Thursday, January 31, 2013

MAS on Asia govts' moves to cool property markets

Targeted interventions have met with some success, investor conference told

The Business Times
January 31, 2013

TARGETED interventions by governments to cool heated property markets across emerging Asia have achieved some degree of success, said Monetary Authority of Singapore (MAS) managing director Ravi Menon yesterday.

They allowed policymakers some freedom to experiment without relying too much on possibly counterproductive interest rate or exchange rate policies.

But these interventions - such as tightening loan-to-value ratios and stamp duties - need to be put in a more structured context, he said at Citibank's 10th annual Asia-Pacific Investor Conference.

"While these targeted interventions have achieved a measure of success, macroprudential policies in emerging Asia have been deployed in a relatively eclectic and even ad-hoc manner.

"As these countries return to more normal times, there is a need to formalise and institutionalise the modus operandi of these policies, for greater transparency and policy effectiveness."

Mr Menon was giving an overview of the global economy and what can be done to ensure its return to normalcy. While economic prospects this year look brighter, the global economy and financial markets are still fragile and vulnerable to shocks, he said.

Easy global liquidity conditions caused by money-printing central banks in advanced economies have caused asset prices to surge in some Asian countries, Mr Menon noted.

Residential property prices in Korea, Taiwan, Hong Kong, and Singapore, for example, have increased by 35 per cent on average since 2009, while nominal wages have risen by only 13 per cent.

"As long as monetary conditions in the advanced economies remain easy, emerging market economies face the risk of misallocated resources and disruptive capital flows, which in turn can affect both price stability and financial stability," he said.

One policy response is to allow exchange rates to rise. Since mid-2009, most regional currencies in Asia have appreciated by 3 to 10 per cent in nominal effective terms. But allowing exchange rates to appreciate rapidly to contain inflation might attract even more capital inflows, and runs the risk of driving down exports and stalling the economy, he said.

Likewise, interest rates are too blunt a tool to deal with "sector-specific excesses" like in real estate. Hike rates too aggressively to affect credit conditions and asset prices, and there will be a high cost on the rest of the economy, he said.

Here, the MAS does not use interest rates as a tool to combat inflation. It is currently allowing the Singdollar to appreciate gradually.

Asian governments have been trying other ways. Earlier this month, Singapore announced its seventh attempt to cool property prices in the last three years, with higher stamp duties and tougher loan eligibilities. Hong Kong, too, has tightened mortgage lending, imposed a buyer's stamp duty and is boosting land supply.

Meanwhile, Mr Menon also said that other key reforms needed by emerging Asia governments include boosting domestic demand, deepening and broadening its financial markets, and raising efficiency and productivity.

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