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One size does not fit all

Posted on 18 Jun 2012 | Comments Off

Like many other products, our property market caters to a variety of tastes and pockets.

Even the Housing and Development Board, the Government-owned body which builds homes for the masses, provides for different segments of the market – from one-room flats to executive condominiums which have all the amenities of private housing like swimming pools and tennis courts.

But recent measures to cool rising prices tend to have an impact on all sectors of the market. Shouldn’t they be better calibrated to impact only those sectors where affordability is an issue?

For instance, under new measures which came into force towards the end of last year, foreigners and corporate entities will have to pay an additional 10 per cent in stamp duty for their residential property purchases.

Permanent residents owning one and buying the second and subsequent residential property will have to fork out an additional 3 per cent in stamp duties. Singapore citizens owning two and buying additional homes will also have to pay this extra.

These levies are meant to dampen demand and bring residential property prices down. They, and other earlier measures introduced for the same purpose, appear so far to have had a very limited impact on prices.

In fact in the last two months, according to data put out by some property agencies, prices of both private homes and housing board resale flats have shown an upward trend.

Conversely, sales of property in the ultra luxurious sector of the market appear to have seen a significant slowdown.

MIDDLE-CLASS UPGRADERS

But should the Government be concerned with all segments of the residential market?

The complaints about high home prices have come mainly from the middle class; in large part the gripes are from upgraders, for whom affordability is a real concern. So, the authorities should address their concerns and aim their cooling measures at that sector of the market – the S$2,000 psf or lower sector.

But the measures are also imposed on all and sundry, including the ultra-luxury sector whose buyers have less regard for prices.

While the Government may not want to appear to be favouring the ultra-rich by doing away with the additional buyer’s stamp duty for purchases of properties – say, for apartments above S$3,000 psf or bungalows costing more than S$10 million – it does not appear to make sense to discourage these people altogether from investing here.

For once, such people find Singapore no longer an attractive place to invest and it may take a very long time for us to lure them back. For the ultra-rich, the world is their market place and they go where they are welcomed and where they can find the best bargains.

THE USEFUL RICH

For the ultra rich, taxes matter more than high prices – a high price is a status symbol while high taxes are something to be avoided. Isn’t that why we have a low personal income tax regime where the maximum tax is 20 per cent, whereas for many countries in Europe the top rate is around half of one’s income?

As Prime Minister Lee Hsien Loong recently told a dinner gathering of the Economics Society: “For decades we have gradually reduced our income tax rates, and partially made up with indirect taxes like the GST, in order to stay competitive with other Asian economies like Hong Kong. This has helped to foster growth and increase the resources available to strengthen our social compact. Raising taxes will do the opposite, long before they reach Scandinavian levels.”

While the measures of last December to cool the property market differentiate between Singapore citizens, permanent residents and foreigners, do we want to treat all foreigners the same? Obviously not.

There are some who are useful to us than others. This is the reality of life. In the case of the useful, especially those who happen to be very rich, do we want to drive them away with a multitude of taxes?

Furthermore, such measures to drive away high-net worth individuals could have an impact on our wealth management industry, as property is one of the sectors targeted for investment.

One size will not fit all. Measures should be targeted to impact those we desire less, and not all and sundry.

by Conrad Raj

Source : Today – 2012 Jun 18

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Posted in General, Property Market / Real Estate

Tagged cooling measure, HDB, Housing Development Board, Property Tax, Singapore Private Residential Property, Singapore Property, Singapore Property Market, Singapore Real Estate

The Trouble with Shoebox Homes

Posted on 16 Jun 2012 | Comments Off

UPDATE: CIMB has clarified that they are still offering financing for shoebox units.

Source: Propwise MAY 30, 2012

According to PropertyGuru, at least one bank in Singapore is declining all loan applications for properties under 500 square feet in size, which are termed shoebox units in Singapore. The property market sentiment is generally poor now and banks are keeping a tight rein on financing. This also comes on the back of poor stock market sentiment which is in part caused by the Greece crisis and slowdown of the China and US economy.

Apparently, an unnamed employee of CIMB said that they are no longer offering financing for shoe box units, even for high credit rating clients. The reasons given are extremely high prices per square foot as compared to more reasonably sized units. Another reason given is that the buyers of these units tend to be investors rather than owner occupiers, which means that default rates will probably be higher if there is an economic downturn. I wonder if other banks may follow suit. So far though, the local banks have not said anything.

More regulation coming for shoebox units?

Minister of National Development Khaw Boon Wan, who is responsible for housing matters, has repeatedly dropped hints that shoebox units could be regulated. Among some of his comments were that most of the buyers for these shoe box units had HDB addresses, which indicates that they are likely not rich investors and could ill afford a downturn should their investment turn sour.

Minister Khaw said: “They must have seen shoebox units in the central region being able to be tenanted out easily with reasonable yield. The difference this time round is that most of the units are in the heartlands — where the market is untested.” He added that he would not hesitate to intervene should there be clear evidence of unsustainable investor demand for shoebox apartments.

Record sales for “inhuman” shoebox units

There is good reason to be concerned as CBRE reported that smaller units are being built, with median size of homes shrinking 24 percent to 667 sf. Furthermore, there is a record number of shoebox units sold this year where private apartments below $750,000 made up 42% of new home sales, up from 25% in the previous quarter according to the URA. The small size, and hence the affordable quantum, is also one of the reasons per square foot prices continue to rise despite several government measures to control housing prices.

Even CapitaLand CEO Liew Mun Leong joined in the fray by calling shoe box units “inhuman”. He said that it was not good for the welfare of the family to feel constrained, which I certainly agree with. Apparently CapitaLand has been lobbying against shoebox units, after Mr. Liew visited a 400 square foot unit in Hong Kong. After having been to Hong Kong, I can’t help but agree with him – there should be a minimum apartment size set at 500 square feet. Anything below that compromises the occupants’ quality of life. The minimum size should also serve to help control the rising per square foot prices.

By Calvin Yeo
Calvin Yeo is the founder of the Making Passive Income blog. He graduated with a Business Major in Finance and Accounting and spent a few years working in an investment bank. The knowledge from his studies and working experience serve as a good base for him to grasp the ideas for passive income generation.

Source: Making Passive Income – 2012 May 24