'More curbs if needed'

Today :
Analysts mull options like lower loan caps, capital gains tax
by Esther Fung 05:55 AM Nov 10, 2009

SINGAPORE - More state land has been set aside for homes and mortgage financing schemes have been tightened - but still, the Government is keeping a watchful eye and may do more to temper sentiment in the property market if need be.

In its annual Financial Stability Review released yesterday, the Monetary Authority of Singapore (MAS) said: "As Singapore emerges from recession, and with the market expecting low interest rates to persist for some time, the risk of a renewed escalation of speculative momentum cannot be discounted."

"More measures might then be necessary," though their nature and timing "would have to be balanced against the still uncertain path of economic recovery", added the regulator.

Given the special note made of loan interest rates - and property analyst Colin Tan's belief that excess liquidity is the cause of the exuberance - should Singapore take a leaf from Hong Kong, which plans to lower mortgage caps for luxury property to 60 per cent, from 70 per cent?

Observers note that the froth here is in the mass-market projects rather than the luxury segment - but still, the principle could be adopted.

Policy-makers could impose a lower loan quantum for home purchases, forcing buyers to fork out more cash up front. Since 2005, buyers have been able to borrow up to 90 per cent of a property's value (though most take up to 80 per cent as it is more costly to borrow above this level).

"Right now, the greater concern is to reduce the lending to the property sector," said Mr Tan, head of consultancy and research at Chesterton Suntec International.

Another option is to reinstate the capital gains tax, which was part of the 1996 anti-speculation package. Some observers felt it would not be effective, as there is not as much "flipping" activity now compared to 13 years ago.

Indeed, sub-sale transactions - where a buyer of a new home sells it before it is built - averaged just 11 per cent of all transactions in the second and third quarters, below the peaks seen in 1996 to 1997, said MAS, but "close to the 13 per cent average" in 2007 and 2008.

Ngee Ann Polytechnic real estate lecturer Nicholas Mak said: "Reviving the capital gains tax is quite a hard-handed move, and this could impair Singapore's attractiveness to foreign investors."

Introducing stamp duties of which home sellers would have to pay a portion could be another option. Currently, only buyers pay stamp duty, about 3 per cent of the property price. But this is a blunt tool, as it also hurts genuine demand, noted Mr Mak.

The Government would have to implement more calibrated measures to target giddy investors, yet ensure they do not stub out the nascent economic recovery, most analysts said.

Associate Professor Annie Koh, dean of executive and professional education at the Singapore Management University, said: "To come up with a tight policy right now might kill the goose that lays the golden egg. Central bankers would be watching how much of the real sector is actually recovering, before they do anything drastic."

In September, the Government banned the Interest Absorption Scheme and interest-only loans. It is also reinstating its land sales confirmed list, identifying eight sites for the first half of 2010.