BT : Impact of speculation curbs open to debate

Business Times - 23 Feb 2010

Impact of speculation curbs open to debate

IN a move that took some people by surprise, the government last Friday unveiled two measures designed to cool speculation in the property market. But the imposition of a seller's stamp duty on sale of properties sold within a year after purchase and the lowering of the loan-to-value ratio should not really have come as a surprise to anyone, given that home sales had more than tripled in January to 1,476 units, from 481 units in December.

Similar measures were taken in September last year in response to a 16 per cent surge in home sales during the July-September quarter. The immediate impact of that move to kill off innovative interest absorption home loan schemes was a halving of the home price rise to 7.4 per cent, quarter on quarter, during the October-December 2009 period. Under the latest measures, anyone selling property within 12 months of purchase will pay a 3 per cent stamp duty. And home buyers can now borrow only up to 80 per cent of a property's purchase price, versus up to 90 per cent previously. If the somewhat muted reaction of property stocks yesterday is any indication, the market appears to be taking Friday's measures in its stride. In contrast, property stocks plummeted by more than 15 per cent in September.

The general consensus is that the latest measures will not have an impact on genuine property buyers or long-term investors, most of whom take loans of less than 80 per cent of value and hold on to their properties for several years at least. The measures also appear to have been calibrated so as not to impact home prices in a big way - a critical consideration given that residential property accounts for the bulk of Singaporeans' wealth.

But the extent to which these measures will reduce speculative activity in the mid to high-end segment of the property market - where much of the speculation is said to be focused - is open to debate. Here is why: Singapore's reputation as a vibrant first world city in a buoyant and developing region has attracted a significant tide of funds into its premium properties. This inflow of offshore funds - whether for investment or speculation, from buyers from Greater China, South-east Asia and South Asia - continues unabated, and is unlikely to be affected by a 3 per cent stamp duty or a cap on borrowing.

In an environment of abundant liquidity and improving consumer confidence underpinned by a global economic recovery, it is natural for property prices - especially the premium segment - to trend upwards in a land-scarce and developed island-state such as Singapore.

Still, the latest measures, coming just five months after the previous set of calibrated moves, are a necessary reinforcement of a message from the government that it will not sit idly by if speculation in one segment of the property market endangers the broader economy. Presumably, more will be done, should the need arise.

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