Too early to relax property cooling measures, says MND

By Cheryl Ong, The Straits Times, 1 Jul 2014

IT IS still too early to roll back property cooling measures, according to the Ministry of National Development (MND) yesterday.

It said that although home sales have decreased, prices have remained relatively stable.

The moves to rein in property prices included extra stamp duties to curb speculative buying and the total debt servicing ratio framework which was introduced a year ago.

MND noted that private home prices had surged 60 per cent during the most recent market upswing that began in mid-2009.

"It is still too early to relax the property market cooling measures," said a spokesman. "If the measures are removed prematurely, we could see a sharp increase in demand and housing prices."

He said the objective was to "ensure a stable and sustainable property market".

Deputy Prime Minister Tharman Shanmugaratnam noted in his Budget speech in February that given the run-up in prices in the last four years, it is too early to start relaxing our measures.

The MND's comments came as prominent developer Kwek Leng Beng warned of a potential impact on Singapore's reputation as a global city, and called for a review of the policy measures.

The National University of Singapore's Residential Price Index out yesterday showed that prices of resale homes climbed 0.8 per cent in May from April, after falling for nine months. The Urban Redevelopment Authority's flash estimates for private home prices will be out today.

Ms Christine Li, research head of property agency OrangeTee, said the Government would still adopt a cautious stance because interest rates remain low, adding that Singaporeans are still looking to invest in property.

"Four years ago, mass market units were about $700 to $800 per sq ft (psf). Now, the more attractively priced units are already nearing $1,000 psf," said Ms Li. "I think upgraders from Housing Board flats in particular will still prefer a steeper price correction."

Further correction in housing market "not unexpected": Tharman
"I don't think the cycle is over," says Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam, when talking about moderating home prices at the DBS Asian Insights Conference.
By Wong Siew Ying, Channel NewsAsia, 4 Jul 2014

Home prices in Singapore may have been moderating for several straight quarters now, as cooling measures introduced by the Government continue to take effect.

However, while taking questions at the DBS Asian Insights Conference, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam said the cycle is "not over".

"Market players will determine where the cycle goes. I don't think the industry will crash, because we moved early enough, and we moved each step of the game, knowing full well that what we do may not be enough, but knowing too well that if we did too much, it may engineer a crash," said Mr Tharman. 

"So we moved step by step, but we started early, so we avoided a huge bubble. That's why we won't see a crash. But I think further correction would not be unexpected."

Since 2009, the Government has implemented several rounds of measures to cool the property market. These include buyer's and seller's stamp duties as well as loan curbs like the Total Debt Servicing Ratio framework. The supply of new HDB flats has also been ramped up to meet demand. Together, these measures have curtailed increase in home prices.

The latest flash estimates from Urban Redevelopment Authority showed that private residential prices fell 1.1 per cent in the second quarter of this year - the third consecutive quarter of decline.

The government has said recently that it is too early to relax the property-cooling measures.

Home prices continue to dip in Q2
By Melissa Tan, The Straits Times, 2 Jul 2014

HOME prices fell further in the second quarter and threaten to keep declining, although discounting by developers in recent months has managed to slow down the fall.

Flash estimates out yesterday show that prices of Housing Board (HDB) resale flats and private homes weakened in the three months to June 30.

HDB resale values dipped 1.3 per cent from the previous quarter, following a 1.6 per cent fall in the first. They have now slid for four quarters in a row.

It was the same for private homes: Prices sank 1.1 per cent in the second quarter after losing 1.3 per cent in the first, making three quarters of decline in a row.

Analysts say competitive prices lured buyers back to the market in the second quarter, which could explain why the rate of price decline for both sectors was slightly less than in the first three months of the year.

They added that private home prices will likely fall by 1 to 2 per cent for each of the next two quarters or more as developers keep dangling discounts for buyers.

Relief will come only when some property market cooling measures are relaxed, they said.

"I don't expect the market to bottom out soon unless policies are tweaked to bring in more buyers," said OrangeTee research head Christine Li, who thinks prices will not fall by more than 5 per cent over the course of this year.

"The growing supply in terms of newly completed projects should continue to weigh down prices in the next few quarters."

JLL Singapore research director Ong Teck Hui added that developers' price cuts "raise buyers' expectations of further discounts and this feeds into a downward price cycle as we are seeing, albeit a gentle one, currently".

The pace of the private market slowdown in the second quarter deepened on all parts of the island except the city fringe, according to Urban Redevelopment Authority figures yesterday.

The city centre was hit hardest, with values falling 1.5 per cent in the second quarter - a much steeper drop than the 1.1 per cent slide in the first quarter.

The suburbs also put in a poor showing, posting a 1.1 per cent drop in the April to June period. This was far sharper than the 0.1 per cent dip in the first quarter.

City-fringe prices slipped 0.6 per cent in the second quarter following a 3.3 per cent dive in the preceding three months.

Housewife Lee Ching Lan, 51, said attractive pricing was a key factor in her buying a three-bedder at the Sky Habitat condominium in Bishan in April.

But the overall slowdown has worried some home seekers. "I'll be more conservative now as I'm afraid that after I buy something, prices will drop further," said property investor Vina Ip, 41.

Right time to review cooling measures: Kwek Leng Beng
S'pore is losing property investments to other countries, says developer
By Cheryl Ong, The Straits Times, 1 Jul 2014

VETERAN property developer Kwek Leng Beng fears Singapore could lose its edge as an investment destination unless the Government reviews its property cooling measures.

Mr Kwek, executive chairman of Hong Leong Group Singapore and City Developments, said foreigners were choosing to plough their investment dollars into countries like Britain, Australia and the US over Singapore, while Singaporeans have been investing abroad.

"We are losing these investments to other countries even though these foreign properties have a higher risk profile," Mr Kwek told The Straits Times yesterday. "It is unlikely these investment dollars will return to Singapore."

He noted the unexpected decline in Singapore's manufacturing activity in May, adding that it is crucial to ensure that the property sector is in good health as it is a crucial pillar of the economy.

"The overall picture seems to suggest that it may be timely now for the Government to take another look at the cooling measures introduced and make adjustments accordingly," he said.

Mr Kwek's comments came as the Total Debt Servicing Ratio (TDSR) loans framework, which aims to deter borrowers from accumulating too much debt, hit its one-year mark on Sunday.

The measure, together with the Additional Buyer's Stamp Duty (ABSD), has hammered demand in the market.

New home sales in the first five months of this year plunged 52 per cent to 3,984 units from the same period a year ago, according to fresh estimates from the Urban Redevelopment Authority.

Industry players echoed Mr Kwek's sentiments, pointing out that even if the ABSD is eased, it is unlikely to encourage more speculative buying. PropNex chief executive Mohamed Ismail said: "It is not going to impact Singaporean's financial prudence or encourage speculation because they already can't overstretch themselves with the TDSR."

However, there is the possibility of a slight lift in prices if buyers returned in force to the market, Mr Ismail pointed out. "But buyers are already not picking up units now, so if prices increase, they may even be less inclined to buy," he said.

Century 21 chief executive Ku Swee Yong said neighbouring nations like Indonesia are becoming attractive alternative investment destinations. He added that policies should be aligned with the Government's aim of attracting foreigners to set up homes here.

Mr Kwek suggested in February that the Government consider lifting the hefty 15 per cent duty levied on foreigners buying homes after the property market and global economy showed signs of slowing. Prices have since fallen, confirming his concerns, he said yesterday.

However, Mr Kwek noted that the different segments have been affected to varying degrees, so there is no blanket solution.

"I have confidence the Government will take appropriate measures to deal with the challenges that Singapore faces," he said.

Mixed views on easing property curbs
Review cooling policies, say investors, developers; not yet, say some experts
By Cheryl Ong, The Straits Times, 2 Jul 2014

PROPERTY prices may be on the slide but opinions are mixed over whether the cooling measures should be rolled back.

Investors are firmly behind a revision and developers tend to want some tweaks to the main policies, although market watchers and consultants believe prices have not adjusted enough to warrant changes.

That view dovetails with the Ministry of National Development, which said on Monday that as prices have remained largely unchanged, the time is not ripe to lift policies targeting runaway prices.

The range of measures include the Additional Buyer's Stamp Duty (ABSD), which is aimed at curbing speculative buying, and the Total Debt Servicing Ratio (TDSR), which prevents borrowers from piling up too much debt.

These policies and others have dented demand over the past year, with flash estimates yesterday showing a further 1.1 per cent slide in prices for the second quarter.

Some developers have backed prominent industry veteran Kwek Leng Beng, executive chairman of City Developments (CDL), who wants the measures reviewed as he believes they have diverted foreign investment from Singapore to other countries.

They acknowledge that stable property prices are a worthwhile objective but believe policies should be balanced with maintaining Singapore's global standing.

"The measures have already weeded out speculation, and I believe they were intended to just cool the market, not prevent genuine buyers from investing," said a spokesman for developer Sysma Holdings. He said some foreigners can afford to pay with cash but are deterred by the 15 per cent ABSD on each purchase.

Local buyers aspiring to invest in property also called for the measures to be reviewed. Businessman Don Poh, 26, owns a condominium unit but hesitates to get a $550,000 one-bedder because of the ABSD of $38,500 on it.

Mr Dilshad Ahmad, 35, a manager in the shipping industry, has set his sights on foreign property instead.

Ms Chia Siew Chuin, director of research and advisory at Colliers International, said prices have only moderated by a "mild" 3.2 per cent since the fourth quarter last year.

She says the Government could consider reviewing the ABSD imposed on Singaporeans buying more than one property once prices have fallen significantly.

"The TDSR... already ensures that they will not over-extend themselves. There is no need to additionally tax those who can afford and aspire to own properties for investment."

Mr Ong Teck Hui, national director of research and consultancy at Jones Lang LaSalle, cautioned that similar moves to cool the property market in 1996 caused prices to ease gradually, but the market crashed when the Asian financial crisis hit in 1997.

"The concern is whether there is an 'overkill' with all the measures stacked on the market which makes it more vulnerable to a major adverse event."

Borrowers' risk profile gets lift from TDSR framework
It encourages prudent bank lending and borrowing among buyers: MAS
By Lee Su Shyan, The Straits Times, 1 Jul 2014

THE risk profile of borrowers has improved with the introduction of the Total Debt Servicing Ratio (TDSR) framework a year ago, said the Monetary Authority of Singapore.

It noted that the proportion of borrowers with a loan-to-value ratio above 70 per cent has declined. This segment comprised 77 per cent of mortgages issued in the second quarter of 2010 but the proportion has fallen to 66 per cent since 2012, MAS assistant managing director (policy, risk and surveillance) Wong Nai Seng told The Straits Times in an exclusive interview recently.

That simply means a greater proportion of mortgages is now being taken out by people putting 30 per cent or more as a down payment - which in turn means less debt to service.

Another measure also shows improvement. The proportion of borrowers taking a second or subsequent housing loan has fallen sharply, from 30 per cent in 2011 to about 10 per cent. This suggests the proportion of potentially over-leveraged borrowers has fallen.

The TDSR framework sets a total debt servicing ratio of 60 per cent, which means a borrower's total monthly debt repayment is capped at 60 per cent of gross monthly income.

The rule, which took effect on June 29 last year, aims to encourage prudent lending among banks and prudent borrowing among consumers.

Its impact has been wide-ranging on the property market, with market observers noting that it has hit property developers hard while many potential buyers are unable to get loans.

Data for the first 10 months of the TDSR shows an average of $2.3 billion in new mortgages granted each month, down 40 per cent compared with the $4 billion in the six months prior to the framework's introduction.

Mr Wong said: "The TDSR is meant as a structural measure for the long term. It aims to strengthen underwriting standards of lenders and also to encourage financial prudence among borrowers and does that by matching the size of the loan to the borrowers' payment (capacity) so they don't take on too much borrowings."

Even before the framework's introduction, banks had already adopted the concept of the debt servicing ratio in assessing whether to grant loans.

Mr Wong said: "But what we found from our inspections of banks was that practices and methodologies vary. We wanted to introduce a framework to help level up to the best practices across the banks and the industry."

Low interest rates were also a cause for concern.

The MAS wanted to ensure that a person would think carefully of his financial obligations when taking out a loan, particularly if rates were to rise, Mr Wong added.

But he also acknowledged that the improved risk profile of borrowers cannot all be attributed to the TDSR.

Stricter loan-to-value rules had already been brought in for the property market, for example.

These require buyers to stump up much higher down payments on second or third properties, which in turn reduces the amount that can be borrowed.

Mr Wong said the MAS looks at a broad range of factors when assessing the state of the property market, including "demand, supply, prices in the different market segments".

In addition, "we also look at the speed at which the various metrics change, not just the levels of the prices but how significant the changes have been".

"Overall loan volumes, outstanding loans and loans in different buyer segments" are scanned as well, added Mr Wong.

An International Monetary Fund study this year concluded that macro prudential policy actions such as higher loan-to-value ratios have had some success in helping curb house price rises, credit growth and bank leverage in Asia.

Since mid-2013, private home prices in Singapore have stabilised. The URA index of private home prices fell 1.3 per cent in the first quarter this year, following a 0.9 per cent drop in the previous three months.

Having such a framework as the TDSR forces borrowers to think carefully about what they can afford. Having to compile the documents for their loan application gives them pause for thought. Banks have to consider more carefully as well compared with a few years back when they were promising loan approvals within the hour.

They now need more documentation in place and are less likely to give out loans to less creditworthy individuals.

From the MAS' point of view, these are all positive developments, Mr Wong said.

Is the time ripe to lift property cooling measures?
The Total Debt Servicing Ratio is here to stay but the Additional Buyers' Stamp Duty could be tweaked
By Cheryl Ong, The Straits Times, 1 Jul 2014

IT IS clear from a visit to showflats that the property market is a pale shadow of itself from a year ago, when the boom was in full swing.

Back then, agents streamed in with home seekers in tow, cost no object, amid shouts of "sold" resonating through the showroom as units were snapped up.

As developer Roxy-Pacific Holdings' chief executive Teo Hong Lim put it: "It's not like the good old days when you put up a project and it sells by itself."

If sales at newly launched projects are bad, they are worse in the resale market. The number of resale condos and apartments that changed hands in the first quarter of this year plummeted 55 per cent to only 899 units from the same period a year ago, according to Knight Frank data.

"Nothing is easy to sell now, to be frank," said agent Alvin Ong. "Before the measures, it took two to three months to sell a unit. Now it takes seven to eight months just to talk a buyer into seeing it." Mr Ong used to focus on resale properties, and now markets new launches instead.

But developers at least have the financial muscle to lure buyers with discounts, and are offering higher sales incentives to the agents.

A year of adjustments

INDUSTRY players describe the market as "slow" and "challenging". That's no surprise, coming after seven rounds of cooling measures, as well as additional loan curbs and structural lending reforms.

It has been a year since the loan framework, or the Total Debt Servicing Ratio (TDSR), was implemented. This is often cited by analysts as the single move that has had the largest impact in reining in property demand.

That and the other killer move - the Additional Buyer's Stamp Duty (ABSD) - managed to halt runaway demand.

The TDSR stipulates that banks must take into account a borrower's total debt obligations, including other mortgages, car loans and credit card debts, before a new loan can be granted.

Restricting a borrower's total obligations to not more than 60 per cent of gross monthly income has tied buyers' hands.

The effects are evident: In the first five months of this year, sales of new homes fell 52 per cent to 3,984 units from the same period a year ago.

Developers, faced with the risk of unsold units weighing on their balance sheets, have moved to entice buyers with discounts.

CapitaLand, for instance, managed to shift 80 units the day it relaunched the 509-unit Sky Habitat project in Bishan, at prices about 10 per cent to 15 per cent lower than at its initial launch two years ago.

But slashing prices can only go so far, as buyers baulk at stumping up huge sums to pay the ABSD.

Ship technical superintendent James Yeap, 41, who wanted to invest in a two-bedder, said the thought of forking out "an absurd amount" of money was hard to get over. For him, it meant coughing up more than $170,000 in stamp duties since he already owns a Housing Board flat and private condo unit.

In January last year, the Government slapped a 7 per cent ABSD on Singaporeans buying their second property, a 5 per cent levy on permanent residents buying their first property and 15 per cent on all purchases by foreigners.

"I guess I stopped thinking of investing (in property) since the ABSD was implemented," said Mr Yeap.

Sluggish domestic demand has forced property agencies to change their business focus.

Some have taken to marketing foreign homes. Last year, over 70 per cent of ECG Group's deals were from selling foreign property, well up from 20 per cent in the previous year, estimated chief executive Eric Cheng.

Others, like Roxy-Pacific Holdings' Mr Teo, have been trawling the region for opportunities.

The company has focused on developing small freehold projects here, such as Trilive in Kovan. It has also acquired land and projects in Kuala Lumpur, Hong Kong and Sydney in the space of a year. "On the management side, we spent less time on local projects," said Mr Teo.

"We probably have not felt as much urgency to do something overseas as we did last year," he added.

Not a cooling measure

THE sting of the Government's decisions has undeniably been felt but it is important to bear in mind the objective of the policy move that cooled the property market.

The TDSR is having a big impact in slowing mortgage loans. But it was not strictly speaking a property cooling measure at all.

The move to keep total debt to 60 per cent of gross monthly income was meant to instil discipline among Singaporeans who were taking on more debt, and ensure that banks were not overexposed to bad loans.

The Monetary Authority of Singapore (MAS) said at the time that the new TDSR framework was not targeted to address the property cycle. It was meant to "strengthen underwriting practices by financial institutions and encourage prudence among borrowers".

Most significant of all, MAS said that the measure was meant for the long term.

Vulnerabilities had arisen in Singapore's financial system, said MAS managing director Ravi Menon in a speech to a meeting of central bankers in May, because of a massive expansion of global liquidity in a near-zero interest rate environment since 2008.

But while retaining the TDSR policy is seen as necessary, there are growing calls for the ABSD to be rolled back. The calls have come from both developers and buyers.

Mr Kwek Leng Beng, who is the executive chairman of Hong Leong Group Singapore, earlier this year said the Government could consider lifting the hefty stamp duties imposed on foreigners and locals as the measures had cooled the market.

He renewed these calls yesterday when speaking to The Straits Times. He said foreign investors have diverted their investments to other countries, such as Britain, Australia and the United States, while Singaporeans have been buying riskier properties overseas.

But a closer look at the Urban Redevelopment Authority's index for private properties shows that prices have barely fallen: Fourth quarter prices were just 0.9 per cent lower than that in the third quarter. In the first quarter, the index slid 1.3 per cent.

But this was a slight taper when compared with the near 60 per cent rise in private home prices since 2009.

Analysts said they expect today's flash estimates for the second quarter to continue the downward trend.

After a lacklustre first quarter, home sales figures for May were strong, underpinning views that buyers will enter the market at lower price points, said OCBC Investment Research analyst Eli Lee.

The market is, after all, still flush with liquidity and looking for compelling buys, said property consultancy Chestertons managing director Donald Han.

Mr Alan Cheong, who is research head at Savills, said: "The fact of the matter is that if we look at the current slate of new launches, although sales volumes were lower than expected, prices have nevertheless been firm when compared with previous launches in the vicinity."

Developers, though hard- pressed, are not crushed either, Mr Cheong added. He said: "If a developer has already sold 30 per cent of his units, he can still maintain its price and take a more leisurely pace to sell the remaining units in the time it takes to complete the development."

Biting the bullet

MANY have talked about "engineering a soft landing" for the property market.

With anecdotal evidence to show that Singaporeans have ample liquidity and are ready to snap up units if prices drop by about 10 per cent or so, the general consensus among market watchers is that this means prices can still stomach quarterly declines of about 2 per cent. In fact, Mr Han said he believes the market can cope with a 10 per cent slide.

Meanwhile, however, a huge supply looms. 50,000 new units are on the horizon to be completed over the next two years. A deluge means heightened leasing competition for private home owners, which could suppress rental growth.

A systemic downward spiral is unlikely, unless a large number of buyers cannot afford to repay their mortgages when rental values plummet.

On their part, banks have factored in healthy buffers of price slides ranging from about 20 per cent to 40 per cent when handing out home loans.

But the possibility of a short and sharp tumble in prices should not be ruled out.

For now, analysts said the TDSR should remain to ensure a solid foundation of prudent lending and borrowing. After all, this is a macroprudential move meant for the long-term good of Singapore's financial system.

But the property market could possibly do with some tweaks to the ABSD.

This may not necessarily mean scrapping it altogether but perhaps adjusting the quantum. This would still retain the anti-speculation bite of the measures but give a lift to the property market.

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