Editorial
Published December 20, 2006

Cooling the top-end property market fever



THE launch of Marina Bay Residences last week saw the fever at the top end of Singapore's property market hitting new highs, with high-floor three-bedroom apartments in a 99-year leasehold development selling for as much as S$2,770 a square foot - about four to five times the price of some freehold mid-market condos. It is now beyond doubt that Singapore's property market is moving on a dual track. While overall prices, according to the URA residential price index, increased by 3.3 per cent in the first half of 2006 and 3.9 per cent in 2005, prices in the luxury segment increased by about 25 per cent from mid-2005 to mid-2006.

Real estate firm Jones Lang LaSalle expects capital values for luxury homes in Districts 9, 10 and 11 to rise a further 5 to 7 per cent in the last three months of 2006, and then by another 10 to 13 per cent next year.

With price increases for HDB and suburban properties still projected to be in the low single digits - barely above inflation - the price gap between the top end and the rest of the property market is set to widen. There is a somewhat anomalous situation in which, while a broad-based recovery in the property market is not yet at hand, a bubble has developed at the top end. And private housing is moving further beyond the reach of the average household: Research by property firm DTZ Debenham Tie Leung shows that the percentage of caveats for private homes lodged by people with HDB addresses fell to 26 per cent in the third quarter, the lowest in 12 years.

To some extent, the divergence of prices between the top end of the market and the rest reflects divergences in incomes - no good thing, but a fact of life. But that is not the whole story. Evidence suggests that speculative activity has also been a factor. The number of sub-sale deals for private apartments and condos - often used as a proxy for speculation - hit 233 in the third quarter, up 69 per cent from the preceding three months and the highest quarterly figure since 2001.

Speculators have reaped handsome gains. For example, in the case of The Oceanfront @ Sentosa Cove, a condo launched in July, the average gross premium from sub-sale transactions was $647,000. Speculators in Marina Bay Residences might do even better.

A little speculation is harmless and may even be healthy. But this is much less so when it is confined to the top end of the market in which only a small group of wealthy people can participate and which results in price-polarisation that adversely affects other groups.

The time has therefore come for the government to consider targeted anti-speculative measures to curb the speculative fever. While it would be too draconian to revisit the gamut of anti-speculative measures imposed in May 1996 - which included taxes on profits from property sales, tighter limits on bank financing and the payment of stamp duty by sellers - a more calibrated approach to curbing speculation is worth considering. In particular, a simple measure to disallow deferred sales - in which speculators need only put 10 per cent down initially, without borrowing, and face no progress payments - would help dampen speculation, without discouraging genuine buyers.