S’pore property curbs seen hurting state-built housing most

October 15, 2010
Singapore Democrats

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Joyce Koh & Kristine Aquino
Bloomberg

Luar Yew Teng and his fiancee paid S$405,000 ($313,000) for their four-room Singapore apartment in June, 14 percent more than the official valuation, as prices broke the records of 1996.

Now, they wish they hadn’t. In August, the government restricted financing and raised duties on some home sales, its third round of measures to cool the market in a year. Analysts including Donald Han, managing director of real estate adviser Cushman & Wakefield Pte, say owners of government-built housing like Luar will lose the most as prices fall.

“There’s a lot of heartache because we bought at the peak,” said Luar, 27, who’s planning a traditional Chinese wedding in November after buying his first home. “If we knew this was coming, we would have waited.”

Singapore is trying to head off the kind of property bubble that fueled recessions in the U.S. and Europe, while keeping housing affordable for the 80 percent of locals who live in flats built by the state’s Housing & Development Board. Analysts predict the measures will widen the gap with privately built condos, making it harder for locals to upgrade in a country where property accounts for almost half of private wealth.

Prices of HDB flats may drop as much as 10 percent in six months, while private condo prices may gain up to 7 percent, according to property analysts polled by Bloomberg.

“Who these rules will hit the most are people who have little savings and who live from day-to-day,” said Mohamed Ismail, chief executive officer of home broker PropNex Singapore. “They’re mostly those who live in public housing.”

Bigger down-payment

In August, the government increased down-payments for second mortgages and extended the stamp duty to residential property sold within three years. The aim is to bring real- estate prices, which surged 38 percent in the second quarter from a year earlier, more in line with the pace of economic growth. The government forecasts economic expansion of as much as 15 percent this year.

“This is targeted at the HDB and mass market, where we’ve seen continuous price increases which have exceeded previous peaks,” said Han of Cushman & Wakefield.

Four out of six analysts polled by Bloomberg expect prices for HDB flats to drop in the next six months, while four out of seven predict private apartment prices will gain.

The government has been trying to slow the increase in home prices for a year, with earlier measures banning developers from absorbing interest payments for flats under construction and stopping interest-only loans for some projects.

‘Scratching the surface’

“The previous measures were only scratching the surface,” said Chua Chor Hoon, head of DTZ’s Southeast Asia Research. “The recent measures are more impactful because they really hurt people’s cash outflow.”

HDB resale transactions dropped 50 percent the week after the new rules were introduced, according to Ismail at PropNex, who said people have been shocked into a “wait-and-see attitude.” He expects cash premiums paid for HDB flats to drop by half to about S$25,000 by the end of the year.

The Straits Times Real Estate Index has risen 8.6 percent since the government’s Aug. 30 announcement, compared with a 8.7 percent gain in the benchmark Straits Times Index.

CapitaLand Ltd., Southeast Asia’s biggest developer, expects Singapore’s home prices to fall “a little” with the cooling measures, the Straits Times newspaper reported Sept. 23, citing Chief Executive Officer Liew Mun Leong. UBS AG said Sept. 3 it was “turning cautious” on Singapore’s property developers.

Bubble danger

A Chinese national paid a record S$36 million in June for a private bungalow in Sentosa Cove. The following month, in the HDB market, a Singaporean couple paid S$1.1 million for a Bishan flat, S$200,000 more than the official valuation.

“There was a danger of a property bubble forming,” Mah Bow Tan, the island’s national development minister, told parliament on Sept. 15.

Luar, who earns about S$2,500 a month as a civil servant, bought his 85-square-meter HDB flat in Bishan in June for S$50,000 more than the value appraised by a professional licensed by the housing board.

Banks are only allowed to lend up to 80 percent of the appraised value, so the buyer has to pay the rest in cash or by drawing on pension funds. Any premium over the valuation has to be paid in cash. Since the August announcement, buyers who hold more than one mortgage can now only borrow up to 70 percent of a property’s appraised value.

‘Very hot’

Singapore subsidizes new HDB flats to help citizens get a start on the property ladder. When an HDB flat is resold, the price is decided by the seller and buyer.

“The market was very hot,” said Luar, who bought his apartment from a Chinese investor who also owned a private condominium in Singapore. “All our savings are wiped out after we bought our flat.”

Shawn Ho, 34, was one who made the jump from public to private apartment before the new rules. He sold his HDB flat on Old Airport Road for S$500,000, including a S$60,000 premium, and bought a private apartment for S$688,000 in August.

“The market was hot and we wanted to change,” said Ho, owner of a food and beverage business, who moved with his wife and four-year-old daughter. “With the new rules, there’s no need to worry about a quick drop.”

The government’s action to try to avoid a bubble is a lesson to speculators and buyers not to overspend on real estate, said Tan Tiong Cheng, the chairman of property agent Knight Frank. At the time of the new measures, the government said price levels had exceeded the peak reached in the second quarter of 1996.

“The rising prices were infringing into public housing,” said Tan. “The measures remind investors that if they don’t have money, don’t buy.”

http://www.businessweek.com/news/2010-10-14/singapore-property-curbs-seen-hurting-state-built-housing-most.html