Impact of new property cooling measures

The latest slew of property measures announced on 30 August aims to tame sky-rocketing housing prices and curb speculation. With tighter lending rules and more restrictions on home ownership, many homebuyers expect housing prices to fall. For most Singaporeans, getting their first HDB flat may now be easier as prices moderate. How will the new rules affect you when you sell your public flat and upgrade to a private property? Will the changes temper the buying behaviour of genuine investors? Join Debra Soon and her guests, MP for Bishan-Toa Payoh GRC Hri Kumar and Alastair Tong from HSR on Talking Point.

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Parliament passes Estate Agents Bill

The Parliament has passed the Estate Agents Bill, which calls for the creation of a new statutory board, the Council for Estate Agents (CEA), to oversee the real estate industry.

National Development Minister Mah Bow Tan said the new board will start operations on October 22.

Starting 1 January 2011, all real estate agents must register with the CEA and should meet certain standards to continue their profession.

The bill comes as the government acts to address the standards of the real estate industry, which has been plagued by an increasing number of complaints against errant property agents.

It also follows a housing bill that was passed in July to close a loophole, which had enabled moneylenders to lodge caveats on HDB flats to claim a share in sale proceeds.

Among the other unethical practices seen recently as the country experienced a real estate boom is the connivance between irresponsible agents and moneylenders to mislead homeowners, said MPs.

Many MPs also raised several concerns on foreigners who operate as agents, as well as on consumer awareness and guidelines.

When asked if foreigners with no local knowledge of laws could be banned, Mr. Mah said no, as such measures will violate several free trade agreements between Singapore and its trading partners, and would be regarded as a discriminatory practice.

While foreigners can still work as real estate agents, they must qualify for a Ministry of Manpower work pass, abide by the new rules and, under the new bill, must register with an agency.

THE government has just announced the latest instalment in its gentle therapy of a series of calibrated measures to try and rein in the acceleration in home prices.

Is this strategy working? Or should we revisit the sledgehammer approach of May 1996 when a whole slew of anti-speculation measures were rolled out at one go?

Thus far, the measures introduced since September last year do not seem to have had their intended impact.

Last September saw the scrapping of the interest absorption scheme, which had fuelled speculation. In February this year, the government reintroduced the seller’s stamp duty and lowered the loan-to-value (LTV) limit on housing loans.

On the supply side, the government is selling a record volume of land for private housing development this year in a bid to tame property prices. So far, developers – many of whose landbanks have been dried up by strong housing sales last year – have demonstrated a voracious appetite for land and continue to drive land prices up.

Yesterday, the government announced steps which property consultants say will contain prices of HDB resale flats, a key pillar supporting the entry-level, mass-market private condo market.

In the private housing market, the sellers’ stamp duty is being extended to those who sell residential properties within three years of purchase; the shorter the holding period, the higher the stamp duty. Market watchers say this is directed at specuvestors.

For those already servicing one or more outstanding housing loans, the cash payment for a new property purchase will be doubled and the LTV limit lowered to 70 per cent. This also applies to HDB flat buyers who are taking loans from financial institutions.

Genuine first-time home buyers should not be affected. ‘Deep-pocketed investors with a longer-time investment horizon will also not be affected,’ says Knight Frank managing director (residential services) Peter Ow, who also advises individual property investors.

Weaker investors

The categories of buyers that will be affected are likely to be HDB upgraders along with speculators and weaker investors. ‘Some buyers may not be speculators but tend to really stretch themselves to invest in a second or subsequent property. If the property market were to tumble or interest rates shoot up, they could be in deep trouble,’ Mr Ow points out.

Such buyers could find it difficult to service their loans, and stand to lose their properties, while banks could chalk up non-performing loans.

The series of measures could temper demand at least for mass-market private housing. In addition, according to Mr Ow, investment demand for shoebox and other smallish apartments may be dented from first-time home buyers who were also planning to buy HDB resale flats for their own occupation since this is no longer allowed.

By most counts, residential property prices should start to moderate. Developers will hopefully tame land bids, knowing they cannot keep on expecting to sell their end products at higher and higher prices.

Supposing the market picks up again after an initial knee-jerk reaction, the government can still summon other ammunition from its arsenal – such as further raising cash downpayments and lowering LTV ratios, treating gains from selling properties within say three years of purchase as taxable income, banning subsales of properties bought from developers until the project is completed.

The calibrated approach may not create much bang though. An alternative would be to simply package everything together for greater impact – like in May 1996. The danger of such an approach is that the market can enter a tailspin if there is a confluence of negative factors. This can then be very difficult to reverse and spark economic, social and political problems. Looking back, the May 1996 anti-speculation measures were exacerbated by the onslaught of the Asian Financial Crisis, and later on the fallout from the dotcom bubble bust, Sept 11 terrorist attacks in the US and the 2003 Sars crisis in Singapore. This marked a long property slump until around 2004 – although there was a respite between 1999 and mid 2000.

Taming the property market – without killing it – is the challenge ahead for the authorities.

One may also ask to what extent Singapore’s property prices can really be subdued given high liquidity and a lack of alternative investment options to appeal to the average investor. And then there’s the government’s stated objective of increasing Singapore’s population vis-a-vis our limited land resources.

Source : Business Times – 31 Aug 2010

String of steps to douse speculation; prices and sales of mass-market private homes may be hit

The Prime Minister had hinted on Sunday that major moves were afoot to cool the property market. Even so, when the Ministry of National Development (MND) spelt out the measures yesterday, several market-watchers did a double-take. Many of them expect private home prices and sales to be hit.

Of all of MND’s new measures, analysts pegged the move to disallow concurrent ownership of HDB flats and private residential properties within the minimum occupation period (MOP) as the most significant. The MOP is the time that buyers are required to stay in their flats before they can sell.

Private property owners who buy an HDB flat now have to dispose of their private homes within six months. National Development Minister Mah Bow Tan, who announced the measures, said that right now, around half of private property owners who buy an HDB flat sell their private properties. The rest hold onto both.

The MOP for non-subsidised flats was also increased to 5 years from 3 years.

PropNex chief executive Mohamed Ismail said that the mandate to dispose of one’s private property when purchasing an HDB flat will have ‘great ramifications’ for the industry. Based on his firm’s records, about 10 per cent of all HDB resale purchases are by private property dwellers.

‘These may be investors who will now not be able to purchase HDB flats and keep their private property for investment purposes,’ he said.

MND also targeted potential buyers of second homes with two policy changes. Those who hold an existing mortgage can now only borrow up to 70 per cent of a property’s value for the second home, down from 80 per cent previously. They must also pay 10 per cent in cash, up from 5 per cent.

And owners who sell houses and apartments less than three years after buying them will also have to pay a seller’s stamp duty. Previously, the seller’s stamp duty was only imposed on those who sell their homes within one year of purchasing.

The Real Estate Developers’ Association of Singapore (Redas) said in a statement that while the latest measures may affect affordability due to higher upfront cash component, they will not impact genuine home buyers.

But at least one developer BT spoke to felt that the measures would hit sales of mass market private homes as HDB upgraders will have to cough out 10 per cent cash and can only borrow up to 70 per cent of the property’s value.

‘Genuine upgraders could be turned off as they will have to sell their HDB flats and settle that loan before buying a new property,’ the developer said. ‘Now, the practice is to buy units from developers at new launches and then wait for their new property to be built before selling existing homes.’

CBRE Research executive director Li Hiaw Ho also pointed out that the pool of HDB upgraders looking to buy private properties will shrink as this group will now have to wait for five years instead of three.

The government acted as Singapore’s strong economic growth, low interest rates and high liquidity continued to push home prices up in 2010 – sparking concerns of a property bubble. Private home prices were up 38 per cent year on year as of end Q2, while HDB resale prices climbed 15 per cent over the same period.

‘If the current momentum in the market continues, what will likely happen is that a property bubble will form,’ said Mr Mah. ‘And when the bubble bursts – not if, but when it bursts – there will be severe implications for individuals as well as for the economy as a whole. Furthermore, the very low interest rates we are seeing today are not sustainable in the long run.’

Analysts said that the new measures will hit private home prices and sales volumes.

Colliers International’s director for research and advisory Tay Huey Ying said that developers’ sale volume for September to December 2010 is now predicted to come in at the lower range of her earlier forecast of between 800-1,000 units a month.

She also revised her earlier forecast of up to 5 per cent growth in the official residential property price index for Q4 2010 downwards to ‘at most 2 per cent’.

HDB prices are also expected to moderate as the government plans to release up to 22,000 new build-to-order flats in 2011, up from the more than 16,000 in 2010. It will also release more land for executive condominium projects and design, build and sell scheme (DBSS) flats next year.

Yesterday’s measures follow earlier demand-side measures introduced in February.

Then, the government first implemented a seller’s stamp duty for all residential properties sold within one year from the date of purchase. It also lowered the loan-to-value limit to 80 per cent from 90 per cent for all housing loans provided by MAS-regulated financial institutions.

But Prime Minister Lee Hsien Loong said on Sunday that previous measures had failed to keep prices from rising.

Looking ahead, collective sales and bidding for government land sales are expected to slow down for the rest of the year as developers monitor the market and the strength of recovery in the US and European economies, said DTZ’s head of South-east Asia research Chua Chor Hoon.

The Singapore Land Authority (SLA) has launched a tender for 33 black and white bungalows at Mount Pleasant.

These colonial bungalows are approved for residential use.

They will be offered for an initial tenancy period of three years with an option to renew for two more three-year terms.

The units have a gross floor area (GFA) ranging from about 200 to 1,100 square metres and a land area ranging from about 1,500 to 18,000 square metres.

Together, the properties have a GFA of some 17,000 square metres and occupy a land area of about 182,000 square metres.

SLA said the guide rent for the 33 bungalows is some S$488,000 per month.

The tender will close on September 21.

Source : Channel NewsAsia– 31 Aug 2010