Goh Eng Yeow believes that no further anti-speculation measures are needed.
SOME readers may recall that last August, I raised the issue of cutting the generous quantum of loans which banks extend for the purchase of private properties and resale HDB flats to stop a housing bubble from brewing.
That came about last Friday. Now, the minimum downpayment which a home-buyer has to fork out before he qualifies for a mortgage, was raised from 10 per cent to 20 per cent of the purchase price of the flat.
Besides this measure, the Government is also imposing a seller’s stamp duty if a home-owner sells his property within a year of purchase.
It is also not surprising to find analysts jumping onto the bandwagon and writing reams of reports on other moves the Government might be contemplating to curb any irrational rise in prices in the property market.
RBS, for example, thinks that since the supply and credit rules have been tweaked, a property capital gains tax may be next on the cards.
Somehow, I find this talk quite alarmist and unnecessary.
As one reader noted, the Government’s latest anti-speculation measures were probably in reaction to the very strong January home sales figures.
But to take further measures, the property market will have to reach a level of irrational exuberance, such as that experienced in 1996 or in 2007.
Let’s analyse the impact of the latest measures in numerical terms to assess their impact on potential buyers of private properties and resale HDB flats.
Buyers of private properties are probably more badly hit by the imposition of the seller’s stamp duty.
Take a back-of-the-envelope calculation on how much the price a private property must rise before a “flipper” can make any money on any flat he purchases.
Add up the 3 per cent seller’s stamp duty and the 3 per cent buyer’s stamp duty which a home-buyer already has to pay, and all the miscellaneous charges like agent commissions and legal fees, break-even will only be reached when the price of the flat appreciates by at least 10 per cent.
As the outlay for a private property easily works out to $1 million or more, this means its price must rise by at least $100,000, before a flipper can make any money. Would it be wise for him to take such a risk, given that in today’s uncertain market the likelihood of a drop in price is almost as strong as an appreciation in price.
The increase in downpayment for a flat will probably have a much bigger impact on the much bigger HDB resale market.
Let’s say that a four-room HDB flat is valued at around $350,000 and sold at $15,000 above valuation. If the downpayment for the housing loan is only 10 per cent of the flat’s valuation, then the buyer has to fork out $50,000 in cash.
But if the downpayment goes up to 20 per cent of the flat’s valuation, the cash which he has to fork out goes up to $85,000. This is a 70 per cent increase over the $50,000 outlay which was originally required.
Together, these two measures will dampen the appetite of home-buyers.
On top of this, property owners have to worry about falling rentals in the condo market as well as the spectre of rising vacancy rates, as more projects get their TOPs in the months ahead.
Historically, property prices have never escalated when the rental market is weak.
The big picture is not looking rosy as well — and this will act as a further dampener on the property market.
The People’s Bank of China has twice raised the amount of cash which mainland lenders had to keep as reserves. This has the effect of shrinking the amount of money available for lending in China — and removes the froth on the mainland property market.
In the United States, the US central bank made the symbolically important gesture of raising the rarely used Fed discount rate — the rate at which US banks can borrow emergency funds from it to finance any shortfall in their funds — last week.
In doing so, it was flagging that the days of almost zero-cost funds may be limited, and it is only a matter of time before interest rates start going up.
Any time the cost of money goes up it will have a negative impact on all kinds of financial assets — as hedge funds and big-time traders may have to sell holdings to redeem the loans which they had taken out to make the huge bets in the first place.
For these reasons, I believe that no further anti-speculation measures in the property market in Singapore will be forthcoming. There are enough brakes in place to keep housing prices from moving up — and precious few reasons why prices should stay at their current lofty levels.
Source : Straits Times – 23 Feb 2010
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