Published May 24, 2007


Keeping one's cool in a hot property market

Major reform doesn't seem imminent, but govt's latest move is perhaps a sign of things to come


THE last time the government asked the Real Estate Developers' Association of Singapore (Redas) for help to cool the property market, sweeping anti-speculation measures followed.

So it's not surprising that the Urban Redevelopment Authority's (URA) announcement on Tuesday that it has asked Redas to help make property pricing more transparent has an ominous ring to it.

In 1996, then Prime Minister Goh Chok Tong approached Redas with suggestions on how it could cool the over-heated property market. These include setting aside a certain number of units in new developments for sale to the public instead of private previews.

Redas followed up by setting a new guideline for developers to offer at least 70 per cent of all available units for sale to the public. The guideline, which was finally announced on May 19, 1996, was a largely self-regulatory one and has also long since lapsed.

At the time, the measure had little bite because a few days earlier, on May 15, the government announced a package of anti-speculation measures that put an end to a bull run that had gone unabated for 10 years (with the exception of a blip in 1990 due to the Gulf War).

The latest news that URA wants Redas to facilitate the reporting of detailed sales data monthly is also likely to be self-regulatory. If the government really wanted to impose any new measures, it would not need the endorsement of any professional body.

But based on Monday's comments by Minister of National Development Mah Bow Tan in Parliament, where he said that the number of sub-sales was 'still lower than that in 1996', major reform does not seem imminent.

The latest proposed measure could, of course, simply be an effort to streamline reporting procedures and should not be met with too much objection except that a certain segment of the market thrives with a very narrow margin of opportunity that manages to go unregulated.

This margin can actually be measured in time - it is about three weeks long, or the time it takes to exercise an option to buy a property.

Speculators who operate within this three-week margin are often not reflected in the number of sub-sale transactions reported quarterly by URA because, aided by over-zealous real estate agents armed with blank cheques, they move too fast and are almost invisible.

The period in which sub-sales are logged, on the other hand, can stretch from the day a caveat is lodged to the time a development is completed two to three years later.

As such, figures for sub-sale transactions are indeed low, almost too low considering the level of activity in the market.

Another serious implication of selling within the time frame of exercising an option is that the prices influence overall market sentiment, which is currently extremely bullish.

Given the nature of property speculation, speculators tend not to care about purchase price as the intention is to make a quick profit anyway. Left unchecked, prices can easily be inflated.

A check with the URA revealed that options are indeed taken into account. A URA spokesman said: 'For the data compiled by URA on the number of uncompleted private residential units sold by developers, a unit is considered to be sold when an option to purchase the unit is issued by the developer to a buyer. If there are buyers who do not exercise the option to purchase, URA will revise the number of units sold accordingly in the following period. However, other than some exceptional cases, we observed that the majority of buyers do exercise the option to purchase issued by developers.'

URA did clarify that its property price index is computed based on the information on prices in the caveats lodged by purchasers after they have exercised the options to purchase private residential units, and not prices reflected in options.

Getting developers to report the number of options granted should not be a problem. Getting them to reveal the number returned every month could be more tricky. Then again, nobody wants to see the return of the draconian measures of May 15, 1996.

So far, some measures to cool the market have already been put in place. They include the withdrawal of stamp duty concessions and the cut in the withdrawal amount of Central Provident Fund savings. These appear not to have cooled the market much.