Cai Jin

Ill-timed easing of property cooling measures may rekindle speculation

It could draw 'hot' money from those in other places seeking safe havens for their funds

Even geomancers are not exactly enamoured of property stocks, so it seems, in the Year of the Fire Rooster which kicked off two weeks ago.

Mr Kelvin Tay, UBS' chief investment officer, South Asia, drew laughs at a recent Chinese New Year media lunch when he tried his hand at some fengshui.

He postulated that the "yin fire" in the current year conflicts with the elements of fire and earth - noting that this is a negative for industries such as property and energy which are associated with such elements.

Yet beneath Mr Tay's tongue-in-cheek forecast for the property market may lie a more salient explanation as to why investors are not exactly at their most bullish about the sector now.

Surprisingly enough, too much heat in the local housing market may indeed loom as a potential problem, but more of that later.

The residential property market has stayed pretty resilient, even with the cooling measures. Last year, prices hardly suffered a dip, with resale volume rising 28 per cent as total sales grew 16 per cent from 2015. Seen in this light, it is unlikely that property cooling measures will be eased any time soon. ST PHOTO: KUA CHEE SIONG

The lukewarm attitude adopted by some analysts is somewhat at odds with gains made by developers such as City Developments and CapitaLand whose share prices have risen, on average, about 15 per cent since the start of the year, double the still- very-healthy showing of the Straits Times Index - up 7.6 per cent.

But many investors remain subdued, given the various property cooling measures put in years ago, and still in place even though the market is now considerably quieter.

These measures include the additional buyer's stamp duty (ABSD) levied on foreigners and permanent residents buying residential properties as well as on Singaporeans who already own one residential property.

There is also the seller's stamp duty (SSD) applied on a graduated scale if a homeowner sells a property within the first four years of purchase.

Developers are not spared either: When the ABSD was introduced in December 2011, they were told they must build and sell all units in a residential project within five years of buying the site - or face a 10 per cent levy on the site's purchase price plus 5 per cent interest. This levy was raised to 15 per cent for sites bought on or after Jan 12, 2013.

Time flies. Some developers find they may face millions of dollars in stamp duties if they fail to move unsold units at affected developments. Even if there is just one unsold unit, the full levy applies.

In a report last month, Credit Suisse estimated that developers might face up to $1.3 billion in charges this year from the various cooling measures if they fail to meet the "sell-by" deadlines.

It modified its finding with a report last week that lowered its initial estimate of charges to $800 million, taking into account the various strategies adopted by developers to clear unsold stock. Still, $800 million is a vast sum to cough up under any circumstances.

Given the large sums involved, it is therefore not surprising to find that with Budget 2017 just around the corner, property consultants and analysts are looking at the ABSD issue again and coming up with alternatives they hope the Government may consider adopting to replace it.

Dr Chua Yang Liang, property consultancy JLL's head of research for South-east Asia, has suggested replacing the ABSD with a longer-term property tax.

Likewise, Credit Suisse suggested in its January report that in order to combat a possible economic slowdown, the SSD should be eased to allow stretched households to offload their investment properties and alleviate their financial situation.

Meanwhile, tweaking the ABSD would allow those who are financially able to re-enter the market to support such sellers, it added.

What is more, the speculative fervour triggered by massive foreign purchases back in the days just before the cooling measures were imposed seems to have been tamed.

The ABSD imposed on foreign buyers was at 10 per cent of purchase price in December 2011, then raised to 15 per cent in January 2013. As of the fourth quarter last year, foreigners made up only 5.5 per cent of those who bought residential homes on the city fringe and in suburban areas, down markedly from 17.5 per cent in the fourth quarter of 2011, before the ABSD was imposed.

Yet, for all the sound reasons Credit Suisse offered in favour of tweaking the cooling measures, it also provided one important reason why these measures will be staying for now.

It noted that the Monetary Authority of Singapore (MAS) "remains vigilant in monitoring property market developments and, if necessary, will take appropriate measures to maintain a stable and sustainable market".

Now, given the way financial markets are closely interlocked with one another, it is unlikely that the MAS would take only local factors into consideration to ensure a stable property market.

While the local residential market may be experiencing a relatively quiet spell, the same cannot be said of other markets where capricious "hot" foreign money, especially from China, is an important force in influencing property prices.

Take Hong Kong, for example. Last November, the territory raised the stamp duty on property transactions for non-first-time buyers to 15 per cent as home prices had risen much too quickly, to use the words of its Chief Executive, Mr Leung Chun Ying.

For foreigners in Hong Kong, this means the stamp duty they have to pay will be doubled to 30 per cent of the property purchase price, after taking into account the buyer's stamp duty of 15 per cent which they also have to pay.

But even with such a move, some property consultants in Hong Kong are doubtful that this will deter mainland China buyers from snapping up Hong Kong properties in their eagerness to take capital out of their country as a hedge against the depreciating Chinese currency.

Therein lies a big worry. If Singapore, for whatever reason, makes any move to ease its cooling measures, just as Hong Kong is tightening the screws on its runaway property prices, the hot money may well find its way south and destabilise our property market.

No doubt, China is trying to slow the fund outflow with various measures, including stricter requirements for its citizens converting yuan into foreign currencies. But the continued depletion of its foreign reserves - down US$1 trillion (S$1.4 trillion) since the middle of 2014 to just below US$3 trillion last month - attests to the enormous challenge which it faces.

And where the ebb and flow of hot money is concerned, there is one precedent worth flagging: Back in 2008, when the world was in the throes of a massive financial crisis, Singapore took the unprecedented step of guaranteeing all bank deposits to avert any panic in the local banking system. This was in tandem with similar moves made by Hong Kong and Malaysia.

When that safety measure was removed at the end of2010, this was again executed in tandem with Malaysia and Hong Kong, to ensure a smooth exit from the full deposit guarantee.

In other words, one way to ascertain the likely timing of tweaks to cooling measures such as the ABSD is to watch developments in our neighbourhood, rather than harp on about what is happening in our local market, taken in isolation.

As it is, the residential property market has stayed pretty resilient even with the cooling measures. Last year, prices hardly suffered a dip, with resale volume rising 28 per cent as total sales grew 16 per cent from 2015.

Seen in this light, the fengshui experts may be right after all. Tweaking the ABSD at this juncture may just stoke the yin fire in the Rooster Year and set the property market on fire again. Putting out the resulting blaze will be costly.

A version of this article appeared in the print edition of The Straits Times on February 13, 2017, with the headline 'Ill-timed easing of property cooling measures may rekindle speculation'. Print Edition | Subscribe