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Opinion
 
Cheryl Ong

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

Published on Jul 4, 2014 11:07 AM
 
-- ST ILLUSTRATION: MIEL

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.

ocheryl@sph.com.sg

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