Tweak prior cooling measures before imposing new ones

Those who were uncertain over whether the robust home sales by developers chalked up in recent months can be sustained have been left with no doubt following Tuesday’s release of April’s sales figures.

In all, a total of 2,487 new private homes – excluding executive condominiums (ECs) – were sold last month. This is a near 4-per-cent jump from March and is the highest monthly level since 2,772 units were sold in July 2009.

Initially, the doubters attributed the good performance to a few select projects with well-conceived developmental themes. However, the market has proven almost every property expert wrong. It had been all doom and gloom in the weeks following December’s cooling measures.

Today, the elevated monthly sales are being described by some as the new norm, although there is nothing normal as these robust numbers have been achieved on historically low borrowing rates.

Others are even suggesting that the volume of Government land sales may need to be reviewed and revised upwards if the current pace of sales is sustained. It was also not so long ago – slightly over a year – that the Real Estate Developers’ Association of Singapore (REDAS) suggested that the supply of state land be reduced as there were hints then that the market might be oversupplied.

This got me thinking: If so many of our private sector property experts got it so wrong, what of our counterparts in the public sector, especially those involved in advising the Government on the five sets of cooling measures introduced so far?

Could they have similarly misread and misunderstood the factors driving the private housing market? And if they did, surely it would be in the interest of the long-term stability of the private housing market that they review some the earlier cooling measures implemented, especially those that have not quite met their objectives.

At the moment, as I see it, some of the measures – especially those relating to stamp duties – are akin to slowly putting the private housing market into a straitjacket. In the near future, the market may find it hard to go forward or move backwards, to go up or to come down.

Already, we can see the distortions in the market created by some of these cooling measures. In general, all segments of the housing market should behave in the same way, in terms of price trends or volume of sales. After all, they all provide the same service – accommodation – and are substitutes.

Today, we see the volume of resale transactions shrinking while new sales boom. Prices of suburban homes move in opposite direction to those in the central areas. This is simply not normal.

And new apartment sizes are getting smaller and smaller. Shoebox units of 50 sq m (538 sq ft) or less bear the brunt of criticism but how many of us are aware that half of all new apartment sales today are for those below 75 sq m? And if more small units are being built, does it not mean that the supply of large or normal-sized apartments have been interrupted.

They have been lots of hints that the next set of cooling measures may target the shoebox unit.

But before we introduce another set of cooling measures, we should fine tune some of the earlier ones. As I see it, both the sellers’ and buyers’ stamp duty measures have more or less the same impact on the market. With the introduction of the additional buyers’ stamp duty, surely there can a case for the sellers’ stamp duty measure to be made less punitive.

If we keep adding on to the cooling measures – and my feeling is that there will be more to come as we have not quite addressed the liquidity problem – without a review of the earlier ones, there will come a time when the market will be caught in some kind of gridlock.

Colin Tan is head of research and consultancy at Chesterton Suntec International.

Source : Today – 18 May 2012

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