Domestic property market

The deferred payment scheme, introduced in 1997 and withdrawn in 2007, allowed buyers to buy property under construction without lining up bank financing in advance as long as they made a downpayment of 10-20 per cent. The large potential number of homes under the scheme that may be returned to developers this year could destabilise a domestic property market already suffering from poor sentiment and a potential decline in home affordability (due to the expected lower income earned in 2009).

Therefore, the Budget brought some reprieve for not just property developers but also indirectly for home owners with the government announcing some measures to steady the domestic property market including deferring property tax for land which is approved for development and allowing a one-year extension of the project completion period for private residential projects. For property owners, the 40 per cent property tax rebate should also bring some direct relief in 2009.

The combination of measures should help cushion partially the corporate sector from the impact of recession and, hopefully, save jobs. Latest data and forecasts from the government clearly point to a dismal economic landscape facing Singapore in 2009. The expansionary Budget, which was brought forward to yesterday from late February, is definitely a big help for businesses and households to cope with the pain of the present recession, but we should be mindful that significant import leakage will limit the ability of fiscal measures to prevent a GDP contraction - a point that was also alluded to by the finance minister in his Budget speech. Singapore cannot spend its way out of recession, as domestic demand (which contributes around 25 per cent of annual GDP growth) is significantly tied to the external outlook. Another positive point we took from this Budget was the government's willingness to dip into reserves in a time of crisis, and it also keeps the door open for a supplementary Budget if the year turns out to be much worse than we imagined.

The writer is a regional economist at Standard Chartered Bank Global Research.

This article was first published in The Business Times on January 23, 2009.