ST : Property: Taming market gyrations

Aug 31, 2010

Property: Taming market gyrations

THE property market control measures announced yesterday were not the strongest weapons that could be deployed. In an extreme situation, reviving a property capital gains tax pegged, say, to a five-year sliding scale, would rank high as an option. It is 'neat'. Speculators and investors alike would be left in no doubt that real estate cannot be permitted to develop into a casino play when home ownership is vital. As well, restrictions could be placed on buyers, resident foreigners included, if they purchase a second and subsequent private property. These prescriptions, however, could turn out to be worse than the disease in that they might send the real estate sector into the doldrums. This must be avoided, as few sectors of the economy are as sensitive to consumer perceptions of policy intent.

In the circumstances, the National Development Ministry's survey on the state of the market accompanying the new cooling measures should be read closely. The objective, it says, is a stable and sustainable sector where prices move in line with economic fundamentals. Here is the catch: although they have begun to moderate, prices of private property are up by 11 per cent in the first six months. The price curve has topped the historical high of early 1996. Intending buyers can still recall with a shudder the frenzy that seized the market in 1996-1997. The same anxieties are unnerving upgraders and first-time purchasers of state housing. Real estate people will dispute whether the present trend in price movements and consumer sentiment is out of whack with fundamentals. Nevertheless, National Development Minister Mah Bow Tan's remark yesterday on a property bubble building reminds people that the state of economic health should be seen in toto.

Preventing a property market bust then is the operative phrase. The intervention is timely and measured, to calm nerves. This is the import of the move. It follows on the Prime Minister's disclosure at the National Day Rally of a relaxation in income eligibility for HDB flats among higher earners, and construction being ramped up. Of the intervention steps, extending seller's stamp duty coverage to three years from the present one year, higher downpayment and reduced loan limits are cautious, incremental steps. The 'big bang' comes in the requirement that a private-property owner who buys a resale HDB flat to live in will have to sell his private investment within six months. The intent of checking the resale price spiral answers a consumer grievance, but investors could feel aggrieved. Taken as a package, it is to be hoped the intervention, which Mr Mah described as 'calibrated', will be enough to clear up market froth. It is in nobody's interest if market gyrations get out of hand.