A lack of foresight?

Timing of property measures results in market volatility that hurts developers and shareholders, amid global downturn

The latest moves to curb home ownership by foreigners and investment in property by locals came like a bolt from the blue to both the public and real estate developers.

While the move to differentiate foreign and local buyers is in my opinion long overdue, I wonder however whether the step to impose additional stamp duties – over and above the current charges – is the right one, especially at a time when there is already the cooling of economies round the globe, including Singapore’s.

One wonders whether the aim of the measures is to create a stable property market – or to react in knee-jerk fashion to what are, essentially, market forces. Is a knee-jerk response the best way to deal with problems?

The latest measures, coming in the face of a global downturn, appear somewhat harsh. Foreigners buying property here will now have to fork out 10 per cent more in additional stamp duty while Singaporeans will have to pay additional stamp duties for third and subsequent residential properties. Permanent residents will have to stump out 3 per cent more in stamp duty for second and subsequent properties.

But the severity of the measures is not the real concern. More to the point is the timing which results in extreme market volatility. For a Government that has been admired for its forward planning, there appears to be little evidence of such foresight in the property sector.

I have previously advocated trigger points for measures to cool and perk the property market. I repeat the call whereby measures are introduced at various price levels – according to the levels of increases or declines in percentage terms – of course using a base level.

This will allow for better planning by developers and investors and will bring a level of transparency that has been missing in the sector. Uncertainty does almost nobody any good.

It is also not fair for the Government to have a land sale one day and put up restrictive measures soon after. The purchase price would have reflected prevailing conditions and almost certainly would not have anticipated the impact of a government action. Could not such sales be interpreted as insider trading?

One must remember that a property purchase involves a huge investment, both for the developer and for the buyer. For the developer there is the added risk of the gestation period between purchasing the land and completing the project.

Many people, including I, also invest at least part of our savings in the shares of property companies. With banks already paying such low interest rates on deposits, people invest in shares to obtain better returns. But with the authorities acting so unexpectedly, their investments take a beating.

I am not against lower property prices, but I also do not agree with actions that introduce wild swings in the market. This makes property investment almost as much of a gamble as going to Resorts World Sentosa or Marina Bay Sands.

The Government too will have to play its part in making residential property more affordable for locals – by removing the reserve price for its land sales and reducing the selling prices of Housing Board flats. That would send a clearer signal of its intentions to provide cheaper housing.

Not many buy the Urban Redevelopment Authority’s contention that revealing the reserve price “will deter some developers from bidding and will not be in the public interest”.

So is wasting money on unrealistic bids and making wild guesses in the public interest? Have potential buyers at public auctions been deterred by reserve prices being disclosed?

To its credit, the Government also announced that it will sell enough land to build more 14,000 housing units, with half coming from sites on the confirmed list – because the real issue is supply.

But it must also ensure that all land is sold, and if prices for such sites come down, even steeply, so be it. And more land should be available if demand is higher than anticipated.

By Conrad Raj – Today’s editor-at-large. He owns some property shares.

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