Keeping speculators at bay

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Published September 13, 2010

Keeping speculators at bay

THIS WEEK'S TOPIC

Are the Aug 30 property-related measures appropriate or do they need to be fine-tuned? Will they be sufficient to cool the property market and alleviate speculative pressure, or would other measures be needed?

Lim Soon Hock
Managing Director
Plan-B Icag Pte Ltd

I THINK the newly introduced property-related measures to cool the property market and to alleviate speculative pressure are appropriate and sufficient. They are timely, as they will be rendered more effective by two other important underlying factors.

One, according to industry experts, the prices which we have seen thus far, will not peak for another seven years. Two, there is the apprehension that there will be a double-dip recession. The measures that have been introduced will only compel buyers, both genuine and speculative, to dig deeper into the ground to wait and see.

Given this scenario, I would expect investors to unload properties to take as much profits as they can and wait for a property downturn to happen, before they go into the market again. It may turn out to be a win-win for both buyers and sellers, as prices are now likely to trend below the peaks.

Laura Deal
Executive Director
The American Chamber of Commerce in Singapore

GIVEN that the top source of dissatisfaction for US companies with Singapore is the soaring cost of housing, the American Chamber of Commerce welcomes the government's moves to cool the property market.

According to the 2010 AmCham Asean Business Outlook Survey, 89 per cent of respondents expect an increase in housing costs this year as compared to last year. This survey was conducted for nine years and each year, housing has been of increasing concern and is now being the highest ranked concern, with 78 per cent either being dissatisfied or extremely dissatisfied.

Moreover, the survey showed that 43 per cent of companies are dissatisfied with office lease costs. Our members find that the fluctuation of the office lease costs challenging for business planning, in particular for SMEs.

While Singapore has rated high on our survey compared to other Asean countries on most other issues such as infrastructure, transparency, political stability, and ease of doing business, it is important that the government addresses the property market issue to maintain Singapore's competitive edge.

Ajay Kanwal
Regional Head of Consumer Banking, Singapore and
South-east Asia
Standard Chartered Bank

AGAINST the backdrop of a robust economic performance in the first half of 2010, the outlook remains cautiously optimistic. We expect a more subdued economic momentum in the second half. Nonetheless, the Singapore government's move to increase its GDP growth forecast to 13-15 per cent indicates a continued upward trend in economic recovery. Overall, we see confidence at an industry and consumer levels improving.

The recovery in confidence is evident in regulators drawing the experiences from the financial crisis, at the same time, taking swift and active steps to strengthen governance framework and policies to ensure a sustainable future ahead. We believe companies, banks and the governments will continue to work with greater coordination and appreciation to ensure a sustainable economy ahead.

In this regard, at Standard Chartered, we welcome the new measures announced by the government as, for many Singaporeans, property is their single largest investment. We believe that these new measures will curb speculation in the property market, create greater home ownership opportunities, and build a more sustainable property market and economy in the long term.

Mohamed Ismail
CEO
PropNex Realty

FROM a macroscopic perspective, the new measures that aim to ensure the affordability of HDB resale flats and mass market projects over the long term are to be commended. The non-introduction of a capital gains tax means that the high-end properties in the Core Central Region are not affected and are still open to investment by high net worth investors, both local and foreign alike.

In the short term, the revised five-year minimum occupation period and the lowered loan-to-value ratio (LTV) of 70 per cent for the bank loans will have significant ramifications on the HDB resale and mass market condominium prices, which should soften by about 10 per cent over the next two quarters.

I feel there are a couple of measures, however, that could be fine-tuned and I urge the authorities to seriously look into them because of the people that they will impact.

Firstly, genuine upgraders from HDB flats to executive condominiums or new launches will be most affected by the "70 per cent LTV on the second mortgage" ruling. Thirty per cent of the price for a reasonably-sized Outside Central Region condominium, with stamp duty, would easily require the upgrader to raise over a quarter of a million dollars in cash and CPF money.

This would hamper the aspirations of many middle-class citizens whose only option for qualifying for a 80 per cent bank loan on their new property would be to sell their existing flat, forcing them to rent alternative accommodation for the 2-3 years that their new home will take to be completed.

An alternative to this policy could be to grant these genuine upgraders an 80 per cent bank loan, on the condition that they sell their existing flat within six months of their new property's TOP.

Secondly, there will be many genuine HDB upgraders who are moving to another HDB flat. They will face the same problem in getting an 80 per cent bank loan for their new flat. If they want to have an 80 per cent bank loan, they would have to obtain a copy of the letter of approval from the HDB on the sale of their existing flat, as well as a document from their first mortgagee that certifies their existing mortgage will be discharged upon completion.

However, that leaves them with a mere six weeks before they have to vacate their current flat; their new flat's purchase would not yet have been completed. Finding interim accommodation for three months as well as moving their household items twice will be both time-consuming and costly.

An alternative would be to allow the exercise of the option on their flat to apply for a new bank loan at 80 per cent, on the condition that they sell their existing flat within six months of their new flat's sales purchase.

Finally, with the continued drive to attract and retain foreign talent, one policy worth considering to fine-tune would be PRs having to sell their overseas properties within six months of buying an HDB flat. There are more than a few instances where this would not be practical, especially if the PRs are from Asian countries.

Many of them who do own property in their native countries usually have their families, parents or siblings living in it. Or they may have inherited property such as farmland, but they co-own this property with their siblings. Such land may have little value and be difficult to dispose of because of the multi-ownership and low valuation. Also, PRs owning property overseas do not contribute to the speculative purchases of resale flats. It would not be entirely fair to apply the same rules of non-subsidised flats to PRs since they already do not qualify for any subsidies and can only take a bank loan.

The new measures, while effective in curbing speculation and reining in runaway prices, should also not impede the natural aspirations and advancement of genuine upgraders and permanent residents who would call Singapore home.

Tan Tiong Cheng
Chairman
Knight Frank Pte Ltd

THE government's latest set of property cooling measures cuts across a broad spectrum with implications for investors, upgraders, downgraders and first-time buyers alike.

Whilst the intent is to curb property speculation, the measures have other unintended effects: not all buyers and sellers are speculators, and not all are investors. People buy and sell properties for a myriad of reasons. Some downgrade to an HDB flat to prepare for retirement, others upgrade to accommodate an expanding family, and yet others simply want a more appropriate property. While the new policies benefit some people, they also affect many others adversely.

Obviously time will tell whether these measures are well calibrated or excessive. The authorities are equally anxious to measure their impact and may well adjust or ease back if they hurt more widely and deeply than intended. It's to no one's benefit if the residential market is badly de-stabilised.

Property has been ingrained as a valuable investment option for Singaporeans and not just a roof over their heads. The present conundrum reminds me of a Chinese proverb: "both the front and the back of your palm are also flesh, choosing one puts you in a dilemma".

Michael Zink
Country Head and Citi Country Officer for Singapore
Citi Group

THE latest measures are indeed a proactive and precautionary move by the government to prevent any potential bubble from forming in the booming property market. Like all measures, they will have a differentiated effect on buyers.

Generally, it seems to be having the desired immediate impact of stabilising property prices without penalising genuine home buyers. In particular, it has sent a strong signal that the government is prepared to step in to ensure that the mass-market and HDB properties remain affordable, especially to first-time buyers and upgraders. The move is distinctive of the way the government seeks to stabilise the marketplaces and is in line with expectations.

Andrea Ross
Managing Director (Singapore)
Robert Walters Singapore

SINGAPORE is becoming a destination of choice and a number of foreigners are making Singapore their home and therefore investing in buying flats and condominiums, with some even becoming permanent residents to allow them to buy landed property.

Property is a significant topic in Singapore - affecting almost everyone from the lower to middle income, to those who make property purchases for the purpose of investment. It is therefore welcomed that the government is putting adjustments in place to curb speculative activity to protect those individuals who are genuine home buyers.

With the economy picking up and the return of market confidence, lowering the loan-to-value limit on housing loans from 80 per cent to 70 per cent may not be an effective curb, particularly for the higher-income individuals/families and long-term speculators. I do feel that for many speculative buyers, most would probably be flush with enough capital/cash not to feel the pinch. However, it might be a bit of a stretch for the lower-income and even some middle-income families as the initial deposit outlay would now be higher.

I do, however, feel that the principle behind the move should be applauded as it is a positive attempt to cool the market, moderate rising property costs and to put a brake on speculative demand.

The set of measures safeguards the interest of genuine home buyers, those who are owner-occupiers, whilst targeting repeat buyers and speculators who buy and sell over the short term, which is now defined as within three years.

Liu Chunlin
CEO
K&C Protective Technologies Pte Ltd

THE rationale behind most property anti-speculative measures is to prick and contain the bubble. Too strong a move and it dampens the economy and penalises genuine buyers. Too little, the speculative froth goes on to dangerous levels. In my opinion, the recent measures are enough for the moment. Genuine first-time buyers need not fear.

However many buyers are upgraders, and they may be adversely affected. Where previously they hoped to get a better property through a higher valuation of their existing property perhaps even by holding on to it longer after buying the new property, and topping up with a generous available loan amount, they now have to be more circumspect. They also have to be very sure that the property bought is something they are comfortable with, lest they be penalised for an early sale.

Older buyers hoping to buy properties ahead for their children amidst a frenzied fear that properties will be out of reach, would now take comfort that there will always be enough supply, with the government showing a commitment to release public flat units and land sales when needed.

And by addressing the sandwiched class of those earning $8,000 to $10,000, the government is cooling the market further by assuring this cohort they need not worry about being pushed out to the private property sector where prices can go atmospheric and where the government is reluctant to exert a heavy hand.

David Leong
Managing Director
PeopleWorldwide Consulting Pte Ltd

THE fundamental plank in the current cooling-off measures, the third set in two years, is to ensure that property prices are not escalated beyond economic fundamentals and are fuelled by mere speculative activities. Pointedly, these measures will temper sentiments, ensure that buyers will exercise greater financial prudence and create a bias for genuine home buyers for own occupation.

Schemes such as the interest absorption or interest-only loans were concocted and syndicated to encourage new property sales in lacklustre market conditions. But as we move into a state of quite irrational exuberance, such measures should be taken off and rightfully withdrawn from the market to temper the feverish purchases due to low commitment at the front end of the purchase cycle. Should the market turn, which is likely to be since the economic boom-bust cycle is shorter, property buyers and speculators can stare horror in the face and with a possible interest rate hike, the financing costs will severely impact those who have over-extended. In both situations, capital losses, as the market corrects, are imminent.

The imposition of a stamp duty on property held for less than three years to curb speculation will eliminate a layer of buyers punting the markets and will substantially reduce the rate of sub-sales.

The most serious thrust by the HDB is its "one and only" policy where the HDB disallows concurrent ownership of HDB flats and private residential properties within the minimum occupation period and that also includes disallowing the concurrent owning of foreign properties. This will impact those investors who purchase an HDB flat and keep their private property for investment purposes and permanent residents (PRs) looking to acquire an HDB flat for their own stay and who owned a foreign property in their country of origin. This will seriously curb buying sprees from PRs who have over the years increased in substantial numbers. This move effectively will force a drop in the cash-over-valuation in the coming months.

This third round and possibly the harshest slew of cooling-off measures in two years will force the market to correct. Purchasing an HDB flat in Singapore is a privilege extended to all Singaporeans and PRs, and should not be treated as an investment gambit. Private property is open play for anyone, but those in the game must have the gumption, appetite, financial leverage and holding power to last through interest rate hikes and market corrections.

David Low
CEO
Futuristic Store Fixtures Pte Ltd

PROPERTY prices continue to rise with significant surge in the last six months despite measures introduced earlier this year in an attempt to douse the heat. Speculation is rife after the global slump - which is an economic concern if uncontrolled, leading to a likely asset bubble with over-extenders getting the hit. It is timely and appropriate for the government to implement new measures in less than a year, with more severe cash penalty and longer holding period to rein in speculative housing purchases.

These measures should moderate the market without affecting real appreciation, therefore allowing genuine buyers to enter the market at prices based on real demand. Economic conditions do not solely dictate the fortunes of the property market. Global low interest rate environment coupled with stable high employment rate will continue to attract buyers, but the new measures will cool the market at least in the short term.

Dora Hoan
Group CEO
Best World International Ltd

THERE are a number of factors why the Singapore property market is very vibrant. It is propelled by our double-digit economic growth as well as the strong performance of key economies in Asia and most importantly, it is driven by our nation's attractiveness as an emerging global city.

Singapore ranks as one of the most liveable cities in the world with an enviable lifestyle that has become a magnet for global attention. The downside is that rapid increase in valuations of real property runs the risk of not being sustainable as it grows at an accelerated pace relative to incomes and other economic factors. We are keenly aware that the global financial crisis of recent years had its roots in the bursting of the real estate bubble in the US.

Given all these, I believe the government has done well to put in place necessary mechanisms to prevent any speculative buying that may hurt what should ideally be a robust growth that is in line with our economic fundamentals. While I believe the package of measures is justified and will help to temper the situation, I also am all for policy changes that would strike a balance in promoting both real property investment as well as the energising of entrepreneurial activities as it generates employment, raises national productivity, encourages innovation, and has a remarkable impact on sustainable economic growth.

Teng Yeow Heng Michael
Managing Director
Corporate Turnaround Centre Pte Ltd

I AM heartened to learn that the government has now recognised the need to quickly increase the supply of HDB flats to address the shortage of affordable HDB flats. However, the other policies are a bit untimely and draconian.

The property prices are already moderating as the global economy is again slowing down in the second half of 2010. This recent policy does not curb speculation as there are not many speculators left after the first two policy measures to dampen the real estate market were introduced. Instead, this third policy introduced within a year is an "overkill". It penalises many genuine investors who own HDB flats and can afford to acquire private property so that their wealth can be enhanced.

The interest rates will remain low and it may not make sense to keep the money in the bank. If they cannot invest their money in Singapore, these Singaporeans will invest their money overseas or venture into other riskier financial instruments with which they are not familiar. This potential outflow of funds will be a loss to Singapore's real estate.

The policies also hamper caring parents who want to buy property in the future for their children. Notwithstanding the policies, the private real estate prices in Singapore will continue to go up with the foreigners buying in as the land is scarce. Many Singaporeans owning HDB flats will be deprived of an opportunity to do so as they will not want to sell their HDB flats.

Sam Yap
Group Executive Chairman
Cherie Hearts Group International

I WELCOME the government's proactiveness in introducing tough measures to cool the overheating property market. The new rulings will ward off unhealthy property speculation and help Singaporeans own a home at affordable prices.

However, there should be flexibility for children to receive transfers of property ownership from their parents, regardless of whether they own a property. Curbing unhealthy real estate speculation will bring cheer to genuine home buyers, but we must be careful not to unwittingly bring pain to groups of Singaporean sons and daughters who may be disadvantaged through ill-considered policy deliberations and implementation.

In addition, the government should relook the types of property that HDB is building. To me, HDB should be for the needy and not for luxury living. Projects like the Pinnacle unfairly advantage successful bidders, who gain from taxpayers' money used in the huge subsidies. Prime areas should be for commercial or private property development, rather than HDB's.

Pramod Ratwani
President & Executive Chairman
Consilium Software Inc

I FEEL the measures should be fine-tuned. Based on feedback coming from various quarters, a segment of genuine buyers is affected by these measures. Real estate can thrive with strong financing fundamentals and sensible lending, keeping speculative buyers in check as we have seen in countries such as Canada.

With the current measures the property prices will cool down, helping the rich and foreigners to take advantage, which can be counter-productive to the objectives of introducing these measures. Also, foreign ownership monitoring will be a tough task with so many variables such as inherited property where you are part-owner on paper but do not actually have possesion.

Daniel McConaghy
Vice-President and Managing Director
Fico Asia Pacific

THE decisive action taken by government on Aug 30 may just have what it takes to restore market equilibrium and cool speculative activity.

We've spent the past 18 months working with our customers - which comprise two-thirds of the top world banks and 90 of the 100 largest US financial institutions - to recover from the housing bubble burst and have more strategically leveraged data to make smarter decisions. The government's moves will cool before Singapore experiences a similar bubble.

At Fico, we're monitoring how this affects the mortgage and banking sector. Singapore banks now have an opportunity to assess risks in their business that likely were put on the backburner during the housing boom, when high levels of lending activity forced banks to focus on mortgage portfolios. It's time for a rebalance, where banks reduce risk by growing unsecured portfolios and deposits. With banks competing more aggressively for deposits, Singaporeans in turn will receive greater return on investment when they're saving for their home and future.

Gary Harvey
CEO
Wealth Management Asia, ipac

IN taking steps to cool sentiment, the government has taken a pragmatic approach by introducing measures gradually and not repeating its 1996 approach. The latest measures are appropriately targeted at concerns over the affordability of housing, especially in the area of public housing where prices have risen, as demonstrated by the high cash-over-valuations.

The potential risks faced by home owners and investors in the property market should not be underestimated. Should a property bubble continue to form, those who lack the holding power and who disregard the risks involved in real estate investing will suffer when it bursts.

By restricting liquidity for additional mortgages beyond the basic need of a mortgage for the primary residence, the government is also pre-empting the potential problem of investors over-stretching themselves and the banking system when mortgage interest rates revert to more normal levels.