Property curbs nothing to do with speculation

The problem now is rising asset prices as global capital pours in
By Robin Chan, The Straits Times, 9 Dec 2011

THE Real Estate Developers' Association of Singapore (Redas) had a sharp riposte for the Government on Wednesday night, after an unprecedented set of cooling measures was unveiled for the property market.

It said there had been 'no return to a speculative market' in Singapore - implying that the Government misread the problem of continually rising prices and consequently applied the wrong sort of medicine.

With all due respect to Redas, I suspect that the association may have been the one to have misread the problem.

That is because any casual observer - and so, certainly policymakers in the Government - can quite easily tell that there is very little speculation now in the property market.

Subsales, a classic indicator of speculative buying, now constitute just 6.6 per cent of transactions - their lowest level in five years.

The Government also killed off most, if not all, speculative activity by imposing a hefty seller's stamp duty of up to 16 per cent on any property that is resold within four years.

So the measures announced on Wednesday could not have been about warding off speculation. That issue has mostly come and gone.

The measures also did not seem to be about protecting buyers against default. That objective was largely met by progressively lowering the loan-to-value ratio to 60 per cent for property investors with an existing home loan, to ensure that they are adequately cushioned against a sudden fall in prices.

So if they were not primarily about preventing speculation or protecting buyers, what were the latest curbs really meant to do?

To me, the answer does not lie with Minister for National Development Khaw Boon Wan or his colleagues, but with economic agencies like the Monetary Authority of Singapore (MAS).

For a while now, Singapore's financial stability watchdogs have been warning about the dangers of rising asset prices as increasingly large waves of global capital flood into the country in the current era of low interest rates.

In MAS' recently published 40th anniversary book, its managing director Ravi Menon is quoted as saying that monetary policy has traditionally focused on stability in consumer prices, but 'dislocations in asset prices' like property prices can be much more disruptive to economic growth. He made the same point in a speech last week.

To see this, we need only look back a couple of years to the last global financial crisis, which was triggered by a property bubble that burst in the US and parts of Europe. In Singapore, buyers and developers took almost a decade to recover from the 1996 property crash.

The problem, Mr Menon says, is that 'we don't have a means for even measuring asset price inflation, let alone a coherent set of tools to deal with it'.

'Developing a toolkit to address asset price inflation is going to be a key challenge for the next 10 years,' he concludes.

'What does it mean for adjusting our existing policy framework - I don't know. I do know that we just cannot sit still and continue to apply the old paradigms. And we may need solutions that perhaps go beyond the MAS.'

Indeed, in announcing the property curbs, Deputy Prime Minister and MAS chairman Tharman Shanmugaratnam put large investment flows into the property market at the heart of the rationale for policy change.

He said action was needed now to 'avoid the prospect of a major, destabilising correction further down the road'.

Seen in this light, the property curbs announced on Wednesday night are really a prudential measure to safeguard the economic stability of Singapore.

The risks are very real. With anaemic economic growth forecast for all the world's major developed economies - the US, Europe and Japan - central banks look set to continue pumping cheap money into markets. There is already talk of a third round of quantitative easing and more interest rate cuts in Europe.

Much of that money will flow into Asia, which has more attractive growth prospects. And this will send more money into hard assets like Singapore property.

The island Republic is already seen as a safe haven for foreign investors and its property market is open and highly attractive. Bank of America-Merrill Lynch economist Chua Hak Bin said that for Singapore, these episodes of foreign capital inflows (and outflows) can be 'enormous and unsettling'.

A second factor influencing these latest measures is political. As Citigroup economist Kit Wei Zheng put it, part of the social contract in Singapore is to turn each average worker into a property owner and allow him to benefit from asset price inflation.

Therefore, property prices ought not to rise faster than people's ability to pay those prices, that is, they should roughly be in tandem with wage increases.

But the link between property prices and wage increase breaks down if a substantial proportion of purchases is from foreigners whose ability to pay has nothing to do with Singapore's economy.

Will the measures work as intended? Commentators say there are two major risks.

One drawback is that they could signal to foreign investors that Singapore is becoming less open, even if people like Mr Tharman speak to the contrary, especially as it comes on the back of tighter immigration laws.

Another is that these measures could further drag down growth in the Singapore economy, which is already expected to grow a weak 1 to 3 per cent next year.

If home prices collapse, consumer spending will be hit. Business services will likely slow as property transactions freeze up, conveyancing activities wind down and mortgage loans soften further, affecting banks, law firms, property developers and agents.

It all just goes to show how tricky it has become to manage all the interconnected parts of an open and global economy.

'I think the world is in an experimental phase on how to deal with asset price inflation. And in Singapore we have been doing our own experiments,' says Mr Menon in the MAS book.

So as the toolkit is being refined and expanded, expect plenty of heart-stopping moments like Wednesday night's along the way.

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Ministry on why industry players were not consulted

THE National Development Ministry (MND) has responded to criticism from the main real estate developers body about the lack of consultation with industry players over the measures, explaining they were market-sensitive.

The ministry told The Straits Times yesterday that 'it is not possible for the Government to conduct direct consultations with industry players before implementing demand measures as these are market-sensitive'.

But the Government monitors the market closely and has regular dialogues with various stakeholders in the property market, a spokesman said.

These include developers, property consultants, market analysts and real estate agents. The input from these discussions is factored into its policy formulation, he added.

MND's reply comes in response to a tersely worded statement issued by the Real Estate Developers' Association of Singapore (Redas) on Wednesday.

In an unprecedented move, the Government surprised industry players by introducing an additional buyer's stamp duty of up to 10 per cent targeted largely at foreign buyers and property investors.

This new stamp duty, which took effect yesterday, is on top of the existing stamp duty of about 3 per cent.

In its statement, Redas had said it was disappointed by 'the lack of consultation' on the latest measures, and called them 'untimely' given the expected slowdown in the economy next year.

'(The measures) came as a surprise as the current market outlook is uncertain,' it said. 'The good take-up rate in the primary market is driven by the increased number of new launches and unique selling points of certain projects. It is not indicative of a return to a speculative market.'

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Home prices may fall 30%, say analysts

Property stocks hammered, following stamp duty shocker
By Yasmine Yahya & Esther Teo, The Straits Times, 9 Dec 2011

PROPERTY prices could fall by as much as 30 per cent next year as a result of the Government's latest move to cool the market, analysts have predicted.

This would be a chilling replay of what happened during the global financial crisis in 2008 and 2009, when home prices slid 25 per cent over 12 months.

These sobering warnings arrived yesterday amid a slew of analyst reports taking stock of the surprise measures to cool Singapore's property market announced on Wednesday night.

The curbs include an unprecedented extra stamp duty of 10 per cent on any foreigner buying a residential property here.

CIMB Research analysts called the Government's move a 'bazooka' that could shoot down property prices overall by 15 to 20 per cent over the next 12 months.

Goldman Sachs analysts see a 'state of paralysis' for the property market. Their prediction is for private home prices to slide 15 per cent over the next 18 months.

Standard Chartered Bank was the most bearish. A report by the bank last week had already envisioned prices dropping up to 30 per cent over three years. Now the bank expects the same fall to occur within one year.

Stock market investors reacted from the opening bell, sending property stocks into free fall. The worst hit were City Developments and Keppel Land, which lost more than 8 per cent, wiping hundreds of millions of dollars off the traded values of their companies by the end of the trading day. Inside their offices, these and other property developers went back to the drawing board. Some said they were caught off-guard by the measures, and were reviewing their next plan of action.

A City Developments spokesman said: 'The measures will have a dampening effect in the short term so we will have to re-assess the market situation and, if necessary, tweak our strategy.'

Some did not mince their words. A developer who declined to be named said that too many policies and the frequency of their shifts do not reflect well on Singapore as an investment destination.

'If the Government wants to target foreign buyers, then it should also look at the entire spectrum and specifically the increasing presence of foreign developers here who are driving up land prices.'

UBS analysts believe the next move from developers may be to offer a partial absorption or rebates of the additional buyer's stamp duty.

'Launches are likely to see delays as developers would have to spend more time building up a critical mass of buyer interest before having the confidence to launch a project,' they said in a report.

One of the first developers to be jolted into action was UOL Group. According to an internally circulated text message obtained by The Straits Times, it is offering agents a cash incentive of between $5,000 and $15,000 for each unit sold at its Archipelago project in Bedok from now till Sunday.

Those who had secured sales earlier made sure they did not lose them as buyers wavered. Yesterday, property agents were rushing around to make sure that options for deals were signed.

Analysts said anticipated transaction volume and price declines will not be uniform across the whole property market.

The high-end segment will be hit much harder than the mass market sector, as luxury homes tend to attract the highest proportion of foreign buyers.

Sales of private homes in the core central region, which includes prime areas such as Orchard Road and Newton, could plunge 40 per cent as a result of the new measures, said the chief executive of property agency PropNex, Mr Mohamed Ismail.

Foreigners and PRs accounted for 44 per cent of home sales in prime districts, such as Sentosa Cove and Districts 9, 10 and 11.

But the mass market property segment will not go unscathed.Though foreign buying activity in this segment is lower, the expectation of lower prices will cause Singapore buyers to also hold back.

'I would expect transaction volume to fall within the next 30 days as buyers hold back,' said Dr Chua Yang Liang, head of research at Jones Lang LaSalle South-east Asia.'If prices ease, buyers might return but this is also conditional on whether the economy improves.'

Mr Ismail expects mass market home prices to slide 10 to 15 per cent in the next six months.

National Development Minister Khaw Boon Wan touched on the measures in an entry on his blog yesterday, saying they 'will further strengthen, stabilise and sustain our property market'.

But investors who recently bought new properties will likely take some time to absorb the news. 'I am still shocked by what happened. Originally I wanted to hold on to the investment for four to five years, now it looks like I need to have longer staying power,' said a 32-year-old civil servant who wanted to be known only as Mr Lim.

He bought a two-bedroom, $1 million Bedok Residences unit about two weeks ago. 'In a way, I feel lucky that I chose a unit in a good location, which I think will be more resilient to price erosion.'

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PROPERTY STAMP DUTY HIKE

It's too harsh and may disrupt market stability

WHILE I acknowledge the Government's sound intention in raising property stamp duties, especially for foreigners, these measures are too harsh and may create unintended consequences ('Hefty stamp duty hike targets foreign buyers'; yesterday).

While transaction volumes and prices may have remained high, the market has shown greater stability. The extra stamp duties will disrupt market stability and affect its ability to find an economic equilibrium.

With the global economy slowing down, the real estate market will likely continue to stabilise or show signs of correction, without government intervention.

Government intervention in this case may create market instability or uncertainty instead.

Second, the vastly disparate emphasis on foreigners, who face a stamp duty of about 13 per cent, affects Singapore's image as an open nation that welcomes people and capital from abroad.

While I agree that Singaporean interests must come first, targeting foreigners disproportionately and alienating them will only hurt Singapore's reputation as a world-class destination for living and doing business.

This development will cause short-term harm to foreigners and longer-term negative effects for Singaporeans.

Finally, the measures could have been more targeted. Instead of broad-sweeping increases in stamp duties, the Government should have focused on curbing speculative activity such as property flipping.

Two of Singapore's core strengths are its commitment to free market forces and its policy that welcomes foreigners and foreign capital. These measures do not reflect such values and are a step in the wrong direction.
Loke Hon Yiong, ST Forum, 9 Dec 2011

It's a breath of fresh air for Singaporean buyers
THE increase in stamp duties for foreign buyers ('Hefty stamp duty hike targets foreign buyers'; yesterday), the first in 15 years targeting foreigners, is a breath of fresh air and a heartening government move to ease the burden on aspiring Singaporean home owners.

For greater effectiveness, the Government should tighten complementary rules on property marketing by agents and ensure transparency on transaction disclosures.

In property marketing, inaccurate showflat designs and misleading proximity to amenities are some concerns that have been partly addressed. But any hint of misleading buyers should be strongly discouraged; allowing long queues at property launches when tickets could have been issued is a case in point.

As for transparency in transaction details, the full price of a unit should be reflected in the headline transaction price. Many developers offer discounts through cash or in-kind rebates, and should be made to account for them in full-price reporting format.

Transparency in the latter is vital because developers can conceivably outflank the new stamp duties by absorbing the increase when they sell to foreign buyers, although the sticker or headline price will remain the same.

In fact, there is nothing to stop a developer from increasing the headline price in advertising the property to local buyers, thus conveying the false impression of continued strong demand.

In other words, developers can conceivably maintain a certain price through the opaque use of rebates.

Transaction transparency must be enforced because a home can be a lifetime asset or liability. It is vital that the information available is as accurate as possible.
Tan Teck Leng, ST Forum, 9 Dec 2011

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Home advantage to Singaporeans

The Straits Times, 10 Dec 2011

CURBS on the private property market that hit foreign buyers hardest are the equivalent of a controlled demolition on a building site to remove an obstruction that had clearly become too embedded in the landscape to skirt around any more. Few expected such an announcement because the initial effect has been to add to already depressed sentiments about the economic outlook for the year ahead.

The market dived as property and bank stocks were hit hard, and the industry predictably lamented the late Wednesday night body blow that had developers and property agencies alike scrambling to reassess projects and launches, and to salvage or seal deadline-beating deals. While the decision to impose an additional stamp duty on foreign buyers will have a dampening effect, the Government's move must be applauded as a bold step to address Singaporeans' continuing concerns about runaway prices and to protect against price inflation of assets like property which, if unchecked, can savage the health of any economy.

Many need only recall how the property bubble collapse in Japan in 1990, and the United States more recently, have left their economies languishing.

The Government's role is not to encourage and assist developers to sell properties and secure profits. Nor is it an agent that markets Singapore as a foreign buyers' haven. It has, from its earliest days, undertaken the higher responsibility of encouraging home ownership among Singaporeans and adopted policies to enhance the value of their assets.

When the situation warrants it, as is now the case, new measures must be applied to ensure Singaporeans are not priced out of the market and can have ready and affordable access, whether they are first-time buyers or upgraders. Which is why they will applaud Wednesday's move and cheer at the prospect that prices may plunge by as much as 30 per cent.

Singaporeans are right to expect that property prices move relatively in tandem with wage growth and do not get too far out of reach. That has happened with the influx of foreign property buyers. Some are genuine, but many simply want a safe and secure jurisdiction in which to park their money in assets like property for better returns given the listless state of capital markets and the low-interest-rate environments elsewhere.

But by moving increasingly into the mass property market here, the head-on competition that they and their larger chequebooks pose to Singaporeans has become alarming, even untenable. Singapore will remain open and welcoming to them, but this tough and latest measure will go further in ensuring that Singaporeans do not lose their home advantage to the visitors.