ST : 'Targeted' cooling has wider implications

Aug 31, 2010

'Targeted' cooling has wider implications

Home-owners who wish to upgrade, downgrade or move are affected too

By Fiona Chan

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.

fiochan@sph.com.sg