Monday, September 28, 2009

Keeping cool in the heat

Are the recent measures by the government to cool the property market appropriate and effective?

Pauline Goh, Managing Director, CB Richard Ellis Singapore
THE measures are aimed at cooling the market by lowering demand and increasing supply. On the demand side, the removal of the special payment schemes will effectively encourage homebuyers to reassess their cashflow position carefully before they make purchase commitments. Those who have sufficient funds only for the upfront 20 per cent downpayment and are relying on the future sale of their existing homes to help finance their new purchases may now be encouraged to hold back on newly launched projects and possibly look instead to the secondary market including projects that are close to TOP.

On the supply side, the re-introduction of the confirmed list back into the government land sales programme will provide better visibility to the market on the pipeline of future supply.

These measures should help to moderate, to more sustainable levels, the current sales momentum which has escalated since March and looks set to easily exceed the record volume of 14,811 units in 2007.

Laura Deal, Executive Director, The American Chamber of Commerce in Singapore
THE American Chamber of Commerce in Singapore just conducted its eighth annual Business Outlook Survey of US businesses across Asean. As part of this survey, companies rate their satisfaction level with aspects of the business environment of the country in which they operate.

Overall, Singapore is viewed extremely positively by US companies based here as a place to do business. However, for several years, the greatest dissatisfaction has been with the cost of overheads - mainly housing and office leases. In 2008, 74 per cent of the surveyed US companies based in Singapore reported being dissatisfied with housing and office lease costs. In 2009, that number declined to 55 per cent for housing and 47 per cent for office leases. Anecdotally, our members also cite housing and office lease costs as the greatest challenge to planning business expansion in Singapore rather than other countries in the region.

It is crucial for the Singapore government to keep housing and office lease prices low as the country rebounds from the world economic downturn. Through these measures, the government is ensuring that Singapore remains competitive in attracting and keeping foreign companies.

David Leong, Managing Director, PeopleWorldwide Consulting Pte Ltd
HAVING witnessed the burst US property bubble, it is not hard to imagine how those conditions - if not tempered with cooling-off measures by Ministry of National Development - will put Singapore in similar dire straits. Property prices should be aligned with economic fundamentals. With the current spiralling of prices, these are signs of heightened speculative activity with no major shift in economic fundamentals.

The intervention with the immediate withdrawal of the interest absorption scheme (IAS) and interest only loans (IOL) being offered for purchases of uncompleted property developments will halt any frivolous speculations for the moment. However, with the interest rate pedal nailed to the floorboard and remaining so low for such a long time, new money will find properties as good investment options.

Whatever the case, it looks like demand outstrips supply and therefore there is a chasing up of the property prices. Private home sales witnessed strong upswing since February this year when 11 times more homes were sold compared to January's 108 units. Since then, developers have sold more than 10,000 units, more than double the 4,300 sold in the entire 2008.

All eyes are on the economic performance since should growth turn out weaker than expected, all buyers of property will be chasing the tails of escalating prices with possible capital losses should the market suddenly correct and rebalance. This will create a negative wealth effect traceable to a flattening out or worst, a drop in property prices.

On the other hand, should the recovery maintain its course, interest rates will shoot north and drive up financing cost and this can have serious implications for those who are over-extended with no real money to back their purchase.

The removal of the IAS and IOLs will technically remove the speculative element from the burgeoning sales volume. This is good for mid to long-term genuine homebuyers and investors as it will take out the speculative element in the pricing of the property.

The cooling-off measures by the government will discourage property 'flippers' but I suspect that property prices and sales volumes will continue to improve, with a more sustainable pace of increase and with less volatility as hopefully, cool and level heads will prevail.

Reto Isenring, Managing Director, VP Bank (Singapore) Ltd
DEVELOPERS' launches and sale volume in June 2009 exceeded even the pre-crisis 2007 levels, and while the government initiatives are well-intended at preventing another property bubble, I feel that there was an oversight on the type of property buyers participating in this round of growth.

In the bull market of 2007, property purchases required only 10 per cent cash outlay, and everything else was easily loaned from banks on interest-serving loans. That set the stage for speculation and consequently, the property bubble.

However, the 2009 scenario is dramatically different, as tighter credit policies capped bank loans at 80 per cent loan-to-value. Coupled with a lower valuation to sale price, cash-tight investors and pure speculators were eliminated from the market as the cash capital is drastically higher than before.

Therefore the government measures of removing the interest absorption scheme and interest-only housing loans are only marginally effective.

Instead, I feel that the deciding factor on the behaviour of property buyers will emerge from the leasing market front. Looming pipeline supply amid weak growth foreseen for expatriate population and demand will remain a concern, and if the rental yields decline sharply, there will be a shift in funds from property investments into other potentially more lucrative investments.

Teng Yeow Heng Michael, Managing Director, Corporate Turnaround Centre Pte Ltd
THE measures to cool the property market are not appropriate. The real estate prices have actually not hit the roof yet. Singapore property prices are merely rising in line with what is happening in Asia and also catching up on lost ground.

The funds are currently coming fast and furious into Asia because of the major central banks' fiscal stimuli a few months ago. We are seeing real estate prices and stock markets rising in many countries in Asia, not just Singapore.

I believe that this escalation of real estate prices is short term as the economic fundamentals are still weak globally. Our government should just let the property market run its course without any interference as it will not be effective in changing market sentiments.

Wee Piew, CEO, HG Metal Manufacturing Ltd
A RECENT report by Savills Singapore shows that quite a number of property sub-sales resulted in substantial losses for owners who sold in Q1 this year. A large number of these owners who suffered losses were short-term speculators. I believe that such losses are the best way to weed out property speculators. Once bitten, they are less likely to try their luck in buying a property and hoping for a quick 'flip'.

However, in any form of investment, some form of speculation is healthy to create a thriving market where there are ready buyers and sellers. The key is to prevent runaway or excessive speculation.

As such, I believe that the recent government measures to remove interest absorption schemes will help ensure buyers are more 'genuine' or have enough resources to buy and hold the property for a longer time horizon.

However, the government must be mindful that it treads a thin line in having to avoid excessive interference in the market, thereby dampening a market which just six months ago was still in the doldrums.

After all, the current property boom, being liquidity driven, is not unique to Singapore as you will see similar trends in Hong Kong and China.

Loi Pok Yen, Group CEO, CWT
RECENT events over the last year has shown that capitalism in its purest form may be flawed. The assumption that markets are efficient and allowing market participants to get ahead of themselves is potentially dangerous.

Singapore's government has always taken an approach that prevents financial disruptions which may cause damage to the social fabric and destroy the lives of its citizens. I like to consider this capitalism with a conscience.

The recent measures present buyers and sellers with a different perspective - the government's. Being able to talk down the market without resorting to monetary policy is always the preferred route. Whether it can be effective in the long run, however, remains to be seen.

Kelvin Lum, Executive Director, LC Development Ltd
THE effectiveness of the recently announced government measures to cool the property market will probably be more evident in the upcoming expected launches till year-end which supposedly will yield about 3,700 units.

The run-up in prices for the mass to mid-market sectors might also start to face resistance from the recent price surge as well as talk about a slowing equity market. From a global perspective, the Federal Reserve's decision to maintain measures to support the fragile US economy suggests that fundamentals still remain weak, and ultimately would have an impact on other major Asian economies.

These factors, coupled with the recent measures, might possibly dampen the sentiment among speculators but genuine home buyers could still support buying interest in homes as they are likely to be undeterred by the removal of the IAS and IOL.

Lim Soon Hock, Managing Director, Plan-B ICAG Pte Ltd
PEOPLE believe that the economy is finally turning around. They base this on the positive economic growth data across the globe and the rally in the stock market. Anticipating that property prices will likewise increase, they are buying now, including speculators.

I believe that the government's actions are not targeted at the genuine buyers, for example the HDB upgraders and en bloc sellers, but rather the unscrupulous speculators. However, in the current somewhat buoyant environment, where there is demand, the government's hand in curbing speculation is weak relative to market forces, as was seen in recent property launches after the government's intervention.

That said, as a result of the measures, I expect price increases will be gradual, rather than spiralling to dizzying heights, that were seen pre-financial crisis.

Alastair Hughes, Chief Executive Officer - Asia-Pacific, Jones Lang LaSalle
THE announcement of the measures was intended to send a strong signal to the market that the government will step in to balance supply and demand to avoid an overheating of the property market and curb speculation.

In the weeks following the announcement, it has not created any significant knee-jerk reactions in the market and there has been no evidence of any significant reduction in demand. It has, however, made the market sit up and assess the current pricing.

The real test of the effectiveness of these measures will be in the medium to long term. A number of factors come into consideration, including the recovery prospects of the global economy, which will have an impact on Singapore; as well as the financial strength and affordability of developers and homebuyers respectively. How these factors play out will determine whether the government needs to re-evaluate its stance.

Maintaining a stable property market with regulatory transparency and consistency is important for Singapore to keep its position as a regional business hub and therefore, a combination of market forces plus prudent central influence on demand and supply is a recipe for success.

Liu Chunlin, CEO, K&C Protective Technologies Pte Ltd
I THINK that the measures are good. But the issues are more complex than just cooling the market. There are other concerns to be addressed and the baby should not be thrown out with the bath water.

For example, there are genuine buyers, especially HDB upgraders who have held back over the last one year or so. Some of them may be hit by financial difficulties after committing to a purchase and they would need help.

There will inevitably be speculation or flipping, and certainly we want to avoid the debilitating effect of an asset bubble, especially as Singapore is a small market. And nobody wants the property market to be manipulated to the detriment of the genuine buyers.

In essence, the government has intervened by being one of the players, and a significant player at that, in its role as regulator and major supplier of land.

Krishna Ramachandra, Managing Director, Arfat Selvam Alliance LLC
THE recent measures adopted by the government are just about perfectly weighted. I say this because these measures have the clear intent of signalling to the market that a firm interventionist approach is still on hand, and yet the measures adopted are not really going to shock the market and send it into free fall.

These measures have not and will not seriously hurt the players in the property market. But what they have done is diffuse the uneasiness that surrounds the phenomenal rise in property prices. Clearly, the government has learnt from past experiences that any intervention has to be appropriate in what it intends to achieve but more importantly, the timing of such intervention is critical.

The economy is still very fragile - and still yearning for positivism - and as such, if the intervention was any harsher than what has already been instituted, it would have been an over-kill. So 'well done' to the policymakers in getting this one just right.

Jimmie Lee, Chairman, Dynaforce International Pte Ltd
AS a property owner, I would love to see prices continue to escalate (albeit in a more realistic manner). But I am also a potential buyer because property is now one of the safer investments. So as a potential buyer, I am glad to see that the government making this move. In a 'guided' economy like Singapore, it is definitely the right message at the right time. But we have also seen that it has not tamed the raging bull.

Not unexpectedly, we see the media roped in to accentuate the message. The press has listed the average loss that buyers of luxury apartments suffered. The teacher has taken out the cane and whacked it on the table. He's got our attention and we know his intentions. But like my old classmates in ACS, many will still be itching to test the limit.

R Dhinakaran, Managing Director, Jay Gee Enterprises Pte Ltd
THE high volatility and frequent swings in Singapore's property market is perhaps a combined function of its small land mass, present high liquidity in the market and rampant speculative behaviour.

While demand and supply in its own course can correct much of these anomalies in a fairly large market, the scarce land resource buoyed by speculative interests often leads to a panic situation among genuine buyers.

The recent announcement is aimed to make buyers think on their longer-term financial liabilities than to look at property as short-term investment.

While it is definitely a step in the right direction, it addresses the speculative behaviour only partially. Similar to the stock market, a more elaborate framework to desist 'insider trading' and conflict of interest would help in further limiting speculation.

Additional taxes on gains made from frequent speculative trading activities will help in curbing this behaviour to some extent.

Deb Dutta, Vice-President, Asia-Pacific, Brocade
IN the near term, these measures will cool off rising property prices. However, when the property market takes a beating, these same measures will be relaxed again to encourage existing home owners to upgrade and new owners to buy. Within a year since the financial market meltdown, this is the second time that the government has proposed mitigating measures to regulate the property market.

Increasing land supply means more property developments in the pipeline and therefore more jobs. All these are good. However, Singapore is just one small island with a finite supply of land. Land reclamation is one way to increase land area while urban renewal is another to clear out the old buildings for taller and swankier-looking high-rise residences, at the expense of heritage and nature conservation.

The government may like to take a step back and revisit the property market from both genuine home owners and investors' view points, so that a longer-term and more sustainable measure that works for both groups of buyers can be put in place.

David Low, CEO, Futuristic Store Fixtures Pte Ltd
THE recession may now be recent history but fundamentally, the world at large is still experiencing slow growth. Yet property transactions are rife and mirror that of peak times in 2007 despite a polar economic setting. This is an interesting phenomenon that seems to defy financial sense, and calls for more in-depth study.

For a start, there is an urgent need to marry market fundamentals with sentiments to moderate rife speculation which could otherwise lead to another burst property bubble or worse, will create a depression.

What the government is doing to tame investment and speculative property purchases is certainly timely. Measures such as the removal of the interest absorption scheme and interest only housing loans are certainly effective as a wake up call to mass market buyers who are hoping to make a pile from speculation that may well be beyond their financial call. This will help to moderate advanced cash spending and prevent an alarmingly high-debt society from forming.

Dora Hoan, Group CEO, Best World International Ltd
THE Singapore property sector is in the midst of a boom quite like that of 2007, when we made headlines as the world's hottest real estate market. There is a confluence of factors that has triggered the returning frenzy and I believe that many of them are positive. Singapore is recognised as the top destination in which to do business. Such a bright prospect is made even more vibrant by signs of global economic recovery, the stock market rally, the imminent completion of massive casino resorts, low interest rates and a search for more stable, alternative investments - all these contributed to encourage property buying.

While speculation is inevitable for any market, the government has done well in acting quickly to temper the heightened exuberance which may result in a speculative bubble that will be hazardous for both Singapore and the region. We do not need much memory refreshing to realise that a red hot property market can go out of bounds and mimic what happened in the United States before the sub-prime crisis. I believe however that if we remain upbeat but cautious, we can seize opportunities here in positive light.

Source: Business Times, 28 Sep 2009

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