensure a stable property market that reflects economic fundamentals.  Unless there are exceptional circumstances which warrant intervention, we will allow the property market to find its own equilibrium and respond to economic changes.

Focus of Coming Government Land Sales Programme

19    One of the key instruments in ensuring market stability is the Government Land Sales (GLS) Programme.  The GLS programme seeks to ensure that there is sufficient supply of land to meet various land demand.  It also seeks to direct development to areas of strategic interest. 

20    With the strengthening of the private housing market, new residential sites are needed to replace the sites taken up by developers in 2H2005.  Hence, the Government will be releasing more residential sites in the GLS Programme in 2006.

21    We will also make available more hotel sites. The improved regional economy and new tourist products offered in Singapore will boost tourist arrivals.  More hotel sites will thus be needed to support the growth.

22    For the past 4 years, sites on the GLS Programme have been released entirely via the Reserve List.  The Reserve List was introduced in 2001 to give the private sector greater flexibility in adjusting supply to demand changes.  The Reserve List has worked well and will continue to be an important instrument in the GLS programme. 

23        However, from time to time, the Government will use the Confirmed List to release sites where appropriate.

24    One site we are considering to release via the Confirmed List is a commercial site at Collyer Quay. This site is intended to form part of the loop of attractions around Marina Bay. The first phase of the loop of attractions around the Bay, formed by The Esplanade and One Fullerton, has already been completed. The next phase consisting of the Singapore Flyer, the Marina Barrage, the floating platform off Raffles Avenue and the Integrated Resorts are scheduled to be completed between 2007 and 2009. The timely development of the Collyer Quay site will phase in well with these developments and complete the necklace of attractions around Marina Bay. Given the strategic imperative for the site to be developed early, it is necessary for us to release the site via the Confirmed List.

25    The Government Land Sales Programme is now being finalized. MND will announce the details of the 1H2006 GLS programme in 3 to 4 weeks’ time.

Integrated Resorts

26    The next few years will be an exciting time for the Singapore property market.  It will be under-pinned by sustained economic recovery, and  will be further boosted by new developments and attractions set to enhance the competitiveness of Singapore.  

27    The first phase of the BFC has been announced recently.  The two sites at Orchard Turn and Somerset, important for the revitalisation of Orchard Road, have been launched for sale.  Last Friday, the Government announced that the Request-for-Proposals (RFP) for the IR site at Marina Bay would be launched on 15 Nov.

28    Let me take this opportunity to say a few words about the IR.  The IR site is not just any other site sold under the Government Land Sales Programme. The successful bidder will have to provide a compelling and comprehensive range of recreation and entertainment facilities, including venues for international shows and themed attractions, as well as convention and hotel facilities. It should add tremendous value to the tourism industry and generate significant positive externalities for Singapore.

29    The success of the IR in realizing these benefits lies in getting the right kind of product. It is imperative that our RFP guidelines and tender process allow us to get the best IR proposal.  Therefore, the Government decided to fix the land price – to focus the competition of the RFP fully on the quality of the development concepts and designs, and the appeal of the attractions and entertainment programmes.  This will give Singapore the best IR product possible, and at the same time, allow us to get a fair price for the land.

30    The land price of $1.2 billion, which was recommended by professional valuers and accepted by the Chief Valuer, reflects a fair price. We are confident that with this approach, we can achieve a distinctive IR development that will make Marina Bay a premier destination attraction and landmark in the region. 

Conclusion 

31    To conclude, the property market is showing signs of recovery that reflect economic growth, although we should remain vigilant against threats and uncertainties.  Government will continue to focus development and adopt land sales approaches that  maximize overall benefits for Singapore.  Whether they are large sites like the Business and Financial Centre, and the Integrated Resorts at Marina Bay and Sentosa; or single sites in Orchard Road and elsewhere, new developments coming up will provide Singaporeans with more options, and draw more businesses and visitors.  They will change our city-scape and make Singapore a vibrant global city.

32        REDAS and the Government have fostered a strong partnership over the years.  I look forward to your continued support and participation as we work together in these exciting times to make Singapore a better place to live, work and play in.

33        Thank you.

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