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    Default The most hilarious article award goes to....

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    Jun 2009


    Why You Should Not Rush In To Buy Private Properties Now, Despite The Removal Of Some Cooling Measures

    Don’t be kiasu. It’s okay to wait on the sideline.

    by Dinesh Dayani March 17, 2017

    To provide you a recap, since 2009, the government has been trying to rein in property prices in Singapore. To this end, they introduced a slew of cooling measures – eight in total – including the ABSD (Additional Buyer’s Stamp Duty), the SSD (Seller’s Stamp Duty) and the TDSR (Total Debt Servicing Ratio) in conjunction with its (LTV), a restriction on loan levels.

    This had a substantial effect on the property market in Singapore, with both HDB and private (non-landed) property prices falling by approximately 10.0% and 7.5% respectively in the subsequent years.

    In a move that took market watchers by surprise, the government eased certain cooling measures on 10 March 2017. It announced the shortening of the SSD from four to three years. The TDSR will also be done away for loans below 50% of the property value according to LTV calculations.

    This piece of news seemed to be cheered on by local investors as stocks of property developers soared.

    The biggest industry players such as City Developments Limited (rose 5.6%), CapitaLand (rose 3.6%) and UOL Group (rose 4.5%) all saw their stock prices increasing a day after the easing was announced. Similarly, smaller developers such as Guocoland, Wing Tai and Wheelock Properties saw price increases of 2.4%, 8.1% and 3.0% respectively a day after the announcement.

    Although there is a sense of jubilation from the market, the lifting of the cooling measures is not going to be a game-changer. We think it would be a bad idea for buyers to rush in blindly thinking that they have a great deal in hand.

    The truth of the matter is that there are many reasons why the depressed property market needed a little reprieve to breathe some life into it.

    One of these reasons include the expected increase in interest rates in the US this year, which will impact local interest rates as well. With higher interest rate, people may rethink decisions to buy a property, or even to hold on to an existing property, which may suppress demand and prices.

    In mid-2016, private residential vacancy rates in Singapore also hit 16 year highs. What’s more, on top of the weakening demand, there’s still a strong pipeline of private residential properties to come online in the next couple of years. There are about 31,740 new private residential and executive condominiums coming into the market by 2018. This is on top of the close to 30,300 properties that are already lying vacant.

    Additionally, even though the prices of real estate development stocks have risen, many analysts think the measures will not significantly change the present market condition. This is because the tweaks seem to cater to a niche audience – people who are retiring and need to monetise their properties and people who have been impacted by adverse financial or life situations, such as divorces or deaths, and who are unable to cope with the repayment. These tweaks allow them to sell their assets without being penalised.

    People can also read a little bit deeper, without much evidence however, into why the SSD was tweaked rather than the ABSD. One reason could be that government is bracing for more adverse situations causing people to have to sell their properties.

    Another bit of “deeper reading” can also be that since the government introduced cooling measures in phases, it makes sense for it to remove them in phases. This is why there’s no need to rush into buying properties right now, as logically, there will be more measures removed and better deals tabled.

    Another bit of significant news here is that the government has implemented another duty, the Additional Conveyance Duty (ACD), but this is for property developers. If you wonder why this is significant for you, the buyer, you have to understand that this duty plugs a loophole that prevents developers from continuing to sneak out of paying charges for unsold units in their developments.

    Under the current ruling, developers can sell shares in a company that owns properties to avoid incurring hefty Qualifying Certificate (QC) extension charges they are obligated to pay. Buyers, too, benefitted as they could bypass the normal ABSD they had to pay. However, these buyers tend to fall within the richest spectrum of buyers who can afford to buy entire developments or multiple units at a go.

    Due to the lacklustre property market, developers could have been withholding stocks of their properties to sell only when the market swings back in the favour to preserve profits. Under the QC rules, developers with foreign holdings have to build properties within five years of buying the land and sell the all the properties within two year after that.

    This means the stocks of properties these developers may be hoarding or refusing to lower prices of, in line with the market, could now see them face the hefty QC charges. This will ensure their properties are priced correctly at current market levels, and also offer buyers more options.

    It’s a buyers’ market today. So, you should play your cards right if you want to purchase a property. The way we see it, there are much more benefits to adopting a wait-and-see approach for buyers.

    They get to see the impact of interest rates on housing. They get to see any further cooling measures being lifted and its impacts on the property market. And best of all, they also get to force developers’ hands as developers cannot continue selling properties at unrealistic prices by using a loophole unless they are willing to incur hefty charges on them, which they would not be.

    Also, with over 31,740 new private residential properties to hit the market in the next two years, buyers will have plenty of options to make their wait-and-see approach pay off.

    If you go visiting some showflats in the next few months, there is a good chance you will meet real estate agents who would want to convince you that the market is “hot” right now, and that prices will start increasing once more cooling measures are removed and buyers return back into the market. Our recommendation would be for you to take their advice with a pinch of salt.

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