LAST Saturday’s report, ‘New rules to curb property speculation’, puzzles me. Each time the media reports on a heightened interest in the property market, such as queues for condominiums or higher prices of newly launched condos, a new rule is introduced.

A situation in which all players in the market must guess constantly about government policy is unhealthy for a stable property market.

The market is currently trying to pick itself up after a state of depression since the most recent boom in 1997.

There are still many mass market condos today where owners have been unable to break even (after factoring in interest costs) on units they bought more than a decade ago.

For every new condo launched at a record-breaking price, there are several in the secondary market in good areas transacted at less than $600 per sq ft.

However, as this secondary market is of less news interest, the general impression given is that all condos are hitting record prices and the market is out of hand.

As for loans, banks are now extra prudent following the economic downturn and Singaporeans in general are not highly leveraged.

Speculation has not reached unduly high levels and trying to attack it too early may damage the entire market, not just curb speculation.

The fundamental problem now is not a property bubble but the unrealistic expectations of buyers who want good locations and good views at affordable prices but are not willing to accept the fact that, in a healthy and growing economy, it is normal and even desirable for prices to rise steadily.

Bobby Jayaraman

Source: Straits Times, 23 Feb 2010

WHILE I welcome the government measures announced in last Saturday’s report, ‘New rules to curb property speculation’, I doubt if they are effective enough to cool the market.

The rise in private and public property prices in the past four years has far outpaced the average Singaporean’s pay hike.

I can think of half a dozen reasons for the sharp increase in private property prices:

• Low interest rates;
• The sharp rise in the non-resident population between 2006 and last year;
• A loss of faith in investing with banks, investment banks and fund managers following the collapse of Lehman Brothers;
• The low deposit and creative payment schemes crafted by developers;
• The storage of collective property sales which were not promptly developed but kept in developers’ land banks, resulting in short supply; and
• The herd mentality leading to the property chase.

To discourage speculation, the Government should raise the interbank interest rate to at least 2.5 per cent to help beat its projected inflation rate of 2 to 3 per cent this year.

Review capital gains tax on property bought and sold within three years – a measure used in the middle of the last decade.

Ban collective sales of condominiums or landed property which are less than 30 years old, unless there is a good reason to do so.

To avoid a land squeeze, developers must redevelop an en bloc property within three years of acquisition.

David Goh

Source: Straits Times, 23 Feb 2010

THE build-to-order (BTO) scheme introduced in 2001 by the Housing Board has reduced uncertainty for both flat buyers and the Government.

Applicants are now in a good position to plan for when they will get their flats, while the Government has a better gauge of demand.

National Development Minister Mah Bow Tan made these points in Parliament yesterday when responding to Madam Ho Geok Choo (West Coast GRC). She had asked if the Government would consider reverting to the previous Registration for Flat System.

Under that system, the HDB would build flats according to the number of applicants on its waiting list.

For the BTO scheme, however, flats are built only when there is sufficient take-up of flats in a project and down payments have been made. The HDB uses 70 per cent as a guide for the required take-up rate.

Mr Mah said the old system led to a situation in the 1990s when the Government was at one point left with 31,000 unsold flats. ‘HDB took five years to clear its stock of unsold flats. Having such a large stock of unsold flats is a waste of public money,’ he said.

This happened because under the old system, it was difficult to discern how much of the demand was genuine.

Mr Mah said: ‘You are anticipating demand based on the length of the queue, and you don’t know whether that is genuine demand or not because there is no commitment to buy.’

At the height of the property boom in the mid-1990s, there were about 150,000 applicants on the HDB’s waiting list. The waiting time was between six and seven years. Then, in the wake of the Asian financial crisis in 1997, applicants dropped off the list and the HDB found it had no buyers for the flats.

Mr Mah said that with the BTO system now in place, the average waiting time for buyers was around 31/2 years: Processing applications and administrative work could take up to six months, and construction would take three years.

The main cause of delays in previous years – applicants having to wait for a successful ballot – has also been addressed as there has been an increase in construction. The HDB announced plans to build some 12,000 flats this year.

‘Under the current speed of rolling out BTO projects, which is once a month now, the chances of the person being successful is actually very high,’ Mr Mah said. He added that the vast majority of those applying for BTO flats in non-mature estates succeed within two tries.

Asked by Madam Cynthia Phua (Aljunied GRC) and Mr Yeo Guat Kwang (Aljunied GRC) if the stipulation, that roughly 70 per cent of a project must be sold before construction can start, added to the delay, Mr Mah said this hurdle was often easily cleared. ‘This hurdle rate of 70 per cent is not difficult to achieve. On the other hand, it does give us fairly comfortable assurance that if we proceed to build, there will not be oversupply,’ he said.

According to the HDB, since the BTO scheme began, only four projects did not draw enough buyers.

Source: Straits Times, 23 Feb 2010

PRIME office rents continued to soften going into 2010 and could slip another 2-3 per cent this quarter, says Cushman & Wakefield.

In a mid-first quarter report, the property consultancy noted that monthly rents at Raffles Place Grade A buildings had fallen to $7.62 per sq ft (psf), down 1.6 per cent from $7.74 psf in Q4 2009.

In the Shenton area, monthly rents of prime office space also dropped to $5.82 psf – 1.5 per cent lower than the $5.91 psf in Q4.

‘Extrapolating from the mid-quarter read, we therefore expect prime rents to decline by a modest 2-3 per cent for the first quarter of 2010,’ Cushman & Wakefield says.

While rents dipped, the vacancy rate across prime office space improved slightly to 6.9 per cent from 7.4 per cent in Q4.

Cushman & Wakefield research director Ang Choon Beng expects new commercial developments to have a better year ahead, compared with existing ones. ‘A bifurcation of the prime office market is taking place,’ he says.

New offices coming up this year include those at the first phase of Marina Bay Financial Centre and 50 Collyer Quay.

The new buildings have so far been able to attract tenants and achieve relatively high pre-commitment levels, Mr Ang says. This leads the consultancy to believe that rents of these developments could bottom out soon, probably by the second half of the year.

For instance, the recently-completed Straits Trading Building managed to attain a 90 per cent occupancy rate and an average rent of $9 psf.

On the other hand, rents of existing office developments may continue slipping until the end of the year, Mr Ang reckons.

‘The relocations of office tenants from existing to new buildings will exert pressure on rents in existing buildings,’ he says. ‘We believe prime rents would remain soft over the first half of 2010.’

According to reports from various consultancies, Grade A office rents in Singapore dropped most significantly in Asia-Pacific in 2009 by more than 40 per cent year-on-year. This has raised the country’s cost competitiveness compared with other cities such as Hong Kong and Tokyo.

Source: Business Times, 23 Feb 2010

This week’s preview of MCL condo could indicate if demand has been dented

ALL eyes in the property market are on MCL Land’s preview this week of its Yishun condo to see if demand has been dented by last Friday’s anti-speculation measures.

One and two-bedroom units – which have typically been popular among some speculators at property launches over the past year – make up nearly 40 per cent of the total 608 units in the project, The Estuary.

The Hongkong Land subsidiary will preview about 200 units in the 99-year leasehold condo at an average price of about $750 per sq ft (psf), said MCL chief executive Koh Teck Chuan.

Property industry watchers will be focusing on the demand for smaller units – especially the 85 one-bedders which range from 590-603 sq ft. Smallish apartments have often been targets for speculators over the past year as the lump sum outlay is relatively more affordable. And for developers, smallish units can achieve the highest psf price.

MCL is pricing its one-bedders at $835 psf on average, translating to a lump sum investment of about $500,000.

Meanwhile, property giant Far East Organization said last Friday night’s government announcement of measures to cool the market had affected the number of show-flat visitors at the weekend.

The group’s chief operating officer, property sales, Chia Boon Kuah, said: ‘We have seen some impact on visitors. The weekend launch of Altez (in Tanjong Pagar) received about 600 groups of visitors. So far we have sold a total of 140 out of 155 units released.

‘Across our other show flats, we noticed a slowdown in visitorship, though the number of units sold remain comparable over a typical weekend.

‘The majority of Far East’s buyers are owner-occupiers or investors with a mid to long-term investment horizon. We will continue to meet demand from this segment and expect to proceed with our planned launches this year, while keeping a close watch on market reactions.’

As for Yishun, where MCL is gearing up to preview The Estuary, Mr Koh said: ‘We believe our buyers will comprise mostly owner-occupiers and will not be affected by the government’s measures. There hasn’t been any private condo launch in Yishun for many years.’

The development, in blocks of 15-17 storeys, is near Khatib Station and overlooks Lower Seletar Reservoir.

Last Friday night, the government announced the introduction of a seller’s stamp duty for those buying residential properties from Feb 20 and selling them within a year, in a bid to curb short-term speculation. The new seller’s stamp duty is in addition to the buyer’s stamp duty.

As well, the loan-to-value limit for all housing loans provided by financial institutions will be reduced from 90 per cent to 80 per cent to foster greater financial prudence.

Some property consultants say the second measure could have an impact on some buyers of entry-level private condos.

‘That can be quite a challenge for some HDB upgraders as effectively it could mean having to come up with 20 per cent cash downpayment, since their CPF savings would be tied up in their existing flats,’ said Knight Frank managing director (residential services) Peter Ow.

‘And schemes like interest absorption and deferred payment – which helped such buyers tide over the construction of their new homes – are no longer available.’

The Estuary’s two-bedroom units range from 904 to 926 sq ft and have an average price of $780 psf. Its three-bedders (1,184 to 1,302 sq ft) cost $722 psf on average, while the four-bedders (1,453-1,528 sq ft) have an average price of $689 psf.

Savills Singapore’s analysis of URA Realis caveats information as of yesterday showed 191 caveats for sub-sales – sometimes seen as a proxy for speculative activity – of non-landed private homes were lodged last month and 10 for February. The highest monthly figure last year was in June, when 597 sub-sale caveats were lodged. During the 2007 bull run, the highest monthly figure was in July, with 867 caveats.

Source: Business Times, 23 Feb 2010

More progressive system will benefit more owners, won’t hit high-end demand

MOST market watchers have welcomed Finance Minister Tharman Shanmugaratnam’s move towards a progressive property tax regime for owner-occupied residential properties as a fairer system.

Currently, owner-occupied residential properties are taxed at a flat rate of 4 per cent of annual value (AV) or the estimated annual rent of a property, excluding the rent for furniture, fittings and service charge.

But for property tax payable on such properties from January 2011, there will be three tiers of tax rates. The first $6,000 of AV will be exempted from property tax. The next $59,000 AV will be taxed at 4 per cent and the balance of AV above $65,000 will be taxed at 6 per cent.

‘The new system … will benefit most Singaporeans … all HDB flat owners and the large majority of private property owners will pay lower taxes compared to the current system,’ Mr Tharman said.

‘…our property tax rates, even for the high-end, will remain lower than in most international cities. That is as it should be, so that we remain a vibrant and attractive place for businesses and individuals,’ he added.

All owner-occupied homes will enjoy tax savings of $240 as a result of the exemption of the first $6,000 of AV, according to Mr Tharman.

‘Owners of high-end properties with AVs of more than $77,000 will see a small increase in tax payable, as their effective tax rates will be higher than the current 4 per cent. They comprise the top 3 per cent of private owner-occupied residential properties, or the top 0.4 per cent of all owner-occupied homes in Singapore.

‘Homes with AVs of about $80,000 will face only a small increase in tax, of slightly less than $100 per year. A property with an AV of $150,000, which typically is a large property in the central districts and is within the top 0.5 per cent level of private owner-occupied homes, will face an increase in property tax of about $1,500 per year,’ he added.

The move will cost the government about $230 million a year initially.

Knight Frank managing director (residential services) Peter Ow welcomed the change, describing it as ‘taxing the rich to give the poor. It’s a fairer system’.

He does not expect the higher property tax rate payable for higher AV properties to dent demand for residential properties bought for owner occupation. ‘The 2 per cent will not hurt the pockets of owners in this bracket. A property with $65,000 AV would probably be worth around $2.5 million to $3 million.’

Leonard Ong, executive director, KPMG Tax Services, said: ‘We think it is a good way for Government to help owner occupiers of residential properties in Singapore. The bulk of them will be in the lower band of property tax; only a minority, those who own higher-value properties, will be in the upper tax band. This benefits more people than the current structure, which is a flat rate system.’

The property tax for non-owner-occupied residential properties as well as other properties will remain at a flat rate of 10 per cent of AV.

Inland Revenue Authority of Singapore determines the AV of a property by analysing rents of similar properties.

Currently, in addition to the 4 per cent concessionary tax rate, owner-occupied residential properties with AVs below $10,000 can enjoy the ongoing 1994 property tax rebates ranging from $25 to $150, depending on the AVs of the properties. The rebates, introduced together with the Goods and Services Tax, are aimed at supporting the lower- and middle-income groups. ‘It has significantly reduced property tax payable by HDB flat owners. However, as HDB homes gradually appreciate in value over the long term, flat owners will see an increasing property tax bill over time,’ Mr Tharman said.

The government provided special additional rebates last month to mitigate increases in tax payable as a result of higher rentals and hence AVs of HDB flats over the past two years.

However, the need for a longer-term solution that provides a fair and balanced system for all property owners led Mr Tharman to announce the progressive property tax schedule for owner-occupied residential property.

Market watchers also noted that there were no property tax rebates for commercial and industrial properties in the latest Budget statement.

Earlier in his Budget speech when he covered the fiscal position for FY2009, Mr Tharman also revealed that a strong recovery in the volume of transactions in the property market boosted stamp duty collections which ended up $1.3 billion higher than initially estimated.

Source: Business Times, 23 Feb 2010

CURRENTLY: Owner-occupied residential properties are taxed at a concessionary 4 per cent rate.

In addition, owner-occupied residential properties with an annual value (AV) of below $10,000 can enjoy the ongoing 1994 property tax rebates ranging from $25 to $150, depending on the AV of their properties.

The AV is the estimated annual rent of your property if it were to be rented out, excluding the rent for furniture, fittings and any service charge.

All other properties are taxed at 10 per cent.

BUDGET 2010:

For property tax payable from January next year, the 1994 property tax rebates will be replaced by a progressive property tax schedule for owner-occupied residential properties:

0 per cent for the first $6,000 of AV;
4 per cent for the next $59,000 of AV;
6 per cent for the balance of AV in excess of $65,000.
Non-owner-occupied residential properties and other properties will continue to be subject to 10 per cent property tax.

Source: Straits Times, 23 Feb 2010

SINGAPORE is shifting to a progressive property tax system that will mean lower- and middle-income property owners living in their homes will pay less tax.

All Housing Board (HDB) flat owners and a large majority of private property owners will enjoy tax savings of $240 a year as a result of the new system.

Finance Minister Tharman Shanmugaratnam said yesterday in his Budget statement that the Government intends to keep the property tax ‘as a means of redistribution in our society, together with our income tax regime’.

Although the current system already taxes the wealthy more than others, there is ’scope for us to introduce further progressivity in property taxes’, he said.

The new property tax regime is a three-tiered one at 0 per cent, 4 per cent and 6 per cent, and replaces the current flat 4 per cent concessionary rate for owner-occupied residential homes.

The first $6,000 of a home’s annual value (AV) will be exempted from property tax – saving owners $240.

The next $59,000 will be taxed at 4 per cent and any AV above $65,000 will be taxed at 6 per cent.

The AV is the estimated annual rent of an owner-occupied property if it were rented out, excluding rent for furniture, fittings and any service charge.

The new system will apply for property tax payable from January next year.

Currently, owner-occupied homes with AVs below $10,000 also enjoy the ongoing 1994 property tax rebates ranging from $25 to $150, depending on the AV of their properties.

This will cease and be replaced by the new system. All other non owner-occupied properties are taxed at 10 per cent and are unaffected by the new tax regime.

Mr Tharman explained yesterday that when the Government abolished estate duty entirely in 2008, property tax was the remaining form of tax on assets.

He said the Government intended to retain property tax as it did not affect the middle and upper-middle groups more than the wealthier ones.

This was the reason that estate duty, which had been impacting middle and upper-middle income earners to a disproportionate extent, had been scrapped.

Mr Tharman added that a moderately progressive property tax system, together with an income tax system that collects more tax from the wealthy and a flat goods and services tax rate that everyone pays, will, together form a fair system of taxes in Singapore.

‘Everyone pays something, but the rich pay more. Taken together, the overall burden of taxes will and must remain low by international standards,’ he said.

He also noted, however, that as HDB homes gradually appreciate in value over the long term, flat owners will see an increasing property tax bill over time.

KPMG executive director (tax services) Leonard Ong said yesterday that the new system is a ‘fairer way of collecting property taxes, as only a small, wealthier majority end up paying more’.

Indeed, owners of high-end properties will see a small increase in tax payable.

They comprise the top 3 per cent of private owner-occupied residential properties, or the top 0.4 per cent of all owner-occupied homes in Singapore, said Mr Tharman.

Homes with AVs of about $80,000 will face only a small increase in tax, of slightly less than $100 per year.

A property with an AV of $150,000, which typically is a large property in the central districts and is within the top 0.5 per cent level of private owner-occupied homes, will face an increase in property tax of about $1,500 per year.

However, the new tax rates, even for the high-end, will remain lower than in most international cities, he added.

‘That is as it should be, so that we remain a vibrant and attractive place for businesses and individuals alike.’

Real estate consultancy Colliers International managing director of China, Singapore and Taiwan, Mr Dennis Yeo, said the switch to a more moderate progressive tax schedule is a more long-term approach than the periodic tax rebates extended by the Government previously.

‘It is expected to have little bearing on the property market in terms of market sentiment and activities,’ he said.

This new progressive system of property taxes will cost the Government about $230 million a year initially, said Mr Tharman.

Source: Straits Times, 23 Feb 2010