Publication: INVEST, p 49-53 Date: October-November 2009 Headline: Preventing a Property Market Bubble

Echoing similar sentiments, Mr Eugene Tan, Assistant Professor of Law at Singapore Management University, said: "I wasn't sur- prised (by the Government"smeasures).The question was notwhetherto imposethe an- ti-speculative measures butw hen to impose them. The property sector was showing signs of over-exuberance which pointto ex- cessive speculation among buyers ... The fact that the measures came sooner rather than laterwas intended as a signalling device to reaffirm the Government's commitment to balancing demand and supplyto ensurethat the residential property market docs not re- semble a casino, where chance,speculation, and greed result in market-defying specu- lation resulting in an overheated property market."

MsTay Huey Ying, Director for Research and Advisory, Colliers international, lauded the Government's measures aimed at re- storing stability to a property market that is booming amid a recessionary environment "The removal of the two schemes [the in- terest Absorptlon Scheme and Interest-Only Loans] would help to weed out speculators without unduly hurting genuine purchasers. Thiswill helpto remove some ofthe froth in the market and hopefully prevent a property bubble," she noted.

EFFECTIVENESS OF MEASURES AIMEE) AT SD4BlLIZINO FSOPfffn MARKET

Priorto the announcement of anti-specula- tive measures in Parliament on September 14,Natlonal Development Minister Mah Bow Tan said: "it is in everyone's interestto have a steady property market where prices move stably in Iinewith economicfundamentals. If excessive speculation develops and a prop- erty bubble forms, eventually a severe cor- rection musttake place. This will have seri-

"If ~msive speeula~on d wlo ps and a proparty bubbls fo~ms,

evmtually a s.ev@Ez eam.stia.n mu@ lake place, This will have sefi!riowp,

the pr~perty mmkt and for poperty gw~pt~s!'

- Mr Mah BowTan, M~ntsterfor Nat~onai Development, speak~ng In Parl~amenton September 14,2009.

ous consequences for the economy, for the property market and for property owners."

The list of measures announced subse- quently by Mr Mah included the immediate withdrawals of two schemes - the Interest Absorption Scheme (IAS) and Interest-Only Loans (i01$ -which the Minister said "could encourage property speculation in a buoy- ant market where prices are rising rapidly". The IAS allowed buyers who have paid the upfront downpayment to defer making any further installment payments until the units are completed, whereas the IOL was a housing loan scheme which allowed the buyersto payjustthe interestonthe loan for a period oftime, without any repayments of the loan principal.

Market observers generally agreed that the removalof both schemeswould encour- age prospective home-buyers to consider carefully lfthey have the financial means to afford the units over the long term, instead

of making a hasty decision simply because they would be able to make lower or no regular payments in the first few years until the units are completed."The removal ofIAS (will help) to ensure buyers have the means to manage the financing of their new pur- chase," said Mr Mo hamed ismail, Chief Execu- tive Officer of PropNex

However, some market watchers are doubtful thatthese measures -especially the removalofthe iAS-would helpsignificantly to cool the property market. One reason is because fewer buyers have been opting for the interest absorption scheme as the pur- chase price may be at a premium of at least 2 per cent compared to a purchase under the normal progressive payment scheme. Advocates of the iAS have also put forward the argumentthatthescheme'srequlrement for the buyer to take up a loan from the de- veloper's partner bankwould have already, to some extent, helped to deter speculative

Publication: INVEST, p 49-53 Date: October-November 2009 Headline: Preventing a Property Market Bubble

buyers. That begs the question: Is the interest absorp-

tion scheme a key factor in driving property prices upwards over the past few months? Certainly not, said observers.

"I do notthinkthe IASwas a significant factor in the run-up thls year, asthe URA(Urban Redevelop- ment Authority) estimated that only 20-25 per cent of buyers this year opted forthe scheme. Ithinkthe major driving forceswere instead pent-up demand, excess liquidity and a general return o f confidence intheeconomj. lthinkthese measuresare sufficient to keepthe property market in a steady and sustain- able state," said Klm Eng Research's Mr Liew.

"It'sa complexarray ofdrivers ranging from fear (that prices wlll become out of reach), greed (the window to make a windfall Is small, after months of depressedactivity inthesector),and perhapssome pent-up demand (en-blocs were the vogue before mid-2008),"said SMU's MrTan. "The scrapping ofthe IAS and IOLare not meantto be the silver bulletsto cool the private residential property market. They

IMPACT O N VARIOUS STAKEHOLDERS

Speculators are most likely to be hit by the implementation of the antl- speculative measures, sald market watchers. The move should eradicate much of the marginal speculators, untilthere are further positive news on the state of the economy," Mr Wilson Llew, Investment Analyst, Kim Eng Research Pte Ltd, noted.

"Asthere is usually a penalty for redeeming a loan wlthlna short period of time, those intending to flip before completion are unlikely to opt for IAS as their profit margin would be eroded by the penalty fee and higher

L purchase prlce," said Ms Chua Chor Hoon, Senlor Director & Head, SEA

I Research, DTZ Debenham Tie Leung (SEA) Pte Ltd. In contrast, these measures would have mlnlmal impact on genuine

home-buyers, most ofwhom would "opt for the normal progress payment scheme,which tends to be 2-5 per cent cheaper overall", said Mr Llew.

"Mostgenuine home-buyersare unlikelyto beaffected. Those affected 1 would includea small pool of buyers who may find it stretched or impos- sible to buy a property under completion If they are currently servicing mortgages," said Ms Tay Huey Ying, Director for Research and Advisory, Colliers International.

Concurring, Mr Mohamed lsmail,CEOofPropNex,sald: "Genuine home- buyers who are unable to finance their existing property and the new purchase will have to either sell off the existing home of put off the new property purchase."

The impact on banks is likely to be slightly negative, said Mr Liew. "This is because more speculators (who would have taken up loans under the IAS) are likely to stay outofthe market," hesaid,addlng that demand from genuine buyers should however remain strong In the mid-to-long term.

Mr Gregory Chan, Head of Consumer Secured Lending, OCBC Bank, said: "We expect thattherewill be knee-jerkresponse from potential home buyers to this announcement resulting in a slowdown of number of new transactions in the short-term. Whether property transactionswill be cur- tailed on a sustained basis, will depend on other macro factors such as property supply and demand,economlc recovery and developers' pricing."

Unllke the speculators,developers are unlikely to be hit by the slew of measures, said marketwatchers. They will have to devise other Innovative marketing strategies," said Ms Tay Huey Ying, Dlrector for Research and Advisory, Colliers International. Echoing similar thoughts, Mr lsmail said: "There wlll be little impact on developers, who Just have to be cautious and mindful when prlcing their properties."

Mr Liew however reckoned that developers may experience a slow- down in the sales of mld-end properties in the short-term. "But we are still optimistic on the mid-to-high end segments in the medium to long term," he added.

What about shareholders who own stocks in public-listed property firms? While the share prlcesare likely totakea hit for awhile asthe market grapples wlth the overall impact, Mr Liew added: "However, we see it as a good time to accumulate (these stocks) as we are still positive on the Sin- gapore property market In the medium to long term. We are ofthe belief thatthe measures should not have significant Impact on property prices."

Publ icat ion: INVEST, p 49-53 Date: October-November 2009 Headline: Prevent ing a Proper ty Market Bubb le

may be necessary in the short term but may be insufficient in the longer-term. So long as buyers think that they can flip to make a profit, they will (continue to speculate and buy)."

A low interest-rate environment also helped to push up property prices in recent months, sald Ms Chua Chor Hoon, Senior Director & Head, SEA Research at DTZ De- benham Tie Leung (SEA). "We had four good years of economic growth before the finan- cial crisis, and interest rates are at a historic low with little alternative investment op- tions," she said.

These observations then raise yet an- other question: Are these measures, in par- ticularthe removalofthe interest absorption scheme, necessary at this point in time?

"I believe that the actual impact of the scrapping ofthe IASisminimal in the mid-to-

long term. As you rightly pointed out, buyers who opt forthe IASwould have secured their loans with banks in the first place, hence, they are deemed by the banks as being fi- nancially able to service their loans," said Mr Liew. "Scrapping the IAS at this point in time wouldtemperthe speculatorsJexpectations, and could also moderate the 'appetite' from marginal buyers (such as younger couples who may wish to accumulate more wealth over the 3-year construction period). I do not think the move is particularly necessary at this point in time, but it is a pre-emptive move which is likely to prove positive In the longer run."

The decision to withdraw the IAS would also have a psychological effect on the market, both Colliers international's Ms Tay and PropNex's Mr ismaii suggested."The psy- chological impact ofthe announcement can

SIMILAR TRENDS IN 2QW AND 20097

cause the market to have a knee-jerk reac- tion and help prevent private home prices from escalating at an unsustainable pace," said Ms Tay.

POSSIBLE MEASURES TO KEfP THE PROPERTY ASSET BUBBLE IN

CHECK

While ail market watchers whom INVEST spoke to reckon that the current level of speculation inthe private property market is not excessive, what other measures do they think could be implemented a later date if the property bubble starts forming?

"Among other things, the Government could certainly reducesupply of land coming onstream. it will have to take calibrated measures applied on the various stakehold- ers in the entire private residential property eco-system to deal withthe excessivespecu-

It was not fhe firs€ time the ch~ernmen€ had announced a slew o f measures rlmed at ensurtng "a stable and susta1nat.de property market:

Before! the snnaunmmant by National Develeprnent Mlnlster Mah Bw Tan on kptember 14, the WemmenYs most menf effort In tmllng the praperty market was In October 2m.17 - wkh the wlt&k@q?l ~ f $ h de;f.em$l ~ ~ ~ F r t . . ~ c a n ~ p . , w ~ ~ whl& buryen wwld M r part ofthe payment forthe prapr t les thq purchase.

B u t unfike 20D7 when the Q o m was In hrgttand properties, the buylng f ren~yfh ls~ear began wlth ihe plck-up ln demand for mass-market h ~ m a

'Mm ofthe units transacted this year kwe been In t h mass market segment, and partly In the mld-end market, wMlc in 2007, there was a 2-tlw marketf whereby the mld-to-hlgh end segments saw more dramsttc grlce lrrs~;rw5 than tA mass market seg- mwLn sald Mr WUmn LIw~ Investment Analyst, Ktm Eng Rseitrch Re ttd.

"In 28617, It wastheprlme.rerrwlomInlu~msegmenttbt led the bull run arrBprl~ahcreilSeg slgnlftcantlyby55percmtfn that year, pushenl up by demand from foretgners who WSlngapore'S rise to hEtcbma a glohal city. in GQMra$tl mass m a k t condminlums went upmuch sllowe~L>yPI percent as many. ofthe buprswereowner omuplers. Beforttthernasmarke~segment could galnfurthar momentum, the prks inhrcae was halted hy theflnancial crl~ls,~ sald MI thua Chor Hoon, Senlor Director &Head, SEA Research, RTZ k b e n h m Tlc Leuhg CSW Pte LPtL'Ww that The ec~:olwm;y &q@a.lsta beon trackfor mveiy, the mas ~ N m r d c r m h l u r n buyers are pkklng up from the Lull In 1008 and Imdtng the recovery thbyew,"sheadded.

cJoncurrtng, Mr Mahamsd Imafl, CEO, PtapWx, mted tha the proparty prtce m e m s n t s in 2007 were a ~ u l t of optlmtstic market actlvitles mainly hy foreign lhwfzarspe rchsbg Mgh-end ptqperrtgn "Hwmr, thecurrent dmand isdrtvsn mare by lamb tar mass market prapertle Many buymare HDE upgraders md investors brrylngpropwtlesdue to cheap flnancingwtth a rnld-t9- long teFm outlook in hstdlng anto the properties,"