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SINGAPORE (BLOOMBERG) – Singapore’s Deputy Prime Minister and Finance Minister Heng Swee Keat has warned that low interest rates may lead to asset price distortions, amid speculation the government could take further steps to cool the real estate market.
“Today’s interest rates are ultra-low and in some cases even negative, so this can lead to a significant mis-appreciation of asset prices and significant risk of investing in the wrong places,” Heng said in an interview with Bloomberg Television on Wednesday. (February 17th).
“When people commit to buying a property, they are (putting) a large part of their life savings into it and we want to make sure it is sustainable,” he said.
Singapore’s residential property market has recovered rapidly after the pandemic pushed the economy into its worst recession, fueling speculation that authorities could impose cooling measures for the first time since July 2018.
Government ministers, including Heng, have warned that they do not want the market to get ahead of economic fundamentals.
When asked if it is too early to ease current property restrictions, Heng said: “It is certainly premature and in fact, I should say that we have to watch this.”
The latest round of measures – higher stamp duties and stricter limits for home loans – came after prices rose 9.1% in the previous 12 months. For 2020, prices grew 2.2%.
Heng declined to say what price threshold the government might have for any additional steps. “We are monitoring this,” he said.
Since the Asian and global financial crisis, “we have developed a pretty good risk panel for the entire economy,” Heng said. “Different agencies are monitoring different aspects of the risk board so if we need to act preemptively, we will.”
He also said that Singapore’s increased reliance on past reserves to fund its budget will depend on how long it takes to bring the global coronavirus pandemic under control.
Heng spoke a day after delivering a Budget that sought to strike a balance between more pandemic aid to vulnerable sectors and investing for the future with the city-state’s commitment to fiscal prudence.
After announcing plans to tap into the country’s reserves for the second year in a row, any decision to use them “depends on the trajectory of the pandemic, which will then shape the trajectory of the global recovery,” he said.
“If the pandemic is longer or the recovery is weaker than we expected, then of course the global situation will be different,” Heng said. “And Singapore is very dependent on the world economy.”
The government has been granted approval in principle to draw up to $ 11 billion from reserves by fiscal 2021, after taking advantage of the $ 42.7 billion forecast for the previous year.
While local daily Covid-19 cases have hovered around zero, officials say more help is needed to keep the economy on track to recover from last year’s 5.4 percent contraction, the worst since. independence more than half a century ago.
“The Covid pandemic is not over, and therefore we must continue to provide support in a very specific way,” Heng said.
Singapore is aiming to cut its budget deficit for the financial year that begins April 1 to 2.2 percent of gross domestic product, from this year’s record of 13.9 percent, or $ 64.9 billion.
Heng’s budget announcement included $ 11 billion to help households and businesses recover from the Covid-19 pandemic, including $ 700 million for an extension of some wage subsidies and $ 4.8 billion for public health and safe measures. reopening.
In addition to tapping into past reserves, the government also plans to issue more long-term bonds and rely on returns from Temasek Holdings and GIC, as well as the Monetary Authority of Singapore.
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