ST : Roadblock on property route to riches

Oct 10, 2010

Roadblock on property route to riches

By Jessica Cheam

For as long as I can remember, Singaporeans have had a lifetime preoccupation with property.

Even with the Government's recent cooling measures to tighten financing and restrict home ownership, new showflats were chock-a-block across the island over the past week, albeit with people looking but not buying just yet.

A home is not just a home by most Singaporeans' definition. Singaporeans are property-obsessed people, frequently comparing notes with peers on how best to make money from the land-scarce country's property market.

The majority have come to regard it as something they deserve for being Singaporean - first, through buying subsidised Housing Board flats. Many then regard it as a de facto path to greater riches, through selling their flats for a profit to upgrade to bigger homes, or investing in private property for capital gains or rental yields.

This is the quintessential Singapore Dream, made accessible by the economic environment such as available financing, relatively low interest rates and the absence of controls such as capital gains tax.

Of course, the recent cooling measures have stopped many in their tracks.

As the latest HDB data showed, sales volume of resale flats dipped 25 per cent last month, compared with the August figure.

Property agencies have suggested that prices will soften by 5 per cent or more, with cash needed upfront for flats expected to fall to a median $10,000 by the year end.

Industry analysts attribute it to the tightened rules, which have effectively shut out of the market private property owners and permanent residents with properties in their home countries.

Every segment of the population has been affected in some way, but genuine middle-income upgraders and long-term investors seem to feel they have been hit the hardest.

Anecdotally, I have heard private property owners curse the new rules as they were on the verge of investing in an HDB flat; or long-term investors who had saved for the 20 per cent down payment to invest in a unit, but whose plans are now thwarted by the ruling - that second mortgages can qualify for only a 70 per cent loan.

There are also grumbles from young families that had saved up for the 20 per cent down payment to upgrade to an executive condominium, but now cannot do so unless they fork out 30 per cent. The alternative would be to sell their home now and rent for three years while their new unit is being built - but not many will do this.

The 10 per cent difference could range from $80,000 to $100,000 if the home being eyed is a typical suburban condo costing $800,000 to $1 million.

It's not a small sum - saving it could take a few more years.

A Forum letter writer recently questioned: 'Is it fair to inconvenience the majority of us who are not speculative? What if we have plans to use property investment for future retirement or future educational funds for our children?'

All these grievances were aired in Parliament recently, when Non-Constituency MP Sylvia Lim and Marine Parade GRC MP Lim Biow Chuan asked if the new rules were making it hard for upgraders and retirees to monetise their flats.

National Development Minister Mah Bow Tan had acknowledged the concerns, but emphasised that the new policy was to reinforce the use of an HDB flat for long-term owner occupation - not as a mode of investment.

This makes sense, except that some critics such as National University of Singapore sociologist Tan Ern Ser observe that the unintended consequence of such a policy - especially if implemented for a long period of time - is a wider divide between the rich, and the middle-class and below.

While the measures help entry-level home buyers, Dr Tan said, the wealthier classes could indirectly get a boost since middle-class folk are less able to play the property investment game, making the market less crowded for the rich.

Wealthy individuals will no doubt be waiting on the sidelines to scoop up investment homes when prices decline - hence encouraging the rich to get richer.

Already, Singapore's income inequality has worsened over the past two decades. Its Gini coefficient - 1 representing complete inequality and 0 complete equality - increased from 0.41 for most of the 1990s to 0.489 in 2007, before dipping to 0.478 last year.

With government transfers, it came down to 0.453, but this figure remains well above the 0.31 average of the Organisation for Economic Cooperation and Development countries.

Will the new rules cause this gulf between the rich and the poor to widen? Will Singapore's property market - beyond the one roof above your head - become largely a rich man's playground?

If the measures are short-term, this is unlikely. But if the rules stay the same for a long time, it is not an unlikely scenario.

This has prompted many to ask if the rules could have been fine-tuned to make a distinction between genuine middle-income upgraders or investors and short-term speculators.

For example, 80 per cent financing could still be allowed for those who pledge to live in their new home for five years - a minimum occupation period, similar to the one in the HDB market, could be implemented.

Or the stricter rules could apply to homes costing above a certain price, say, $1 million, leaving the market below $1 million more dynamic for middle-class upgraders.

But it is difficult to predict whether such measures will distort market forces, creating potentially negative consequences.

Alternatively, this group of buyers could look at the rules from a different perspective instead of fretting about the current restrictions.

If property prices come down as a result of the cooling measures, the 20 per cent they have saved could be enough for a 30 per cent down payment in a couple of years.

As Singapore's property cycle is now at its peak, it would seem unwise for those chasing properties to make hasty decisions when prices are at historic highs.

Also, the changing of rules does not mean the end of property investment as we know it.

As Mr Mah put it: 'If you already own a private property, then please don't at this point in time go and compete with the others to buy an HDB resale (flat) unless you're genuinely downgrading.'

His choice of words suggests that this policy will change in time to come - and perhaps sooner than anticipated.

But what is clear is that with this new property landscape, property-obsessed Singaporeans should take a breather and re-evaluate their notion of property as a quick and given path to riches.

jcheam@sph.com.sg


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A wider divide?

Will the new rules cause this gulf between the rich and the poor to widen? Will Singapore's property market - beyond the one roof above your head - become largely a rich man's playground?