Monday, March 11, 2013

Property worries keep STI subdued amid global rally

The Straits Times  |  MARCH 11, 2013
But bourse faces a milder fall when Wall Street partying grinds to a halt

There was none of the celebratory mood here that transfixed other major bourses as Wall Street hit record-high levels almost four years to the day after bottoming out on March 9, 2009.

While the Dow Jones Industrial Index went on a record-smashing streak, charging to ever-higher levels after crossing its 2007 all-time high on Tuesday last week, the benchmark Straits Times Index (STI) stayed a tad subdued, ending the week with only a 0.6 per cent rise to 3,289.53.

This marks a rare occasion where the local stock market is refusing to imbibe the intoxicating rallying spirits that appear to be taking hold of global bourses once more. Still, the subdued sentiment is understandable.

Just as other bourses such as Tokyo and Hong Kong were getting ready to party once again last Friday, property counters here were spooked by talks that the Government was planning yet another round of cooling measures for the private residential market.

It triggered sell-offs in stocks like property giant CapitaLand, which fell 2.95 per cent to $3.62 as it sank to its lowest levels in three months, and caused the STI to end in the red with a drop of 9.01 points, or 0.27 per cent.

These speculations, which relate to a possible slashing in the mortgage servicing ratio or the proportion of monthly income that a borrower spends to service his monthly mortgage instalments, are not new.

In fact, they had occasionally surfaced in the past two months since the Monetary Authority of Singapore in January cut the mortgage servicing ratios for Housing Board flats from 40 per cent to 35 per cent of a borrower's gross monthly income.

But traders were jittery that the rumours might have credence, since the Government took the market by surprise recently by imposing lending curbs on motor cars, capping such loans to a maximum of 60 per cent of a car's price and their tenures to within five years.

Nor is this their only headache about the property sector.

The market will also have to weigh the implications of National Development Minister Khaw Boon Wan's ambition to drive down the price of new HDB flats, even though he has not offered any details on his plan.

This is in view of the fact that the pool of HDB upgraders buying private condominiums may dry up if the resale HDB market is affected by the Government's move to bring down the prices of Build-to-Order flats.

Seen in a broader perspective, however, the cooling measures - whether they are taking place in the housing or the motor car market - can only be good for consumers in the longer term, as they help to defuse any speculative bubble that may be in the midst of forming here.

It is also worthwhile to note that even though Wall Street ended on a high note last Friday, the response to news of the stronger-than-expected number of 236,000 jobs created in the United States last month has been relatively muted.

One fear is that the improving job situation may be a sign that the world's No. 1 economy is on the mend, and force the US central bank to raise interest rates earlier than the envisaged 2014 deadline it had earlier set.

Given the close manner in which local interest rates shadow those in the US, any rates hike would be calamitous for the thousands of borrowers who may have to cough up extra cash to service their mortgages and car loans.

Better to be safe now than sorry later. True, the STI may not get anywhere near its October 2007 all-time high of 3,865 at the rate it stays dithering around the 3,300 resistance levels, but it may have less distance to fall if the party on Wall Street screeches to a halt.

Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C

Senior Sales Director
DTZ Property Network Pte Ltd (L3007960A)

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