THE
latest round of measures to promote what the government claims would be
'a stable and sustainable property market' begs many questions. Let's
begin with the basic parameters. First of all, the additional buyer's
stamp duty (ABSD) is applicable only to the private residential segment,
not to other segments such as office, retail, industrial, HDB shops,
HDB flats, Executive Condominiums (ECs), etc. So perhaps a more
appropriate claim should be 'a stable and sustainable private real
estate sector'.
Next, the key objective listed was 'to promote a
sustainable residential property market where prices move in line with
economic fundamentals'.
Prices of private residential properties
have continued to rise, albeit more slowly in the last two quarters.
According to the Urban Redevelopment Authority, prices are now 13 per
cent above the peak in Q2 1996 and 16 per cent above the more recent
peak in Q2 2008.
In the many overseas seminars I have spoken at, I
am always happy to reassure investors that as a broad guiding
principle, foreigners and Singaporeans are not treated any differently
when investing in Singapore. However, now we have imposed a 10 per cent
ABSD on foreigners who purchase residential units. If we apply these
stamp duties on the residential real estate asset class, does it imply
that other asset types, such as commercial properties, stocks, capital
equipment, cars, COEs, etc are also likely future candidates for
additional stamp duties if the public perception is that a particular
asset is beyond Singaporeans' reach?
Or, if the stock market
becomes too hot and the Straits Times Index surpasses the October 2007
peak of 3,850 points by 20 per cent, reaching, say, 4,600 points, will
the authorities also implement higher stamp duties on foreigners' stock
investments, 'owing to the small market size of the SGX' to make the
stocks more affordable for Singaporeans?
What about stamp duty
on foreigners' purchase of COEs because the COE pool is limited? What is
the significance of measuring our private residential prices against
the previous peaks? And what has this got to do with foreigners today,
given that in 2006-2008, prime properties such as St Regis Residences,
Ardmore II, Sentosa Cove, Orchard Residences and were snapped up mainly
by foreigners.
Most foreigners invested in Singapore's long-term
future as part of their portfolio diversification and wealth protection
for their families. Why were such measures to curb foreign ownership
(individuals, families or institutional funds) of residential properties
not implemented at that time when the luxury residential sector was
booming hot?
I have expressed in several articles that the climb
in the private residential index is the result of strong sales at new
record prices in mass-market launches. This climb is mainly contributed
by Singaporeans and Singapore permanent residents (PRs). The proportion
of foreigners purchasing in the mass market is low, at 10-20 per cent as
the mass-market residential segment is not considered 'investment
grade'. I have also provided data to show that foreigners have not been
significant contributors to the increase in mass-market home prices.
The fundamental cause of the climb in mass-market prices has been the
strength of HDB resale prices, where the rate of growth is higher than
that of the private residential index. Owners of HDB flats feel
confident about the rising values of their flats. And since money in
savings accounts devalues due to the prolonged 5 per cent inflation, and
mortgage costs are low, they look for safe, secure investments. This
leads them to purchase private residential properties for rental income
and as an inflation hedge.
Unfortunately, the new measures do not
address the rising HDB resale prices and so the effect on mass-market
private apartment prices may be limited. Likewise, newly launched ECs
and ECs that are not yet privatised will not be hit hard in terms of
volume and price.
I believe that landed properties may suffer a
direct, but limited, impact. A handful of Singaporean investors who buy
many landed properties for the long term will be affected. They may not
mind paying the extra 3 per cent ABSD if they can find their ideal
landed property investments. That said, a Good Class Bungalow (GCB)
collector wishing to invest in a $30 million house will be paying around
$1.8 million (6 per cent) stamp duty if this were his third or more
residential property. If he were to purchase the GCB under a trust, for
wealth transfer purposes, a $3 million stamp duty would also apply.
This round of measures will positively benefit the strata office,
retail and industrial segments of the property market. Many mass-market
investors will surely flock to these products, as well as more exotic
overseas properties. We should expect to see more 150-sq-ft retail units
or tiny industrial units for sale. Time will tell whether such
investments will turn out to be stable and sustainable for the property
market, or not.
The biggest impact will be felt by developers of
luxury residences who are more dependent on foreign investors. Several
developers have overseas sales offices to promote their Singapore
residential products. However, foreign investors wishing to buy a $10
million Orchard Road property will now think many times about paying
almost $1.3 million (13 per cent) in buyer stamp duties. This is not a
measure that increases the amount of equity foreign investors need to
put into their properties; it is a tax which once paid cannot be
recovered. Our residential market has just got uglier in terms of
investment returns.
The other stakeholder group directly hit by
the measures are the real estate agents, many of whom are active in
promoting Singapore residential properties in Indonesia, China, Malaysia
and Hong Kong. Following closely behind would be the relationship
managers in private banks active in prospecting foreign high-net-worth
individuals (HNWIs) and getting them to park their investments under
Singapore trusts. Then we have the priority bankers, the mortgage
bankers, the contractors and interior designers who serve the high end
market. Many rice bowls, if not already shaken by the global jitters,
will surely be shaken now.
My main worry remains: What is the signal perceived by foreigners?
There are genuine foreign buyers who prefer to purchase the roofs over
their heads. For example, A*Star and our medical fraternity have gone
overseas to attract foreign doctors and medical researchers to work in
Singapore. They may relocate here for our high quality of medical
practice but these professionals also need homes for their families. Not
every foreigner likes to pay rent. Many prefer to build up equity
through purchasing their own homes and taking bank loans.
There
is another group under the MAS Financial Investor Scheme (FIS) worth
mentioning. HNW families applying for the FIS invest $10 million into
Singapore are allowed to apply $2 million towards the purchase of a
residential property for their own use. Probably the most expensive PR
scheme in the world, the FIS has a long queue of HNWIs, some having
waited over a year for approval. The latest measures mean that if they
choose to apply $2 million of their $10 million investment into a
residential unit, they need to pay ABSD in excess of $260,000 depending
on the value of the property purchased.
Overall, I think these
measures will effectively grind the luxury residential segment to a
crawl. Foreign residential property funds will also surely stay out
while this tax is in place. The measures could be less effective in the
mass markets, given the bulk of Outside Central Region (OCR) launches
are snapped up by Singaporeans who feel confident about their rising HDB
valuations. Recall the queues and fast-paced sales at recent OCR
launches.
I would hope for a tweak in the policy to allow
foreigners to buy their first home at the existing 3 per cent buyer
stamp duty. Many foreigners are here to work and to settle down with
their families and they have a genuine need to own one home for shelter.
Singapore is a country made successful by the influx of foreigners in
the last two centuries and it must remain an open economy in order to
survive. The Economic Development Board, the Monetary Authority of
Singapore and other government agencies' efforts to attract foreign
investors to our shores may be tougher if this signal were read
negatively as a protectionist measure.
Foreigners who are already
settled here but who have not purchased their homes may feel
short-changed by such discriminatory policies, especially when there is
insufficient evidence that foreigners are the main cause for the rise in
home prices.
With the new measures, are we signalling: Our
right hand welcomes you while our left hand blocks you from getting a
comfortable life? Would we want the government agencies to slow down the
pace in attracting foreign financial institutions and MNCs to expand in
Singapore? That will reduce demand for housing but it will also weaken
the robust job environment.
This policy aimed at foreigners will
harm our reputation as an investment capital. Instead of penalising
foreigners with heavy taxes, we could give more incentives to support
Singaporeans and Singapore PRs. Already, loan-to-value ratios for
purchasing properties are more attractive for Singaporeans than those
for foreigners. Let's have more carrots for Singaporeans instead of
wielding the stick on foreigners.
The writer is CEO
of International Property Advisor Pte Ltd and author of the book: 'Real
Estate Riches - Understanding Singapore's property market in a volatile
economy'
Source: Business Time
Analysts expect property prices to soften in 2012
The Singapore private residential property market was hit with
two rounds of cooling measures in 2011 – moves widely described by
analysts as harsh.
Coupled with an expected slowdown in the global economy, home-buying decisions may stall in 2012.
And developers may also roll out more incentives to prop up sales.
Despite the uncertain economic outlook in 2011, home-buying interest
remained healthy judging by the long queues at recent property launches.
Analysts expect new private homes sales to hit a total of 15,000 to
16,000 units this year, compared to nearly 16,300 units sold in 2010.
Next year, crowds at property launches could get thinner as weak
economic sentiment undermines the confidence people have in keeping
their jobs.
Sales volume for 2012 is likely to dip further to under 14,000 units for the whole year.
Dr Chua Yang Liang, Research Head, Jones Lang LaSalle, said: “If the
transaction volumes were to declined and sustained into 2012, then
prices are expected to be affected. From our forecast we think possibly
between 10 to 15 percent on the downside.”
Analysts say there is no chance of recovery for high-end property next year, with prices likely to slide 20 per cent.
The sale of high-end units was already lacklustre before the
government imposed an Additional Buyers’ Stamp duty in December, which
will further dampen demand from foreigners.
Market watchers expect some diversion of investor interest from
residential, to other real estate including office and strata industrial
properties.
Meanwhile, the cheaper home loans and genuine latent occupier demand
are expected to continue to drive the mass market home segment.
However, prices for such homes could see a downward correction of about 10 per cent next year
To mitigate the impact of the cooling measures, experts say developers are likely to dangle a carrot in front of home buyers.
Chia Siew Chuin, Director, Research & Advisory, Colliers
International, said: “They may have to even align their prices to move
the sales or even look at incentives, soft sale kind of measures,
probably extending rebates in the sense of discounts or even absorbing
stamp duty on behalf of buyers or extending other kinds of incentives
not only to buyers but also to agents to help them move sales.”
Developers will also continue to launch new projects, especially those in the suburban areas.
Donald Han, Vice Chairman, Cushman & Wakefied, said: “We will
continue to see more launches coming up for mass market, mainly because
the government sales of sites that have been launched in the last 24
months…a record number of over 20 sites will have to come into the
market. They (the developers) have to do it now as these are on 99-year
leases, unlike the high-end or mid-end projects which are traditionally
freehold projects having a longer tenure life.”
Analysts say developers will also be more measured in their land bids
next year, and prices for sites that are less attractive could dip by
some 10 to 12 per cent.
Source : Channel NewsAsia – 14 Dec 2011
