Are rules on foreign purchases inevitable?

A recent letter to the press has again brought to the surface the concerns of a group of house-hunting citizens whose needs have not gained much attention since the General Election. The writer lamented that the changes announced by Prime Minister Lee Hsien Loong at the National Day Rally speech on Sunday did not address the housing aspirations of HDB upgraders such as himself.

He wrote that in 2008, the price difference between a resale five-room HDB flat and a low-end condominium was about 20 per cent and that the gap has widened past 70 per cent now. And just when potential HDB upgraders like himself are starting to see the value of their homes catch up with runaway private property prices, the Government steps in. He is probably referring to the huge increase in new supply of Build-To-Order flats that may eventually stymie or correct the growth in HDB resale flat prices – and in the process upset his upgrading plans.

He feels this is unfair as the Government has allowed private property prices to balloon beyond an upgrader’s reach. His concerns probably do not just reflect the feelings of the pool of potential HDB upgraders but a larger mass of households – including some owners of older or smaller private apartments – who share similar upgrading aspirations. This has always been the Singaporean dream – to upgrade from an HDB flat to a small private apartment and eventually to a more comfortable larger private home.

Of course, their upgrading aspirations are less urgent that those who do not yet own a flat, but as the housing shortage problem for new households looks to be coming to an end, I expect more of these potential upgraders to step up their demands on the Government to address their concerns as well.

Talking to these people, I sense the frustrations building up. I can understand them. If you take away their dream, what can they look forward to?

Rightly or wrongly, upgrading has come to represent a symbol of progress for most Singaporeans. And if you think about it, they are a much larger group than the new households whose needs are being addressed at the moment.

The present uncertain global economic environment has bought some time for the Government, taking the heat out of the private housing market so that the authorities need not have to introduce more cooling measures. This has allowed the Government to fully focus its efforts on the more urgent housing needs as a matter of priority.

If the world goes into a downturn and Singapore slips into recession or shows little growth, property prices are unlikely to shoot up too soon, even with the ample liquidity flooding into Asia and into the few economies still holding a triple-A rating – such as Singapore. I expect private housing sales to remain robust due to ample liquidity but for prices to stay flat or show only moderate rises due to the present weak economic conditions.

The problem arises when the economic situation starts to perk up. Investors are usually forward looking and an expectation of an upturn can quickly start cranking up prices once again – way ahead of any recovery. At this rate, I cannot see price levels – even if a correction does happen – coming down to the level of these Singaporeans with housing aspirations.

Once the correction is significant enough in the eyes of investors – but not to these potential upgraders – the former may just pour in and limit the downside.

Frustrations may then build up to a level where they may eventually force the Government to act to curb or control some of these money flows, especially into residential property. We may eventually adopt rules similar to Australia’s. Under Australian housing rules, foreign investors can only buy homes under construction. Once completed, these can only be sold to Australian citizens.

Having said this, I must qualify that I do not expect any foreign ownership restrictions to be introduced in the near future. Singapore takes great pride in being one of the freest economies in the world and we wear this like a badge of honour. As such, the authorities will try to exhaust all other means before they even contemplate introducing any major buying restrictions on foreign investors.

By Colin Tan – head of research and consultancy at Chesterton Suntec International.

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