Published August 31, 2010


Govt keeps heavy guns aside, but who will take a hit?


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.