Saturday January 26, 2013
Cooling the property market
INSIGHT DOWN SOUTH
By SEAH CHIANG NEE
The government unveiled one of the strongest property packages last week that made speculation on real estate a much less attractive proposition for Malaysians, Chinese mainlanders and Indonesians.
THIS is another subject of strong local sentiments affecting interests of foreigners in Singapore.
This one touches a Singaporean’s biggest passion – property.
The government unveiled one of the strongest property cooling packages last week that made speculation on real estate here a much less attractive proposition for Malaysians, Chinese mainlanders and Indonesians.
Despite its limited land, Singapore has long had one of the most open policies for foreign buyers here.
This has caused prices to spiral and cut into its voter popularity in recent years.
Last week, it considered it time to act to stem the rising bitterness of local youths who felt pushed out of the market.
Recently, a friend read with incredulity that a S$1.5mil (RM3.7mil) private condo in Singapore was described as medium-cost.
“How on earth can a graduate start-up hope to afford one?” he asked.
My answer was: “The majority can’t, even with today’s low-interest regime – without the help of his parents. The market has moved out if their ambition.”
They don’t call this the 10th richest city of the world for nothing. For good or evil, the value of its real estate has also gone along with it.
A neighbour recently told friends how he had to finance part of his daughter’s new two-bedroom apartment, which cost about S$700,000.
This was actually a humble suburban home. Most others being slightly larger cost quite a bit more.
He said he had to fork out S$300,000 without which his graduate daughter would not have been able to afford it.
But because he did, his girl has gone into the statistics book as another young property-owning Singaporean, and probably adding to the praises heaped on the city’s rising wealth.
Then there was a huge public growl when news came that a new executive penthouse, which was supposed to be public housing for the middle class, was sold for S$2.05mil.
It sounded grand, a 4,349sq ft ‘presidential penthouse’ for another young person, but when the truth emerged, the story took anot- her turn.
The luxurious flat was mainly paid for by his businessman-father.
“My son can’t afford it, he’s only a salaried employee,” he later told the press.
So how much of Singapore’s real estate wealth is real, and how much of it is myth – generated by loans, gifts or expectations – a price to be paid for in future.
Just as the number of millionaires in Singapore grew, so did the value of its real estate.
Adding to the anger caused by rising prices is that more properties are being bought by foreigners and permanent residents (PRs) who arrive with bundles of money.
The local disgruntlement has worsened in recent years as the doors opened wider, allowing rich foreigners to move in and buy up valuable real estate in land-squeezed Singapore, pushing up prices.
The inability of its young men to own property, private and public, without some parental help has inflicted increasing loss of votes for the ruling party.
Worse of all – Singapore is dependent on its young men to defend the country.
At 18, they have to be in the national service for two years before becoming part of the 900,000-strong Defence Force. In times of war they become front-line soldiers.
To defuse some of the local anger, the government last week announced measures to cool the housing market.
Locals who buy the second or more properties are affected.
However, the biggest blow will be felt by foreigners and PRs, who will now have to pay an additional buyer’s stamp duty (ABSD) of 15% of the purchase price, instead of 10%.
This is a major blow to foreign speculators who had been earning substantially for years by parking their excess money on Singapore properties and watching their values rise.
Profits were almost guaranteed with the help of low interest rates. It is now a lot harder to do so.
There are other ownership restrictions for PRs, who must now sell their flats within six months of buying private property.
These new rules are designed to reduce the number of PRs who seek to upgrade from public Housing Board flats to private property.
There are other details too cumbersome to detail in this column. But the result has been immediate.
The crowds at weekend viewing of new projects has mostly emptied.
Big developers are dangling big discounts to match the increased stamp duty up to 15%, effectively countering the government move.
Within days, new condos of the 630-unit Q-bay Residences have seen prices cut from S$1,050 per sq ft to $985 per sq ft.
Analysts predict sales of new housing units will drop by up to 50% with prices falling as much as 7%.
OSK Research wrote: “The latest measures are the most draconian to date and should effectively snuff out a large chunk of investment demand.
“Foreign buyers will be deterred by the stamp duty increase,” it said.
There are also warnings that danger lies ahead if prices dropped by more than 15%.
One commentator said the small-time investors and first-time home buyers, including foreigners, could end up losing substantially, or even declare bankruptcy, if they had borrowed to buy at recent peaks.