Interest absorption scheme stopped, regular land sales to resume
THE Government has moved to rein in the fast-rising private property market, banning a popular scheme that allowed cash-poor buyers to defer paying the bulk of their purchase price until the property was completed.
With immediate effect, the interest absorption scheme (IAS) can no longer be offered with new properties for sale, National Development Minister Mah Bow Tan said in Parliament yesterday.
He added that the Government is also resuming land sales next year, a move that will increase the supply of new sites and further cool rising prices.
It is doing this by re-introducing a confirmed list of sites that will be put up for sale according to a pre-determined schedule, regardless of developers' interest.
The Government also announced it will not extend measures introduced in January's Budget to aid developers in the recession. These included deferring property tax and allowing developers more time to complete their housing projects.
These measures come after weeks of speculation over how the Government would react to an unexpected property boom that has resulted in record sales volumes and a dramatic run-up in prices.
Developers sold 10,000 units in the first seven months of this year, more than the 4,300 units sold in the whole of last year. In July alone, they sold 2,767 units - the highest monthly tally on record.
Private home prices are now about 10 per cent to 20per cent above the lows in the first quarter of the year. At selected projects, prices have rocketed 30per cent.
Experts said the immediate impact of the measures would likely be private home prices stabilising, or even slipping, for the rest of the year.
'The moves will certainly take some wind out of the property market, but they will not kill it,' said Cushman & Wakefield managing director Donald Han.
'The Government wants to keep the momentum going, but at a slower rate, as we are indeed in a recession.'
Buyers have been flocking back to property for a lack of what they see as safer investment alternatives.
Yesterday, Mr Mah said the Government was seeing 'signs of heightened speculative activity' that, if unchecked, could lead to excessive speculation and to a bubble that would eventually burst.
Low interest rates have encouraged buying, but this could lead to a rising spiral of higher demand and prices. This would make the property market vulnerable to the continuing risks in the global economy, said Mr Mah.
'Should growth turn out weaker than expected, property buyers and speculators could face capital losses as the market corrects,' he said.
'Conversely, if the recovery stays on course, interest rates will eventually rise and drive up financing costs, with severe implications for those who overextended themselves.'
The IAS is popular with property speculators because it allows them to fork out a downpayment of only 10 per cent or 20 per cent when buying a unit, and nothing more until the property is completed about two years later. In between, they try to sell it off for a profit.
A sample survey of recently launched projects by the Urban Redevelopment Authority showed the take-up rate of the IAS was about 20 per cent to 25 per cent.
The Government is also disallowing a close relative of the IAS - interest-only housing loans - with immediate effect. These loans are designed so that the buyer pays a very low instalment until the property is completed.
The removal of the two schemes applies across the board to all private residential developments, the Ministry of National Development said yesterday.
The only exemption is for uncompleted private residential projects in which the units had already been offered for sale under the IAS before yesterday.
Jones Lang LaSalle head of research for South-east Asia Chua Yang Liang said the removal of these schemes would cool sentiment and remove inflated demand, if any.
Barclays Capital economist Leong Wai Ho warned that there could be more curbs in the pipeline if the authorities were adopting an incremental approach to deflating house prices.
Still, developers chose to view the move positively.
The Real Estate Developers' Association of Singapore said yesterday the changes were unlikely to have any significant impact on developers' future launches. It added that the need for the two schemes had diminished now that the market was 'relatively firmer'.
Potential buyers such as retired civil servant Karen Lee, 55, are happy.
'With speculation, prices go too high, and that makes it hard for the younger generation to buy houses,' she said.
Source: Straits Times, 15 Sep 2009