S'pore an exception in Asia-Pac with cooling measures that have more bite

Wed, Nov 22, 2017

Lee Meixian

SINGAPORE has been the only market in the Asia-Pacific in which government efforts to contain price increases have actually been successful.

Governments in China, Hong Kong and Australia have been trying for years to slow the steady rise of residential property prices, mostly by imposing punitive sales taxes and higher mortgage downpayments.

But their efforts have largely failed, with prices continuing to grind upwards because of the local populace's fears that if they do not buy now, prices will increase beyond what they can afford in future.

This was according to the Emerging Trends in Real Estate Asia Pacific 2018 report published by the Urban Land Institute (ULI) and PwC.

In Singapore, from peak to trough, public housing resale prices have fallen 11 per cent, and private housing prices have fallen 10 per cent.

The report suggested that the main difference between Singapore and other jurisdictions is the government's tighter control over the land sales process, which underscores the role that supply-demand imbalances play in residential pricing dynamics.

Since this seems an intractable issue in most jurisdictions, upward pricing pressures in other regions are likely to persist, it added.

As it is, developers are already paying sharply higher prices for new plots of land, and as a result, home sizes are shrinking throughout the region, particularly in markets with the highest prices.

In Hong Kong, for example, some 30 per cent of new apartments approved for construction during the first five months of the year were smaller than 200 square feet, according to government figures.

Some factors that have negated property cooling measures elsewhere include current low interest rates, supply shortages, and strong demand from foreign home buyers due to immigration and domestic migration.

Australia's high levels of immigration, in tandem with housing shortages and growing competition from cash-rich foreigners have prompted the country's three largest states to impose progressively higher taxes on foreign buyers - now equivalent to about 9 per cent of purchase prices in Sydney and 13 per cent in Melbourne.

Major banks have introduced lower loan-to-value ratios on mortgages and are clamping down on loans to foreign buyers. Development funding for residential projects has also been restricted.

The report cited one interviewee saying that Chinese buyers are not deterred by rising prices or high taxes: "It's just not an issue for them because quite apart from the fact that many people are just desperate for a foreign residence, property in big cities like Beijing and Shanghai is already more expensive than here (Australia), and incomes in China are rising faster than both Aussie taxes and housing prices."

Similarly, China has imposed numerous potential duties on property sales depending on location and other criteria, while downpayments there are now a minimum 20 per cent and as much as 60 per cent for second purchasers in big cities. New home prices rose 5.4 per cent year-on-year in October.

In Hong Kong, home prices have jumped 10 per cent since the start of this year, despite prohibitive sales taxes on what is already the most expensive property in the world.

Current duties increase buying prices by 30 per cent for overseas purchasers, while downpayments are a minimum of 40 per cent for most properties. Many non-bank lenders, some of whom are financing arms of developers, offer 90-per-cent financing for mortgages of new properties. This creates upward pressure on home prices because the annual demand is much higher than the number of newly built homes.