http://www.todayonline.com/Business/...eally-working?
Are cooling measures really working?
by Colin Tan
05:55 AM Feb 18, 2011
The news headlines this week about developer's home sales for last month were almost comical, doing little justice to the actual reports that followed. Unfortunately, people remember the headlines and not so much the details.
Data released by the Urban Redevelopment Authority (URA) on Tuesday showed a total of 1,189 new private homes sold last month. That is a 10.7 per cent drop from December and a three-month low.
Alas, this is sufficient for some analysts to conclude that the latest round of cooling measures was having an impact already.
And that the drop was not worse than expected as the measures were introduced only in middle of last month and were still working their way through the market. However, the full impact will be felt only in March, they said.
Much as I share the same sentiment and the hopes of many to see a more stable market, I think our impatience to see the measures work this time around is making our analyses and reports sound like propaganda.
Let us put aside the cooling measures for the time being and look at the numbers for what they are.
Take the "three-month low" headline. It is factually correct but did you know that there were three occasions over the past twelve months when the URA number hit three-month lows. Including January this year, the other two occurred in June and September last year. This is one short of a perfect score.
Take the 10.7 per cent drop in sales. I recall the December sales figure actually showed a sharper drop of 30 per cent from the previous month and this was before the latest cooling measures were announced. In fact, developers' sales of private homes recorded far greater month-on-month falls on four other occasions last year. They occurred in February (-19.2 per cent), May (-51.2 per cent), June (-21.4 per cent) and August (-19.4 per cent).
What about the excuse of having only half a month for the measures to work, given they were announced on Jan 13 to be effective the following day?
Assuming developers do most of their sales on weekends, there were five such weekends in January - two before the measures and three after. Of the two before, one was a public holiday weekend (New Year's Day).
After saying the measures are definitely having an impact, some market watchers are predicting more or less the same sales volume for February. We have the whole month here - ironically, the shortest month in the calendar year.
Did I miss a step or two in the reasoning here?
What is the compelling reason for the full effect to show up only in March? Maybe February is not a good month to gauge the impact as buyers are flush with cash from red packets handed out from the Chinese New Year celebrations and simply need to put some of it down for a property or two.
Let us not forget that January and February have traditionally been slow months for sales.
If we continue to sell 1,189 units each month for the next 11 months, this will bring total sales for the year to 14,268 units.
This will make it the third best result ever after last year and 2009.
In the latest figures, suburban properties chalked up the most sales with 588 units. If we include the 345 executive condominium units sold, the demand for the mass market housing segment amounted to 933 units. Are these signs of fragility in this market segment?
Let us bring in the cooling measures now. The imposition of a sellers' stamp duty of 16 per cent for a resale unit in the first year, dropping by 4 per cent for each subsequent year, made headlines across the world when it was first announced.
If Hong Kong can do it, we can do it one better. Short of a complete ban on purchases, it must be among the harshest if not the stiffest in the world.
In that light, we are surely entitled to expect a far greater impact than the one we have seen to date.
Finally, someone forgot to tell the 13 developers who participated in a tender for a mixed residential-commercial site in Punggol that the latest cooling measures are having a significant impact on the market. The top bid crossed S$1 billion.
Although this is a mixed-use site, the group with the highest bid said it wanted to build about 680 flats with water views incorporated within a waterfront development and including a 365,000-sq-ft retail mall.
That is absolutely amazing for a site in a far corner of Singapore. Sadly, once again, the headlines did not do justice to the significance of the billion-dollar bid. What they overplayed in the private home sales story, they underplayed in the land tender story.
Colin Tan is Head, Research & Consultancy at Chesterton Suntec International.