Tuesday 22 November 2011

Singapore's real estate market 'one of world's most open'

Tougher curbs in some other markets, but no outright bans imposed
By Esther Teo, The Straits Times, 21 Nov 2011

FOREIGNERS are making bigger strides into Singapore's property market.

Their share of the private housing pie, excluding that held by permanent residents (PRs), climbed to a high of 18.6 per cent in the third quarter, latest figures from the Monetary Authority of Singapore's Financial Stability Review report show.

This is well above the quarterly average of about 11.7 per cent last year.

The growing presence of foreigners in the market, particularly in buying mass market homes, has raised concerns that they are driving prices ever higher - and out of the reach of some local buyers.

But it is not as if foreigners have unrestricted access. They already face curbs on buying property here and can buy landed homes only in Sentosa Cove. In fact, even PRs are subject to ownership restrictions. They may buy some types of landed housing on the mainland, but only with approval.

The sale of resale Housing Board flats is also restricted to Singaporeans and PRs who meet certain criteria. But the market for private condominiums is open to foreigners, who invest in it on a level playing field with citizens.

Experts say this places Singapore just slightly behind traditionally laissez-faire economies such as Hong Kong.

Associate Professor Sing Tien Foo of the National University of Singapore's department of real estate says Singapore has 'one of the most open and transparent' real estate markets.

Its land scarcity, however, compels it to place restrictions on landed home purchases. He adds that it is only fair that foreigners are also kept out of its subsidised public housing segment, as is the case in other countries.

Markets such as Australia and Thailand are more restrictive, experts say, although none imposes an outright ban on foreign home-buying.

They emphasise that the specific curbs in different countries are calibrated to take into account the political, economic and social situation on the ground and cannot simply be copied in other places.

Hong Kong

IN HONG KONG, the market most similar to land-scarce Singapore, the government has adopted a non-intervention policy with no restrictions placed on foreign property investments.

t said in June that any restriction would be a 'major policy change'. As an externally oriented economy, it had to be very careful about the possible consequence of such restrictions, the government emphasised.

This was in response to queries on the need for curbs on foreign buying after prices rocketed more than 70 per cent after early 2009 on record-low mortgage rates and an influx of buyers from other parts of China. Hong Kong has never imposed restrictions on anyone over the purchase or transfer of homes in the past.

The government noted that when considering proposals for curbs, it needed to take into account any impact on the free movement of capital - a key factor for success in the Hong Kong economy.

Hong Kong's status as an international financial centre, its long-term economic development, market response and potential implementation problems also needed to be assessed, it said.


SIMILARLY, Britain does not have restrictions on real estate ownership for overseas investors.

However, foreign investors need to be aware of the various taxes that they may have to pay.

For example, there is stamp duty, a tax on the property based on the purchase price. Another tax is the council tax levied by the local authorities. This depends on the area in which the house is built. Together, these two taxes - which local buyers also have to bear - can be costly.

United States

FOREIGNERS face no restrictions per se with buying in the US, but non-local buyers can find it more difficult to get a mortgage, says property consultancy Savills Singapore.

Although this is not strictly a restriction in owning US real estate, foreign buyers are also subject to a withholding tax charged on any income and capital gains made on their foreign-owned real estate.

The tax is not charged unless income or proceeds are taken offshore, so it is more of an issue for professional real estate investors than for private buyers.

For example, if the foreign buyer is looking to own US real estate as a second home, or for family members attending college in America, then tax tends to be less of an issue unless significant income and/or capital gains are expected or incurred from the ownership and sale of the property.


BY CONTRAST, Thailand has taken a relatively strict stance on foreign ownership to prevent foreign control of its real estate market.

Foreigners can buy only condominiums, with the total area that may be bought not exceeding 49 per cent of total saleable area in any condo development, according to DTZ Research.

The money used to purchase a condo by a foreigner must also be remitted to Thailand as foreign currency, CBRE noted.

Foreigners are not permitted to own freehold land, so it is rare for them to own landed properties. Exceptions are made for certain industrial estates or for companies with Board of Investment approval.

But a foreigner may register ownership of a 30-year lease with the Land Office, CBRE said. This may be a lease of a condominium, an apartment, a house or land. The Thai Land Code considers 'foreign' ownership to be property ownership by any foreign individual or company.


COMPLAINTS about foreigners, especially Asian buyers, driving up Australian house prices have also led to tough curbs when it comes to overseas purchases.

Foreigners can buy only first-hand property, either under construction or just completed. This should have been approved for sale to overseas buyers by the Foreign Investment Review Board (FIRB).

These homes can then be rented out or retained for the foreign investor's own use. However, the property can be resold only to Australian citizens.

There are no restrictions on the number of dwellings in a new development that may be sold to foreigners, DTZ noted.

Temporary residents have to seek approval from the FIRB to buy real estate in Australia and must sell their property when they leave.

The Australian government says it seeks to ensure that foreign investment in residential real estate lifts the supply of dwellings, brings benefits to the local building industry and its suppliers, and is not speculative in nature.

Entry of foreigners into mass-market homes bears careful watching
By Esther Teo, The Straits Times, 16 Nov 2011

SOME Singaporeans are clearly worried that the growing numbers of foreigners buying private homes are driving prices ever higher - and out of the reach of some local buyers.

This concern has been heightened by a fairly new trend for foreigners to buy mass-market homes, a segment in which they had previously taken little interest.

These, of course, are the same homes that many upgraders aspire to buy.

Are restrictions on foreigners' purchase of private homes, proposed by some, warranted?

First, consider the figures. In the first eight months of this year, one in three buyers of non-landed private residential properties was a non-Singaporean.

Among buyers of private homes - excluding landed property which is more regulated - the proportion of foreigners, including permanent residents (PRs), is creeping up. Last year, it was 28 per cent.

Foreigners are also increasingly turning to new developments. A recent Business Times report showed that foreigners, excluding PRs, bought 843 uncompleted private homes from developers in the third quarter, up nearly 20 per cent from 703 homes in the previous quarter. Their share of the total number of uncompleted private homes sold by developers rose from 16.3 per cent in the second quarter to 20.1 per cent in the third quarter.

Foreigners, excluding PRs, accounted for 16 per cent of all private home purchases in the first half of the year, up from 12 per cent last year.

Perhaps the biggest worry for many Singaporeans is the fact that foreigners are now encroaching on the mass-market segment.

Foreigners' share of homes sold at price tags of under $1 million - taken as a proxy definition of a mass-market home - rose to 28 per cent in the first nine months of this year. It was 19 per cent in 2009 and 22 per cent last year, according to caveats lodged with the Urban Redevelopment Authority.

At recent launches of mass-market developments such as Parc Vera in Hougang, foreigners and PRs made up about 20 per cent of sales, compared to below 10 per cent a few years ago.

In the past, foreigners largely went for expensive homes in districts nine, 10 and 11, and this had minimal impact on the average Singaporean, said Dennis Wee Group director Chris Koh. However, they are now making a splash in the suburban leasehold mass market, he noted.

Faced with such statistics, it is little wonder that some attribute the surge in private home prices to record highs - up 18 per cent last year and a further 6 per cent in the first nine months of this year - to purchases by foreigners.

Amid this concern, some experts like Chesterton Suntec International research head Colin Tan have suggested that curbs on foreigners buying private residential properties could temper the rapid rises in prices.

To a certain extent, foreigners already face curbs on property purchases. Foreigners can buy landed homes only in Sentosa Cove. If they are PRs, they may buy some types of landed housing elsewhere, but only with approval.

The sale of resale Housing Board flats is also restricted to Singaporeans and PRs who meet certain criteria.

But the market for private condominiums is largely open to foreigners, who invest in this market on a level playing field with citizens.

Those who call for curbs point out that Singapore's real estate sector is vulnerable to speculative capital flows.

With interest rates set to stay low for the next couple of years, the plentiful funds washing around the market seeking better returns could well cause price volatility if there are no curbs, they argue.

Last month, MP Christopher de Souza (Holland-Bukit Timah GRC) suggested restrictions on foreigners buying homes. He cited Australia, which has rules that limit foreigners to buying only new properties, which they can subsequently sell only to Australians.

Singapore, like other open economies such as Hong Kong and Britain, does not restrict foreigners from purchasing private condos and apartments.

Others have suggested less onerous financing-related measures such as caps on the number of mortgages foreigners can take out or reducing further for them alone the proportion of a property's value they may borrow.

Dennis Wee's Mr Koh suggested one way would be to introduce a capital gains tax for foreigners who make gains from selling private property here. Or simply keep or impose an additional sellers' stamp duty on foreigners who sell within a stipulated period, he said.

Another suggestion from Knight Frank group managing director Danny Yeo is to differentiate between those who have a stake here and those who do not.

Long-term residents, such as PRs and foreigners working here, should not be subject to restrictions as they also need a home in Singapore. But the purchases of foreigners who do not live or work here could be subject to curbs, he said.

But as National Development Minister Khaw Boon Wan noted last month, it is important to ensure that housing policy shifts do not unwittingly harm the economy and society. Rising prices also cannot be attributed solely to foreign purchases. There are many factors at play, such as low interest rates and Singapore's strong economic fundamentals, he emphasised.

In any case, foreigners are already subject to the same anti-speculation measures as locals - including a sellers' stamp duty of up to 16 per cent. This has creamed off some speculative froth, with prices moderating for the past eight consecutive quarters - inching up just 1.3 per cent in the three months to Sept 30.

Taken together, the case for more curbs on foreign purchases is mixed. A further surge in demand from foreigners can raise prices beyond the reach of locals.

At the same time, any measure that curbs demand in one segment risks cooling down the entire market, especially with a slowing economy.

There may be a case for more calibrated measures: for example, to dampen demand for mass-market homes from foreigners who do not live or work in Singapore.

But the timing and extent of any such move are critical. For now, the trend of foreigners buying into mass-market homes is certainly one that bears careful watching.

No comments:

Post a Comment