I am perplexed by the Ministry of National Development's decision to greatly reduce the supply of land for next year, following developers' concerns about oversupply in private housing ("Sharp cut in govt land supply for next year"; last Thursday).
The recent rise in property prices was seen as a result of strong market demand. Similarly, if prices were to fall, should it not be accepted as natural market behaviour as well?
The ministry's decision seems to suggest that, despite the talk about letting market forces prevail, the Government will still step in to protect the interests of developers in the event of oversupply.
This creates a moral hazard whereby developers bid aggressively for land, knowing they will be protected if things go wrong.
The decision also suggests that the ministry is satisfied with current property prices, and this translates to minimum prices expected for private properties. This acts as an implicit price guarantee for private property owners.
A sharp decrease in property prices is not in the interest of all stakeholders, but we should also respect the principle of market forces.
Every market follows a cycle of ups and downs. Any decrease in property prices is temporary and, in the long run, prices will recover.
A drop in property prices does reduce the earnings of the country from land sales. Perhaps it is time to consider introducing capital gains taxes on properties, so that even when land is sold cheaply to developers, the country can claw back the gains via future transactions when property prices increase.
Teo Jin Chong
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