By Khalil Adis (courtesy of PropertyGuru)
Analysts and developers say the latest cooling measures announced Wednesday were unexpected and the harshest they have seen by far, which may result in a 40 per cent drop in transaction volume in prime districts.
"At first glance, these latest cooling measures do seem pretty drastic, especially when both transactions and price growth in Singapore are declining and there is significant supply coming into the market during 2012/13. We're also seeing economies across Asia cooling, with many central banks recently cutting their base rates. Hong Kong has also started to remove its own property cooling measures this week," says Steve Melhuish, CEO and co-founder of PropertyGuru.
"Given the uncertainty in current market outlook, the latest measures on additional buyer's stamp duty were unexpected. We will need to study the details to determine their impact and we will take them into consideration in our plans moving forward," says Wong Heang Fine, CEO of CapitaLand Residential Singapore.
"This is going to be a major psychological setback and the immediate reaction will be a slowdown in (the) private property, with transaction volume diving by 40 per cent in the core central region and a dip of 20 per cent in the mass market segment. This is a double whammy for foreign buyers, as in the earlier cooling measure of sellers' stamp duty, and has already eradicated speculators," say Mohamed Ismail, CEO of PropNex Realty.
"It is an additional 10 per cent, which is quite hefty. At the end of the day, foreign buyers will need to evaluate their purchases. Over the next three to six months, we are going to see a decline in interest from foreigners," says Tan Kok Keong, director for research and consultancy at OrangeTee.
The latest cooling measures will have an impact foreign investors buying private properties in Singapore.
They will now have to fork out a 10 percent increase in the stamp duty.
Permanent Residents (PRs) and Singaporeans will also be affected with an increased stamp duty on their second and third properties, respectively.
Market players divided
The swiftness in the way the latest property curbs were implemented caught market watchers by surprise.
"These latest measures on the stamp duty comes as a surprise at a time when transactions are slowing down by 20 per cent quarter-on-quarter and price growth is moderating at an increase of 1.3 quarter-on-quarter in the third quarter per cent," says Tejaswi Chunduri, real estate analyst at PropertyGuru.
Singapore has been trying to cool its red-hot property market since January this year when the government implement the sellers' stamp duty to weed out speculators from the private property market.
"It seems the government is more concerned about speculation and foreigners buying property in Singapore. The previous measures announced in January have certainly helped reduce speculation," says Chunduri.
Nevertheless, property prices have been on the uptrend, albeit at a slower rate, according to third quarter data from the Urban Redevelopment Authority (URA).
"I think the government is probably worried that the Eurozone countries will start doing to do another round of quantitative easing and the money could move to Asia. The last two rounds of meetings in the United States have helped spur our property market. Therefore, the latest measures are to make it more sustainable to prevent excessive liquidity from entering the market," says Tan.
Responses from market players have so far been divided.
Some agree with the government's move.
"I do agree with the timing in which our government has taken action. Despite the earlier cooling measures, the effect has not really affected the market especially the foreign investors. As you know, it is the foreigners who have been purchasing at high prices and thus making a lot of buyers asking their selling prices higher than expected or valued," says Raymond Chow, CEO, Ray International Real Estate Group.
Others question if it is has gone too far.
"Foreigner buyers account for less than 10 per cent of transactions, and we have to question whether foreigners will start to look elsewhere with the increasingly expensive cost of living. Malaysia and Hong Kong could well become a more attractive destination for expats," Melhuish says.
Analysts in Malaysia say it may deter both foreigners and Singaporeans from buying homes here.
"To pay a 10 per cent premium on top of the 3 per cent stamp duty would be a deterrent for investors but this could be a short term strategy to cool investor sentiment until the market settles down," says Kumar Tharmalingam of Malaysia Property Incorporated, a government initiative under the purview of the Economic Planning Unit.
Tharmalingam cites the cost of an average value of a Singapore property to a foreigner to be about $1.5 million.
"With the additional 10 per cent, it will add $150, 000 to the total cost of the stamp duty, which is already at 3 per cent," says Tharmalingam.
Singapore has always been a safe haven among foreign investors due to its stable political climate and sterling economic performance.
Market players that PropertyGuru spoke to say regular expatriates will be the most affected by the latest property curbs.
"The reality is that it will be the regular expats who are affected most by these new measures. Wealthy expats and foreigners who are looking to shift their wealth to safer havens, such as those from China or India, will not be impacted by these measures. These buyers will continue to drive the top end of the private home market," says Ella Sherman of Premier Realty.
Another affected group will be PRs and Singaporeans buying for investment.
"These new measures will impact a buyer's approach. If a buyer's intention is to purchase for his own occupation, he should not be affected. It will affect PRs or Singaporeans if they are buying as a second or third home onwards as an investment," says Chow.
In addition, more foreigners may opt to rent.
"You will see more foreigners opting to rent than buy. You could see more rentals transactions taking place," says Tan.
Tan adds that it is unlikely the rental market will see a very sharp increase in rental rates as the external conditions such as rate of immigration and economy are already quite challenging.
"People who will want to rent are not likely to spend beyond their means," says Tan.
Chow also adds the market is entering a period of uncertainty.
"The truth is the current market is uncertain and globally is weak. We are expecting next year to be different. What our government is trying to do is to prevent an uncontrollable situation where eventually if the market is to fall next year, then prices will fall," says Chow.
Chow estimates prices may fall between 10 to 15 per cent in 2012.
"This might create a mortgage problem, property valuation and so on. Let us also not forget that globally, major institutions and companies are cutting jobs," says Chow
Push to commercial market?
With the residential market now affected by the new ruling, will this mean investors will be drawn to other markets or even overseas?
Analysts say there could be a possibility that both local and foreign investors may turn to the commercial sector.
"Psychologically, some of them will be concerned. I am not surprised if some of these investors will turn to the commercial sector. As far as foreigners are concerned, it will take away the bite from buying residential property. The impact will be marginal be it from Singaporeans or foreigners. However, there will obviously be some, be it local or foreigners, who might want to look for commercial properties," says Ismail.
As for foreigners who still want to buy residential properties, Ismail says they have to have a rather bullish approach in their investment.
"The new cooling measures mean any foreigners who want to buy a property will incur an additional 10 per cent stamp duty and another 3 per cent stamp duty. Including the seller's stamp duty, it may go up 25 per cent to break even in the next four years. The foreigner has to be really bullish about the property market," says Ismail.
Other property markets
They also say there is a probability that foreign investors may turn to other property markets.
"With the additional 10 per cent stamp duty, foreigners might now be tempted to look for alternative destinations in the region where price are more affordable," says Chunduri.
"Malaysia will most likely become an alternative investment base for investors especially for the Chinese investors who are the largest foreign investors in Singapore," says Tharmalingam.
"Yes, definitely. It's all about return on investment (ROI). Generally, the perception on Malaysian properties is quite positive. Most are of the opinion that Malaysian properties are still relatively cheap by comparison. It is less volatile compared to Singapore properties. There's potential for upward surge," says Adrian Un, director of Mortgage Broker Sdn Bhd.
Others say investors may move to other safe havens such as Hong Kong or London.
"Investors will choose safe havens such as Hong Kong and London as opposed to Malaysia or Thailand," says Tan
Others are more optimistic.
"Singapore is still the top choice among Chinese investors who are looking for long-term appreciation. The Chinese are coming to Singapore because prices in Hong Kong and China are too high. The pull factors of Singapore include our stable government and very conservative fiscal policies. After the initial reaction has died down, there will still be demand as there will be a period of hiatus as buyers try to make sense of the market. The new rules are meant to protect Singaporeans who are first timer or second home owners," says Francis Tan, unit head at Savills Residential. East Living Group.
As for Singapore's position as a global business address, analysts say it will not be impacted.
"As far as businesses are concerned, it will not have much impact. In Singapore, it is pretty much business as usual due to existing guidelines, relaxed policy on foreign direct investment, existing infrastructure, being an established financial hub, literacy rate and demographics. By comparison, our flip flop policies in the past have hindered FDI. Moving forward, it should get better," says Un.
"It will not impact businesses as Singapore is the Geneva of the East. This is an attempt by their government to cool the market in response to the last election where locals were concerned of overpriced real estate due to frequent buying of property by foreigner investors. However, there could be a possibility that the profile of Iskandar will be raised as an alternative," says Tharmalingam.