MUCH ADO ABOUT NOTHING

The dive in property stock prices following the Dec 7 announcement of additional cooling measures is an admission by the market that it believes that the bulk of home buying in recent quarters - if not years - were investment purchases and not driven by owner-occupiers or upgraders as many had claimed for so long.
How else can we interpret the strong reaction and thinly-disguised anger and bitterness in some of the comments in news reports over the recent days? I was actually more taken aback by these comments than the actual measures themselves. However, the party which should be the most aggrieved - the developers - appears to have taken the latest measures far better than others.

The day after the announcement of the additional buyers' stamp duties of between 3 and 10 per cent on certain transactions, the developers came out in droves - 22 in all - to bid for a landed housing site in Chestnut Ave in Upper Bukit Timah. There is no doubt that the buyers of landed homes are less affected by the cooling measures, but the number of bids and the prices were above expectations. Only one developer was successful, which means 21 others had spare cash to spend. Is this a sign of vulnerability?

If indeed the majority of home purchases this year had been underpinned by strong demand fundamentals - shrinking household sizes and rapid population growth that had resulted in severe undersupply as suggested by some analysts four to five months ago - why is there a panic reaction now?

We have been overwhelmed by numerous negative comments, with almost all analysts predicting at least a 10-per-cent drop in home prices in the next year, with some forecasting a plunge as much as 30 per cent. This translates to an average loss of 2.5 per cent per month or 7.5 per cent per quarter.

Such a steep drop in such a short period - if it occurs - indicates a severe loss of market confidence. Maybe we are thinking about the last decline during the global credit crisis that followed the collapse of Lehman Brothers. However, we should not forget that Singapore experienced its deepest post-independence recession then. Are we expecting a recession of the same magnitude next year? The latest economists' forecast is that the Singapore economy will grow 3 per cent next year.

If you had read the report in question, the 30-per-cent drop was predicated on slower population growth and unprecedented home supply, not on slower economic growth or a recession. Some analysts have also drawn comparisons to the 1996 price decline which was precipitated by the introduction of anti-speculation measures in May that year. It is not a fair comparison as the problem then was rampant speculation and it was nipped in the bud. There was no low-interest rate environment.

From the statements accompanying the announcement of the latest measures, it is clear that the authorities see potential destabilising investment flows as the problem. Clearly, they are saying that it is a money issue first before it is a real estate problem. However, most of our market analyses thus far have largely ignored this aspect or dwelt on it only in passing.

Many continue to treat it as a real estate problem, ignore the economic aspect of it and then still expect buyers to be rational in their buying. It will be by pure chance if their calls turn out to be right. I am not saying these analysts are wrong but if you truly understand the complexity of the real problem, it is premature to call a drop in prices at this point in time.

I would also not be unduly worried by some analysts' comments that the heavier stamp duties are making a dent in Singapore's standing as a major property investment destination while giving rivals such as Hong Kong a boost. These comments do not give due recognition to what many respected economists are warning about - the destabilising investment flows into our part of the world.

To continue with a non-interventionist approach in the face of such hot money would be foolhardy - it would be courting disaster. In fact, I would say the current measures have enhanced Singapore's standing as a safe haven and an extremely attractive property investment destination.

Colin Tan is head of research and consultancy at Chesterton Suntec International.
Source: Today - 16 December 2011

COOLING MEASURES BITE MARKET SEGMENTS DIFFERENTLY16

The year is ending on a sombre note for the private residential market, with severe cooling measures announced earlier this month imposing an additional buyers' stamp duty (ABSD) of 10 per cent on purchases by foreigners.

While prospective buyers, including locals who may be affected by the 3 per cent ABSD, are expected to remain on the sidelines in the next few months, not all private homes will suffer the same impact from the measures.

Landed homes seen resilient

Landed homes will likely be the most unscathed, while speculative products, such as shoebox apartments, will likely experience weakened buying interest. The difference is underpinned by product heterogeneity, foreigners' participation and also the financing capabilities of the buyers' for each product type.
Landed homes are expected to enjoy resilient buying interest next year, as the buyers are predominantly locals who are the least affected by the cooling measures while the supply of such homes is limited. However, non-landed residential properties in the prime districts, which are fairly exclusive, may be more affected as foreigners account for a large share of buyers.

Shoeboxes to be worst hit


Shoebox apartments, particularly those smaller than 500 sq ft each, have gained popularity from 2009 but the success is set to come to a halt next year. There is less motivation to consider buying smaller-sized apartments, particularly when average prices moderate. The typical buyer who finds the shoebox unit acceptable during the price run-up from 2009 to this year may no longer prefer such a home or investment if there are better and larger offerings.

Even before the latest cooling measures were imposed, various developments with shoebox units had been scheduled for completion next year, meaning there will be increased competition between sellers. Although owners will generally hold shoebox units, especially those who had purchased this year and want to avoid paying the hefty sellers' stamp duty, there are some who bought in 2009 and last year who have enjoyed capital appreciation and are considering selling.
Moreover, if a Singaporean can at most hold two private residential properties to avoid paying ABSD for his new purchase, there is less incentive to purchase a smaller-sized apartment. The buyer will likely wish to exercise his limited option on buying a larger or standard-sized unit. There may also be some shoebox home owners who hope to relinquish their units in order to go for more attractive larger sized apartments if prices ease next year.

Suburban condo interest not excessively weakened


The suburban condominium market, with fairly homogenous offerings, will likely see moderated buying interest due to economic challenges. However, as the buyers are mostly HDB upgraders or those owning fewer than two private properties, interest is unlikely to be excessively weakened by the ABSD.
Although the economic slowdown will severely affect job stability, there are still home seekers working in the "evergreen" or fairly recession-proof industries, such as oil and gas, education or statutory boards. They may have continued confidence in financing their homes and appropriately-priced suburban condominiums can appeal to this profile of buyers.

This year has been intense for the private residential market as prices jumped notwithstanding the cooling measures implemented in January that included sellers' stamp duties of as high as 16 per cent. While there is less justification for this month's cooling measures given that economic conditions had moderated late in the year, the latest measures are likely to achieve the best effect in reining optimism in market sentiment.

The dichotomy in the market means that owners of properties which are expected to see weaker buying interest should strive to hold on and emerge from the uncertainty. Property owners can also take a longer-term view by consenting to competitive rental rates, as ultimately there may be opportunities to renew leases at higher rents or even resell at better prices, should the economic and intrinsic property market fundamentals eventually improve.

Source: Today-December 2011
Ong Kah Seng is a director at R'ST Research, an independent property market research firm in Singapore.

HDB resale prices to hold up, say experts

PRICES of Housing Board (HDB) resale flats are expected to hold up as supply is tight but sales volumes could soften as buyers assess their options in the light of new cooling measures.

Experts say a stand-off between buyers and sellers is likely over the coming weeks as the stamp duty rules sink in. They believe most buyers will take a wait-and-see attitude, with some holding off purchasing a resale flat in anticipation of private home prices falling.

HDB resale prices rose 3.8 per cent to a record in the three months to September and are now 35 per cent higher than in the fourth quarter of 2009 - the last time prices fell. Resale prices then dipped just 0.8 per cent before rebounding and heading north again.

But while HDB resale prices are correlated to how values move in the private mass market, they are likely to be more insulated from the stamp duty measures as many buyers, unlike in the private market, are first-timers and owner-occupiers rather than investors or foreigners.

Analysts do not expect the public market to be overly affected unless private home prices fall 'significantly'.
But even if private home values drop by 15 to 20 per cent next year, HDB resale prices might dip by a more moderate 5 to 10 per cent instead.

There is enough demand for such homes... Even though HDB housing supply has been ramped up, these flats have not entered the market yet as they are either still being built or serving out their minimum occupation period.

Mass-market home prices to ease by between 5 and 10 per cent next year, which could lead to HDB resale prices dipping 3 to 5 per cent in tandem. Even during the global financial crisis, the HDB market was still manageable with sales activity remaining healthy.

While HDB resale volumes might come off slightly, prices are expected to remain stable or dip slightly... But I would expect the HDB resale price index and cash-over-valuations paid to start coming down by the first quarter of next year.

Any dip in prices is likely to occur only in the second or third quarter of next year.


If sales of new private homes slow to below 1,000 units a month for a period, developers might have to reduce prices and this might have a knock-on effect on the HDB resale market.

Experts say developers will also have to rethink pricing for executive condominiums (ECs) if mass-market home prices fall sharply.

There has to be a comfortable price gap between ECs - a public-private housing hybrid - and mass-market private homes.

If mass-market home prices fall, EC prices will have to drop accordingly. If EC buyers think that mass-market home prices are going to decline, they may wait for EC prices to follow suit. Or if some of them think that they may be able to afford private homes when prices correct, they may opt to buy private.

ECs are usually about 20 per cent cheaper than private mass-market condos, experts note.

The new measures are the toughest on foreign buyers and corporate entities. They will now be hit with an additional buyer's stamp duty of 10 per cent. This is on top of the existing stamp duty of about 3 per cent.
Permanent residents buying their second and subsequent homes and Singaporeans buying their third and subsequent homes will have to fork out an additional buyer's stamp duty of 3 per cent.

The proportion of foreigners in the mass-market segment has been increasing over the past few years.
Foreigners accounted for 15 per cent of all suburban home purchases in the three months to September. This is up from 5 per cent in 2009 and 7 per cent last year.

Source: The Straits Times – 10 December 2011

Developers dangling discounts for buyers

DEVELOPERS are already offering packages on homes to offset the stiff new stamp duty measures that came into effect only two days ago.

Far East Organization is offering a 5 per cent relief package to affected buyers at all of its already-launched projects.

It will reimburse buyers 3 per cent of the unit price to offset the new stamp duty. Buyers will also get a furniture voucher worth 2per cent of the flat price.

They will get the voucher only after putting down a 30 per cent deposit if the project has not been completed.

The package applies across the board to Singaporeans, permanent residents (PRs) and foreigners, so foreigners will still be worse off after the new measures.

Far East's already-launched projects have another discount that differs between properties.
Prices of units at its Seastrand project in Pasir Ris Drive 3 are discounted by up to 14per cent, making the cheapest unit an estimated $937 psf. But with only three- and four-bedroom units left and the smallest three-bedder at 1,109 sq ft, the minimum purchase now would cost about $1.04 million before stamp duty.
With an additional 10per cent buyer's stamp duty for foreigners of $104,000 now, Far East's relief package would help a buyer save almost $52,000 - about $30,000 initially and the rest subsequently.
However, a Far East agent said that unofficially the discount rate could go up to 16 per cent of the original unit price. This means buyers can negotiate a 21 per cent discount off the original total price by combining the uniform 5 per cent cut with the discount that applies to the Seastrand.

This would more than offset the extra stamp duty incurred, although it is believed that the discount applies on a case-by-case basis.

Far East has not announced a deadline for its relief package but the agent said it could last until the end of this month.

The Seastrand's temporary occupation permit (TOP) is expected on Dec31, 2016.
Wing Tai's luxury Helios Residences at Cairnhill Circle is also offering a relief package, said a company sales agent.

Buyers will get a cash rebate of up to 2per cent of the total price upon payment. That goes up to 2.5 per cent at the start of the second year of occupation and 3per cent at the start of the third year.
They will not be allowed to sell their unit for three years following purchase.

The smaller units can cost around $4.2million, said the agent, adding that the relief package is meant to help 'lessen the burden' on customers.

The agent said the deal is only applicable to Helios Residences, as its target market is foreigners, who are more likely to be affected by the stamp duty imposition, but did not specify a deadline. Helios Residences obtained its TOP on Jan 28.

Sales agents at Keppel Land, UOL and CapitaLand did not know of any discount packages being offered.

Agencies said their firms were not offering discount packages, but some said they might be able to negotiate an additional 1 per cent cash rebate.

Source: The Straits Times – 10 December 2011

REACTIONS TO NEW PROPERTY MEASURES

Sentosa Cove property may be impacted: analysts
By UMA SHANKARI

(SINGAPORE) The residential market in Sentosa Cove - where foreigners and corporations accounted for 46 per cent of home purchases in the first 11 months of 2011 - could be hit especially hard by the latest round of cooling measures, say analysts.


With properties there going usually in excess of $15 million, the stamp duty increases for those segments would now work out to close to $2 million - which buyers might be unwilling to swallow, said International Property Advisor chief executive Ku Swee Yong.

According to data compiled by SLP International, the proportion of homes in Sentosa Cove bought by foreigners rose to 41 per cent in the period from January to November 2011. And corporations picked up another 5 per cent of all homes sold, according to the firm's analysis of caveat data from URA Realis.

This is a jump when compared to foreigners' and corporations' share of 33 per cent from January 2009 to December 2010.

Sentosa Cove is the only part of Singapore where foreigners don't need to be permanent residents (PRs) to buy landed homes, so the residential enclave has typically been popular with that segment of buyers.

Their share of purchases grew even as overall transaction volume dipped. And now, volumes could fall even further as foreigners hold off on buying in the wake of new measures - which include an additional buyer's stamp duty of 10 per cent for foreigners and corporations, on top of the existing buyer's stamp duty of up to 3 per cent.

'I think the sales in Sentosa Cove were already slowing recently, in line with the rest of the market,' said DTZ's chief operating officer for South-east Asia, Ong Choon Fah. 'And now, things will be even slower for a while.'

Analysts estimate that about 60 per cent of the units in the high-end residential enclave are owned by foreigners.

And while a fair number of these foreigners are owner occupiers, there are also a fair number of investors who will now face a shrinking pool of buyers when they try to re-sell their properties.

Analysts noted that the 'intent' of the latest round of measures seems to be to limit foreign purchases.

'While the impact from higher entry cost is broad-based, we see more heightened risk in the prime segment (such as in Sentosa) where foreigners and PRs account for some 44 per cent of all sales (up from 20 per cent in Q1 2009),' said Goldman Sachs analysts Paul Lian and June Zhu in a note yesterday.

But DTZ's Mrs Ong noted that the limited supply of homes in Sentosa Cove - just around 2,400 - works in favour of the micro-market there.

And developers and investors who are looking to sell their units on the island generally have good holding power, she added. 'Sellers are likely to adopt a wait and see attitude, rather than offload their properties through fire sales.'

Source: Business Times - 9 December 2011

A different take on latest property curbs

Let's have more carrots for Singaporeans instead of wielding the stick on foreign buyers.
By Ku Swee Yong


THE latest round of measures to promote what the government claims would be 'a stable and sustainable property market' begs many questions. Let's begin with the basic parameters. First of all, the additional buyer's stamp duty (ABSD) is applicable only to the private residential segment, not to other segments such as office, retail, industrial, HDB shops, HDB flats, Executive Condominiums (ECs), etc. So perhaps a more appropriate claim should be 'a stable and sustainable private real estate sector'.


Next, the key objective listed was 'to promote a sustainable residential property market where prices move in line with economic fundamentals'.

Prices of private residential properties have continued to rise, albeit more slowly in the last two quarters. According to the Urban Redevelopment Authority, prices are now 13 per cent above the peak in Q2 1996 and 16 per cent above the more recent peak in Q2 2008.

In the many overseas seminars I have spoken at, I am always happy to reassure investors that as a broad guiding principle, foreigners and Singaporeans are not treated any differently when investing in Singapore. However, now we have imposed a 10 per cent ABSD on foreigners who purchase residential units. If we apply these stamp duties on the residential real estate asset class, does it imply that other asset types, such as commercial properties, stocks, capital equipment, cars, COEs, etc are also likely future candidates for additional stamp duties if the public perception is that a particular asset is beyond Singaporeans' reach?

Or, if the stock market becomes too hot and the Straits Times Index surpasses the October 2007 peak of 3,850 points by 20 per cent, reaching, say, 4,600 points, will the authorities also implement higher stamp duties on foreigners' stock investments, 'owing to the small market size of the SGX' to make the stocks more affordable for Singaporeans?

What about stamp duty on foreigners' purchase of COEs because the COE pool is limited? What is the significance of measuring our private residential prices against the previous peaks? And what has this got to do with foreigners today, given that in 2006-2008, prime properties such as St Regis Residences, Ardmore II, Sentosa Cove, Orchard Residences and were snapped up mainly by foreigners.

Most foreigners invested in Singapore's long-term future as part of their portfolio diversification and wealth protection for their families. Why were such measures to curb foreign ownership (individuals, families or institutional funds) of residential properties not implemented at that time when the luxury residential sector was booming hot?

I have expressed in several articles that the climb in the private residential index is the result of strong sales at new record prices in mass-market launches. This climb is mainly contributed by Singaporeans and Singapore permanent residents (PRs). The proportion of foreigners purchasing in the mass market is low, at 10-20 per cent as the mass-market residential segment is not considered 'investment grade'. I have also provided data to show that foreigners have not been significant contributors to the increase in mass-market home prices.

The fundamental cause of the climb in mass-market prices has been the strength of HDB resale prices, where the rate of growth is higher than that of the private residential index. Owners of HDB flats feel confident about the rising values of their flats. And since money in savings accounts devalues due to the prolonged 5 per cent inflation, and mortgage costs are low, they look for safe, secure investments. This leads them to purchase private residential properties for rental income and as an inflation hedge.

Unfortunately, the new measures do not address the rising HDB resale prices and so the effect on mass-market private apartment prices may be limited. Likewise, newly launched ECs and ECs that are not yet privatised will not be hit hard in terms of volume and price.

I believe that landed properties may suffer a direct, but limited, impact. A handful of Singaporean investors who buy many landed properties for the long term will be affected. They may not mind paying the extra 3 per cent ABSD if they can find their ideal landed property investments. That said, a Good Class Bungalow (GCB) collector wishing to invest in a $30 million house will be paying around $1.8 million (6 per cent) stamp duty if this were his third or more residential property. If he were to purchase the GCB under a trust, for wealth transfer purposes, a $3 million stamp duty would also apply.

This round of measures will positively benefit the strata office, retail and industrial segments of the property market. Many mass-market investors will surely flock to these products, as well as more exotic overseas properties. We should expect to see more 150-sq-ft retail units or tiny industrial units for sale. Time will tell whether such investments will turn out to be stable and sustainable for the property market, or not.

The biggest impact will be felt by developers of luxury residences who are more dependent on foreign investors. Several developers have overseas sales offices to promote their Singapore residential products. However, foreign investors wishing to buy a $10 million Orchard Road property will now think many times about paying almost $1.3 million (13 per cent) in buyer stamp duties. This is not a measure that increases the amount of equity foreign investors need to put into their properties; it is a tax which once paid cannot be recovered. Our residential market has just got uglier in terms of investment returns.

The other stakeholder group directly hit by the measures are the real estate agents, many of whom are active in promoting Singapore residential properties in Indonesia, China, Malaysia and Hong Kong. Following closely behind would be the relationship managers in private banks active in prospecting foreign high-net-worth individuals (HNWIs) and getting them to park their investments under Singapore trusts. Then we have the priority bankers, the mortgage bankers, the contractors and interior designers who serve the high end market. Many rice bowls, if not already shaken by the global jitters, will surely be shaken now.

My main worry remains: What is the signal perceived by foreigners?

There are genuine foreign buyers who prefer to purchase the roofs over their heads. For example, A*Star and our medical fraternity have gone overseas to attract foreign doctors and medical researchers to work in Singapore. They may relocate here for our high quality of medical practice but these professionals also need homes for their families. Not every foreigner likes to pay rent. Many prefer to build up equity through purchasing their own homes and taking bank loans.

There is another group under the MAS Financial Investor Scheme (FIS) worth mentioning. HNW families applying for the FIS invest $10 million into Singapore are allowed to apply $2 million towards the purchase of a residential property for their own use. Probably the most expensive PR scheme in the world, the FIS has a long queue of HNWIs, some having waited over a year for approval. The latest measures mean that if they choose to apply $2 million of their $10 million investment into a residential unit, they need to pay ABSD in excess of $260,000 depending on the value of the property purchased.

Overall, I think these measures will effectively grind the luxury residential segment to a crawl. Foreign residential property funds will also surely stay out while this tax is in place. The measures could be less effective in the mass markets, given the bulk of Outside Central Region (OCR) launches are snapped up by Singaporeans who feel confident about their rising HDB valuations. Recall the queues and fast-paced sales at recent OCR launches.

I would hope for a tweak in the policy to allow foreigners to buy their first home at the existing 3 per cent buyer stamp duty. Many foreigners are here to work and to settle down with their families and they have a genuine need to own one home for shelter. Singapore is a country made successful by the influx of foreigners in the last two centuries and it must remain an open economy in order to survive. The Economic Development Board, the Monetary Authority of Singapore and other government agencies' efforts to attract foreign investors to our shores may be tougher if this signal were read negatively as a protectionist measure.

Foreigners who are already settled here but who have not purchased their homes may feel short-changed by such discriminatory policies, especially when there is insufficient evidence that foreigners are the main cause for the rise in home prices.

With the new measures, are we signalling: Our right hand welcomes you while our left hand blocks you from getting a comfortable life? Would we want the government agencies to slow down the pace in attracting foreign financial institutions and MNCs to expand in Singapore? That will reduce demand for housing but it will also weaken the robust job environment.

This policy aimed at foreigners will harm our reputation as an investment capital. Instead of penalising foreigners with heavy taxes, we could give more incentives to support Singaporeans and Singapore PRs. Already, loan-to-value ratios for purchasing properties are more attractive for Singaporeans than those for foreigners. Let's have more carrots for Singaporeans instead of wielding the stick on foreigners.

The writer is CEO of International Property Advisor Pte Ltd and author of the book: 'Real Estate Riches - Understanding Singapore's property market in a volatile economy'