Goh Eng Yeow on traders’ reactions to the move to dampen some speculation.
PROPERTY counters are reeling from the much anticipated move by the Government to deflate the bubble now brewing in the residential property market.
As I write, City Developments has fallen 74 cents to $10.34, while rival CapitaLand is down 17 cents at $3.70.
What surprises me is the strong reaction by traders to the Government’s move to disallow the interest absorption scheme by developers to lure buyers to purchase new properties.
Essentially, the interest absorption scheme is a variation of the deferred payment scheme which was scrapped in October 2007. It allows a buyer to defer making the bulk of the payment on the property he buys until TOP, once he has come up with the agreed down-payment.
Given the scare at the end of last year when there were fears that large number of buyers on the deferred payment scheme might default on their uncompleted property purchases, it is surprising that traders should have reacted so strongly to the scrapping of the interest absorption scheme.
The problem with such a scheme has always been that buyers might be tempted to over-stretch themselves by buying more than one uncompleted property, or buying something which they could not afford to service, after footing the initial payment.
So, going by the talk around the market, few are surprised by the Government’s move.
But having said that, the sharp fall in property counters could have been due to traders factoring in other possible measures which the Government may be contemplating to cool the heated property market.
Property counters have had a good run since July when they last succumbed to jitters it was because the Government proposed a rule change in income tax to clarify how gains on property sales could be taxed. The proposal was scrapped the following month.
Note that the latest measures announced by the Government to dampen the real estate fever is aimed at uncompleted properties.
But HDB resale prices have also been accelerating as well – and it is this sector which is being watched closely by housing agents, banks, and practically everyone who owns a HDB flat, since it houses 80 per cent of our population.
By sheer coincidence, Tuesday marks the first anniversary of Lehman Brothers’ demise.
Since Lehman’s collapse, we have had six months of gloom when there were widespread fears that the global financial system might collapse and end the way of life as we know it, followed by six months of near miraculous recovery.
The next six months may find the markets trying to reconnect with reality, after the past few months of exuberance.
Source – Straits Times – 14 Sep 2009
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