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10 November 2009

Singapore’s central bank warns of risk from property speculation

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The rise in risk appetite and sharp rebound in financial markets since the start of the year may have outpaced economic fundamentals, the city-state broadcaster Channel News Asia reported on its website, quoting to the annual Financial Stability Review released by the Monetary Authority of Singapore (MAS) Monday.

The MAS noted that although Asia has bounced back from the financial crisis faster than expected, the global economic outlook remains uncertain.

This is because the nascent recovery in the world's biggest economies – the United States, Japan and the European Union – has largely been dependent on government stimulus.

There is a risk that once these stimulus policies are withdrawn, their recovery will take a hit, thus affecting Asian economies, especially those that are export-dependent such as Singapore.

If economic recovery stalls, corporate earnings may come under renewed strain and corporate refinancing may become more difficult. MAS added that unemployment could also rise if the economy slows again.

Despite such uncertainties in the global outlook, Singapore's property market has taken on its own dynamics. Private home prices rose almost 16 per cent in the third quarter – the highest quarterly increase in almost three decades.

This has led MAS to warn that a speculative bubble could form. Speaking with Channel News Asia, some analysts said that such a warning is timely.

David Cohen, director of Asian economic forecasting at Action Economics, said: "It's probably healthy that people are talking about a potential bubble... It's when people don't talk about a bubble, (then) things get out of hand...

"The fact that policy makers, including the MAS, are taking notice and are preparing to take some steps to dampen the exuberance, that's also welcome."

MAS said although the government has already introduced several measures in September to temper the exuberance in the market and pre-empt a bubble, more measures might be needed.


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