Market watchers say recent rapid growth in HDB resale prices will moderate as the pool of potential buyers grows smaller, and more flats are put on sale.

The new rules, unveiled yesterday, ‘will have great ramifications’ on the market, said property agency PropNex’s chief executive Mohamed Ismail, as they will ‘reduce speculation and short-term investment’.

He predicts that HDB resale transactions will fall in the second half of the year by 10 per cent from the same period last year.

Median values of cash upfront paid by buyers – known as cash-over-valuation – which hit a record $30,000 in the second quarter, may dip 10 per cent by year’s end and by 20 per cent next year, he said.

HDB resale flat prices shot up 4.1 per cent in the second quarter, smashing records for the eighth straight quarter, prompting concerns that prices were beyond the reach of Singaporeans.

Jones Lang LaSalle’s head of research for Singapore and South-east Asia, Dr Chua Yang Liang, said the new policy was well directed as it is ‘more targeted at reducing speculative buying and not affecting (genuine) occupier demand’.

‘This would promote a healthier investment climate for the Singapore residential market in the longer term… HDB resale flat prices could moderate to 1 to 2 per cent per quarter,’ said Dr Chua.

He also observed that while the Government has maintained its stand about not interfering with the pricing of HDB resale flats, the stricter rules on ownership have now placed these properties firmly in the ‘public housing’ category.

Some home-seekers had lobbied the Government to cap or remove the cash-over-valuation payments for resale flats, but this aspect ‘is more about market transactions, so they’ve left that to the market’, Dr Chua said. ‘But when it comes to ownership, I think it’s more of a larger policy issue. The Government does not want people to hoard public housing and cause prices to go up.’

National Development Minister Mah Bow Tan said at a briefing yesterday that the new rules were meant to ‘ensure equitable treatment’ of all flat-owners during the minimum occupation period, which is now five years, up from three years.

He said that the measures will dampen demand for flats, and that combined with an increase in the supply of flats, ‘hopefully the market will slow down’.

As prices surged in recent months, some critics had argued that private property owners were speculating on the HDB market as resale flats typically generate healthy rental returns – resulting in a high rental yield. They could also reap gains from a higher eventual sale price.

Mr Mah emphasised that the Government aims to ‘pre-empt the overheating of the market’ and will ‘take whatever steps necessary to stabilise the market’.

‘Obviously the intention is not to crash the market, but at the same time, if we don’t rein in the market, and the bubble bursts then it will be even worse for everyone concerned, the economy as well as for individual buyers.’

Mr Mah said currently an average one in 10 resale flat-buyers owns private property. The new rules mean the buyers’ pool for resale flats will be smaller.

Records indicate that out of the pool of private property owners who buy HDB resale flats, about half sell their private property, while the other half keep it.

Mr Mah said first-timers should welcome the change in policy ‘as it means more choice for them’ and does not affect those genuine home-buyers.

Assistant accountant Edward Kwa, 27, told The Straits Times that if the new rules mean lower resale prices, it will help in his house hunt.

Mr Kwa, who is getting married next year, has been balloting for build-to-order (BTO) flats since last year but has yet to be offered one. ‘I’m glad to hear that there will be more choices and that the wait for a new flat will be shortened,’ he said.

Source: Straits Times, 31 Aug 2010

Experts say that while this measure might increase costs for short-term speculators, it would have a limited impact on genuine long-term investors.

The Ministry of National Development (MND) announced yesterday that stamp duty will be imposed on those who sell properties within three years of purchase, up from one year previously.

This charge will be imposed in a staggered manner, with those selling their property sooner having to pay more.

The full duty, imposed for a sale within one year, is 1 per cent for the first $180,000, 2 per cent for the second $180,000, and 3 per cent for the balance.

A sale in the third year would be one-third of those charges.

CBRE Research executive director Li Hiaw Ho said raising the sellers’ stamp duty period to three years reflects the Government’s intention to cut the volume of short-term speculation without overly affecting medium and long-term investors.

ERA Asia-Pacific associate director Eugene Lim said, however, that this measure is not the most effective and significant of those unveiled yesterday.

‘Over three years, if the economy is good, the price of your property should appreciate by more than the sellers’ stamp duty that you have to pay.’

The sellers’ stamp duty seems to be a modification of the capital gains tax introduced in 1996 to curb speculation in the property market, Mr Lim said.

Back then, the Government imposed – and later lifted in 2001 – income tax on gains which individuals made from selling properties within three years of purchase.

PropNex chief executive Mohamed Ismail said that the impact of the sellers’ stamp duty will be ‘marginal’ since many buyers had already gone into the market with a mid-term perspective.

As a result, the one-year sellers’ stamp duty, introduced in February this year, had failed to have much impact, he said.

‘It sends a strong signal not to speculate and provides more of a psychological impact that would help dampen sentiments… Some investors might still buy after doing their sums,’ he said.

OrangeTee head of research and consultancy Tan Kok Keong, however, said that the sellers’ stamp duty could be considered the most effective approach to weeding out speculative demand.

However, the measures are most effective when taken together, he said.

‘The package in totality would force all buyers to re-assess the timing of their purchase and could lead to buyers taking a longer time to decide. Thus, we could expect some softening in market activities.’

Source: Straits Times, 31 Aug 2010

The HDB said yesterday it will offer 16,000 new flats this year, and up to 22,000 next year under its build-to-order (BTO) scheme. Taken together, the number surpasses the 35,400 flats in Toa Payoh today.

It will also release more land for tender for executive condominiums (ECs) and its design, build and sell scheme (DBSS), where private sector operators develop public housing projects.

These could yield 7,000 DBSS flats and 8,000 EC units over the next two years if demand is sustained.

In contrast, only 4,000 units have been launched for sale under the DBSS scheme since it started in 2005 and 10,000 flats for ECs in the last 10 years.

The ramp-up of supply follows Prime Minister Lee Hsien Loong’s announcement in his National Day Rally speech on Sunday that the $8,000 a month income ceiling will be slightly relaxed for the ‘sandwich group’ of home-buyers.

Those with a monthly household income of between $8,000 and $10,000 will now also be eligible to buy DBSS flats – where previously their only option apart from private property was EC units.

They will be allowed to buy the flats with a CPF Housing Grant of $30,000.

Speaking at a briefing yesterday, National Development Minister Mah Bow Tan said the increase in supply will ensure that there are enough flats for those who wish to buy. He said this would also dampen prices, although other factors such as the economy, jobs and interest rates would also play a part.

The new DBSS homes will be built in mature towns such as Yishun, Tampines, Bedok, Hougang and Jurong West, said the HDB.

The new EC homes will be spread across new and mature estates such as Sengkang, Yishun, Punggol, Pasir Ris and Bukit Panjang.

Asked if the increase in supply could create a housing supply glut in the future, Mr Mah said that supply could be adjusted to demand based on HDB’s BTO system, which builds only when a certain level of demand is reached.

He added that the measures will have an impact on the market but ‘it will not cause a great problem… but we still need to watch it’.

Mr Mah also said that the completion time for new flats will be cut from three years to 2-1/2 years for projects launched from the middle of next year onwards. This will be achieved by streamlining HDB’s internal processes and awarding the tenders for projects earlier, he said.

CBRE Research executive director Li Hiaw Ho said yesterday that first-time home-buyers ‘stand to benefit most from the measures, not only from the increase in supply providing more options, but also from an expected reduction in competition from buyers who are purchasing second and subsequent properties’.

‘The main thrust of these revised measures… reiterates the Government’s stand that HDB homes are primarily for owner-occupation and should remain so,’ he added.

Source: Straits Times, 31 Aug 2010

THE Hungry Ghost month is almost over, but the property market got a new scare yesterday.

To rein in soaring home prices, National Development Minister Mah Bow Tan unveiled an array of measures to temper demand for both private homes and Housing Board (HDB) flats.

He stressed that the steps, while ‘comprehensive’, were ‘calibrated’ to target those who already own a home and are buying another for investment or speculative purposes.

First-time buyers and those buying for their own stay, Mr Mah added, would be generally unaffected by the new rules.

But would this be always the case?

Yes and no. It is true that if you are buying a home for the first time, none of the curbs will directly affect you.

But if you are the average home-owner paying off a mortgage, chances are you could be stuck in your current home for some time.

This is because a genuine home-buyer who already owns a home and wants to upgrade, or downgrade, or simply move house, will have to jump through many more hoops than in the past.

Take the new rule that home-owners with outstanding mortgages must fork out a higher downpayment for a new property. They will now have to pay at least 30 per cent of the purchase price upfront, up from 20 per cent previously.

This restriction is meant to deter property investors or speculators from owning more than one property. But it will also, inadvertently perhaps, make life difficult for people moving house.

Many people buy their dream home first before selling their existing one, to make sure they have plenty of time to move, and banks ease these back-to-back transactions by providing bridging loans.

But now home-owners who still have a mortgage will have to sell well before they buy, if they want to avoid paying the higher downpayment for their new home.

They then have to obtain a bank letter saying their existing home has been sold, and the mortgage will be paid off at a certain date, before they can apply for a loan for their new home – and even then they will get only an in-principle approval.

Because property transactions take about three months to complete, these buyers may have to find somewhere to stay in between selling and buying.

Aspiring upgraders or home-owners who want to buy and live in newly launched private homes, which take about three years to build, will have to stay somewhere else for even longer.

The new rules don’t mean that these owner-occupiers cannot buy new homes to live in, but it does make the timing of when they buy and sell their homes absolutely crucial.

One wrong step and they will need to fork out more cash and CPF savings in upfront downpayments. That risk alone will make anyone think twice about swopping their homes for better ones.

But this is not the only curb that casts a wider net than it appears to at first. There is also the new maxim that private property owners must sell their homes within six months if they buy a HDB resale flat.

The aim of this is to dissuade would-be property investors from dabbling in the market for HDB flats – which should be prioritised for owner-occupiers – and pushing up their prices.

But any HDB owner who already owns a private property for investment may now find himself stuck as well.

If he wants to move, say to another HDB flat closer to his parents, he will have to sell his current flat first before buying a new one.

But the moment he sells the flat, he becomes classified as a private property owner because of his investment property. That means that if he then buys another HDB flat, he will have to sell his private property within six months – even though he is just moving house.

In effect, he may now never be able to move to another HDB flat for the rest of his life unless he is willing to sell both his current properties.

This makes private property a particularly risky investment asset for HDB flat-owners, for reasons completely unrelated to affordability.

Even buyers of private properties, while free of HDB restrictions, must now put more thought into their purchases.

Whatever home they buy, they must be prepared to live in it for at least three years – or pay a penalty in the form of a sellers’ stamp duty, which can go up to 3 per cent of the purchase price.

This could affect shoebox apartments, many of which are bought as starter or investment homes, to be resold after a year or two.

So however you slice and dice it, it seems that the latest measures really leave only two groups of people completely unaffected.

The first are those rich enough to be unfettered by the new rules. By throwing various obstacles in the way of owning more than one home, the Government is sending a very clear signal that property is an investable asset class – with no restrictions – only for those who can afford it with money to spare.

The other group of people who will view the measures with equanimity are those who plan to buy only one home and stay in it for the rest of their lives.

Indeed, one of the main aims of the measures, said Mr Mah yesterday, is to ensure that all Singaporeans are able to secure a home – not an investment – for themselves. As Prime Minister Lee Hsien Loong has said, ‘property is for people to buy to live in’, meant as a nest egg and not as an easy way to make a quick buck.

If you subscribe to this view, and also think that property buyers should be a lot more prudent to start with, then the new measures tick all the right boxes.

But if you like the idea of moving from one home to another as your needs and lifestyle change, the slew of curbs would restrict your options, unless you are willing to stump up more upfront cash and accept lower levels of loan financing.

Buying a home will now be more of a long-term commitment than ever, and buyers must really think about their life plans for at least the next few years before taking that leap.

The housing market may become more stable, but it is also likely to be much less vibrant. And with the cooling moves coming just as Singapore’s economy is entering an uncertain second half, there is a risk of the property market paling precipitously.

The important thing now is for the Government to closely watch if the impact of the measures turns out to be more widely felt than expected, and adjust them accordingly.

Source: Straits Times, 31 Aug 2010

If you already have a mortgage on a home, you will need more cash on hand to buy a second property – under new rules announced yesterday – 31 August 2010.

Buyers with one or more outstanding housing loans will now have to stump up a downpayment of 30 percent of the property’s price, up from 20 percent previously.  At least 10 per cent must be in cash – up from 5 per cent before – but the remained can come from their CPF accounts.

This means that buyers will now be able to borrow up to 70 per cent of the property’s purchase price, instead of 80 per cent previously.

These new financing rules are more significant measures to cool the housing market, expert said.  They added that these moves would weed out speculative activity from the market and prevent buyers from overextending themselves – while leaving first-time buyers unaffected.

The Ministry of National Development said in a statement yesterday that while non-performing loans made up less than 1 per cent of all loans as at the second quarter, there are signs that more borrowers are taking loans of more than 70 per cent of a property’s price.

Local banks yesterday told the Strait Times that they have seen an increasing number of home owners investing in multiple properties in recent years.

UOB said most of these buyers took up financing of up to 80 per cent of the purchase price.

OCBC Bank said that while the majority of its loan applications are for home-owner occupation, it has seen an increase in the number of applications for investment purposes – compared with a year ago.  An increasing number of home-loan applicants have applied for loans of more than 70 per cent of the property price, it added.

Kim Eng analyst Wilson Liew said the new measures would ensure that banks remain prudent in their lending practices.

DMG & Partners property analyst Branson Lee said the rules would also effectively force out speculators.

They would have to think twice before buying as the cash outlay now is reasonably higher…Sales volume will probably be hurt across all segments, he said.

ERA Asia Pacific associate director Eugene Lim said the measures would affect demand in the mass-market private property segment.

HSR CEO Patrick Liew said speculators made up about 20 per cent of the mass market segment, and that the new measures might flatten the sector for the next two quarters.

Demand could drop by up to 20 per cent in the next few months, as buyers react in knee jerk fashion and speculators stay on the sidelines, he said.

However, since economic fundamentals are strong and the market had already been slowing, he does not expect prices to head south.

Instead, Mr Liew thinks prices will hold at current level before gradually increasing again from the second quarter of next year, because there is still genuine demand in the housing market.

ERA’s Mr Lim said that a significant number of mass-market condo buyers live in HDB flats with outstanding mortgages, so demand for such private homes might take a beating now that the required downpayment has been increased.

Mr Colin Tan, research and consultancy director of Chesterton Suntec International said the steps “had more bite” than previous ones.  It would most affect demand from high-risk buyers who are highly leveraged, he said.

“These measures will help to soak up the liquidity in the market as those who could previously afford three similarly priced homes , fully leverage…would now be able to afford only two, lessening demand by a third,” he added.

However, owners who are just selling their home to buy another need to get their timing right and ensure the first mortgage is fully paid before taking out a new loan.

If not, they will be allowed to take out only a 70 per  cent loan for the new home and would have to pay the remaining 30 per cent upfront.

Source: Strait Times, 31 August 2010

What are your concerns/interests when it comes to real estate – whether as an investment or own use?