Consider scrapping pre-sales of new developments

It was reported that Guangdong's provincial housing authority is considering putting an end to the practice of selling flats before they are finished to curb property speculations and excessive borrowings (China developers' funding source at risk in pre-sales crackdown; Sept 25).

I hope that the local authorities here will consider imposing similar restrictions on all future Government Land Sales sites and require developers to market their respective projects only upon their completion and the issuance of the temporary occupation permit.

Currently, there is a vast price disparity between existing properties and projects under construction.

The main reason is forward pricing for a brand-new development. But the ease of getting loans to buy a new project as long as buyers comply with the requirements of the total debt servicing ratio makes it attractive.

Buyers of new developments are granted loan amounts based on the contracted purchase price, whereas buyers of existing properties are granted loan amounts based on banks' conservative valuations, which are affected by factors such as recent transacted prices and the prevailing economic condition.

Imposing a restriction on pre-sales will curb developers from punting on the property market and bidding huge amounts for land when the completed units will be ready for sale in only four or five years' time.

It will bring about more transparency to the property market if prices are on the basis of completed units and reflect prevailing market conditions.

The projected supply and demand of private housing needs will also be clearer when all developers keep to construction schedules and launch the sales of completed units as planned.

As Singapore is a land-scarce state, we should be bold and implement policies that will ensure that the local property market grows at a positive but sustainable pace without the exuberance and risks related to the wild swings of the market.

Sum Kam Weng

A version of this article appeared in the print edition of The Straits Times on October 15, 2018, with the headline 'Consider scrapping pre-sales of new developments'. Print Edition | Subscribe