Time to relook property cooling measures, say analysts

Property watchers said a shortage of resale flats amidst strong demand is accelerating price growth. While some said more time is needed for new flats to be built, others think it is time to review the property cooling measures.

Resale flat prices, which are already at an all-time high, rose 3.8 per cent in the third quarter this year – higher than the 3.1 per cent recorded in the second quarter.

Since property cooling measures were introduced last year to take the heat off the exuberant market, the number of transactions have dropped significantly. Property firms said the number of deals closed have dipped by 30 per cent compared to a year ago.

Market watchers said there has been a slow down in the supply of flats, as home owners are put off by the rule that requires them to sell off their flat first before they are granted a higher bank loan of 80 per cent.

Eugene Lim, Key Executive Officer at ERA Realty, said: “Most sellers prefer to buy first, then sell. For people who do not qualify for HDB loan and they have to take a bank loan, they only would be able to get a maximum 60 per cent loan. And therefore there is a requirement for 40 per cent equity.”

HDB resale flats have also been generating good rental yield. Industry players said they have seen a spike in rental transactions and it is unlikely that home owners will give up their HDB flats, adding to the supply crunch.

Tan Kok Keong, Head of Research and Consultancy at OrangeTee, said: “Some segments of the public housing can be rented out. Every unit that’s kept from the market means that one new household does not have the choice to buy that public housing.”

Mr Tan also pointed out that the Minimum Occupation Period (MOP) before flats can be rented out used to be one to three years. For home owners who bought a flat in 2008 or 2009, before the MOP was raised to five years, they would have been able to rent out their flats and use the yield to pay for a second mortgage on a private home.

The government has increased the supply of new flats to draw first-time home owners away from the resale market. But there is a limit to how much demand can be diverted – first-timers account for a quarter of resale transactions. And not all are willing to wait the two and a half years for a new flat to be built.

With such market conditions, sellers are commanding higher cash premiums – adding to the overall transaction price. Industry players said the median cash-over-valuation (COV) is about S$35,000 to S$37,000, similar to the previous quarter.

To ease the supply crunch, there was a suggestion to relax the criteria for a bank loan for those just looking to upgrade.

Mr Lim said: “I think when the 60 per cent rule was implemented, the objective was to instil prudence in the buyers. But if you look at the practical point of view, if I’m selling my flat to buy another flat, eventually I will still end up with one property and one mortgage.”

If the shortage situation is not resolved, market watchers expect resale flat prices to inch up by another three to four per cent in the last quarter of this year. This would bring the overall price increase to more than 10 per cent in just one year – which makes owning a flat an increasing financial burden.

Source : Channel NewsAsia – 4 Oct 2011

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