Are the latest cooling measures – specifically targeted at the private housing market – what many Singaporeans have been waiting for since the General Election in May?
Wednesday's announcement of an additional buyer's stamp duty of 10 per cent for foreigners and 3 per cent for Permanent Residents already owning one or more properties and for Singaporeans already owning two or more properties caught the market by surprise.
The reaction of the Real Estate Developers Association of Singapore (REDAS) was understandably one of deep disappointment. Almost a whole year of residential land sales have been snapped up. Millions of dollars have been poured into these ventures. The sudden introduction of the measures is akin to shifting the goalposts halfway during the game.
The problem is probably one of miscommunication. In all its actions to date, the authorities have not let on that investment buys could be a problem. In fact, all four earlier sets of cooling measures were aimed at reducing speculation and stabilising prices. Now, it seems all of us were fooled. A statement or two indicating otherwise would have been greatly appreciated. At least, some developers would have factored this in as a risk when bidding for sites.
Then again, aren't developers supposed to factor in such risks?
Many analysts have singled out luxury homes as the market segment that stands to lose the most. Are we not forgetting that buyers in this segment are more concerned with the product than its price. Is an outlay of a mere 10 per cent more going to deter the ultra-rich from any of these purchases.
For sure, nobody likes to be discriminated against. All the developer has to do is to raise the price by 10 per cent but offer to absorb the additional stamp duty. The problem is psychological rather than real. Admittedly, sales for this market segment have been slow but it will not be any slower because of the new measures, unless of course, the product is more high-priced than high-end.
Wednesday's announcement came very soon after Minister of National Development Khaw Boon Wan's wish that the HDB first-timers' application rate for the Build-To-Order launch would fall below 2 times was fulfilled way beyond his expectations. Has the focus now shifted to fulfilling citizens' upgrading aspirations? It appears to be so.
The supply of Executive Condominiums (ECs) has been raised for next year. On the Government's Confirmed List of land sales for the first half of next year, five are for ECs. It is also probably recognition of the fact that the latest stamp duty changes would not correct private property prices soon enough or at least not enough to fulfil some of the upgrading aspirations. Depending on demand, we can expect more EC sites to be offered for sale in the coming years.
Apart from what is likely to have been miscommunication, I would say the measures are finally addressing the problem of excessive liquidity and the dangers it could pose for a small open economy like Singapore's.
Compared to the earlier changes in January, where up to 16 per cent in seller's stamp duty may be imposed depending on the timing of the divestment, the current set of changes is actually less drastic but more effective. But will it be enough?
To potential first-time private home buyers expecting a sharp drop in prices, it is too early to cheer. Even if property prices were to start to correct from today, it may be many months before they reach your affordability levels.
Time and time again, I have advised against under-estimating the liquidity challenge. How many of us thought that the cooling measures imposed in January marked the start of a decline of the residential market. I can tell you there were many red faces thereafter, some of them of very prominent market analysts.
How many times have our neighbours played our local investors out by changing the rules mid-way, but has this stopped property investments in these countries? The answer is no.
It is well-known that Hong Kong and Singapore are two favourite property investment destinations for mainland Chinese investors. If you have not been monitoring Hong Kong property prices, take a look now and then look at Singapore's. Then tell me whether the effectiveness of the current measures can be sustained over time.
by Colin Tan – head of research and consultancy at Chesterton Suntec International.
Source: Today - 9 Dec 2011
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