More Property Measures? Possible?

RESIDENTIAL MARKET

Room for more property cooling measures?

The local residential property market seems to have defied six rounds of cooling measures over the past three years.

The latest measure, introduced earlier this month to stop home buyers from over-extending themselves, has had little discernible effect on developers' home sales so far.

Some smug property investors may see this as another instance of King Canute trying to hold back the tide - the tide being the assumption that demand for property in economically strong and politically stable Singapore will always remain high.

But, in fact, the tide in this case is coming in from far beyond Singapore's shores. And there's a rip current in it that can endanger the naive investor who wants to surf the waves.

It isn't just Singapore that is taking measures to cool overheating property markets. There are no easy ways to stem the strong flow of cheap money from abroad, afforded by the ultra loose monetary policy that is being pursued by the central banks in the United States, Britain, the euro zone and Japan.

In Singapore, the latest government measure sought to restrict all home loans to a more reasonable timeframe, of up to 35 years.

Home buyers who take a loan that lasts more than 30 years, or extends past their retirement age of 65, will now have to fork out significantly more in cash.

Where previously a buyer may borrow up to 80 per cent of the property's value for his first mortgage, he can now do so for up to 60 per cent if he busts the 30-year loan or 65-year-old age limit. Under a similar scenario, the borrowing ceiling shrinks to just 40 per cent for his second and subsequent mortgages.

The new rules are a further refinement of a previous measure to tighten the loan-to-value ratios.

Other measures included creating new stamp duties; up to 16 per cent on the seller and an additional buyer's stamp duty that goes as high as 10 per cent for foreigners.

Taken together, Singapore is said to have put in some of the harshest property cooling measures in the freewheeling capitalist world.

Is the Government running out of ammunition under its calibrated approach to cool the market?

Not by a long shot, judging by the range of measures that other regional economies have pursued to combat their rising domestic home prices.

Malaysia, for instance, has imposed a real property gains tax (RPGT) - similar to a capital gains tax - of up to 10 per cent for properties disposed of within two years.

Hong Kong, meanwhile, has introduced rules limiting the maximum loan tenor of new mortgages to 30 years and lowering the debt servicing ratio limit - a borrower's total monthly debt payments divided by his net income - to 40 per cent for certain purchases.

Many of their measures are similar to Singapore's. The most common are: lowering the loan-to-valuation ratio for certain home purchases, imposing a penalty for those who flip properties in a short span of time and raising the barrier of entry for foreign home buyers.

In 2010, Malaysia raised the minimum price of residential property that foreigners can purchase to RM500,000 (S$200,800) from RM250,000 previously. There is speculation that this might be further raised to RM1 million.

When these measures did not have the desired effect, the Malaysian government rolled out another round of measures that will include a hike in the RPGT from Jan1 next year.

Hong Kong last week announced fresh measures that impose a stamp duty of 15 per cent on home purchases by foreigners, as well as raise the resale tax on property by about 5 percentage points and extend the period during which it will apply from two years to three.

It is also slated to start banning foreigners from buying new homes in the city, with a pilot scheme on two sites restricting sales to permanent residents of Hong Kong.

The city's sizzling real estate market has seen prices skyrocket about 85 per cent over the past 21/2 years, buoyed by demand from mainland Chinese buyers.

But the most draconian measures can be found in China, where the authorities have restricted the number of properties that a household can own in bustling cities such as Beijing and Shanghai.

Being an open city, however, Singapore is unlikely to implement such socialist measures outside the realm of public housing.

Here, it bears mentioning that the Government is most concerned with Housing Board flat prices.

This is not surprising, given that 80 per cent of Singaporeans live in HDB flats. The Government cannot allow prices - at least those of new flats - to climb beyond the affordability of most first-time buyers.

As the HDB market has a symbiotic relationship with private housing - except at the very high end - cooling the private housing market is also a way of cooling the HDB resale market.

As a result, the latest cooling measure is unlikely to be the last if demand for housing shows no sign of abating and prices continue to head north.

The good news is that private home prices have risen by just 1 per cent in the first nine months of the year. However, resale HDB prices have climbed by 3.9 per cent over the same period.

Until both the public and private housing markets show clear signs of stabilising or softening, the next stick may not be too far away.

Taking its cue from cooling measures implemented by other countries, one additional measure the Government can consider is curbs to restrict the number of homes that foreign buyers can purchase - or subjecting them to a hefty multiple ownership tax.

Alternatively, simply tightening the screw on existing measures may also be effective. For instance, the period where the seller's stamp duty is applied now can be lengthened from its current four years, or tax rates can be hiked further.

But whether or not to unleash more draconian measures will be a key decision for policymakers down the road, considering Singapore's reputation as an open and free economy.

The property market is a key plank of the economy and its health is closely intertwined with the wealth of Singaporeans.

Regional countries have introduced outright bans on foreign ownership, capital gains tax on property and even restrictions on the number of properties citizens can own. These are levers Singapore has not contemplated - at least publicly.

But whichever levers it pulls, the Government must continue with its calibrated approach: keep Singapore's economy generally free and open to foreign investment, while keeping the property market on an even keel. That calls for more smart manoeuvring.

Source: The Straits Times – 30 October 2012