Key measures will be announced in Budget 2016, and many are wondering if this will mean changes to the property measures.
Singapore’s property market faces strong headwinds, but the government seems determined to maintain the cooling measures for now. With more home buyers and developers looking for greener pastures abroad, will the government finally look to stop the large capital outflows?
By Romesh Navaratnarajah
Singapore’s upcoming budget will be announced in Parliament on 24 March. While the focus of the last few budgets have been on initiatives to help the elderly and lower-income households cope with increasing costs, this year’s budget will look to help small businesses remain competitive amid current economic challenges, revealed Finance Minister Heng Swee Keat recently.
But will any goodies be doled out for the property sector? The market continues to face significant risks, including rising interest rates, falling prices and transaction volumes, potential oversupply (with 60,000 units in the pipeline), and a record 26,500 vacant units entering the market.
This has led the Real Estate Developers’ Association of Singapore (REDAS) to repeatedly call on the government to relax some of the property curbs, as they face hefty extension charges if they fail to sell all units within two years of a project’s completion.
However, National Development Minister Lawrence Wong has said it is still too early to remove the cooling measures, as this could undo the government’s efforts to make home prices affordable. With so much uncertainty in the market, we asked a few industry experts to offer their views and share their wishes for Budget 2016.
Revival of property tax refund for unoccupied buildings
HELEN NG
Deputy Chair of the Self-Storage Association Asia and Chief Executive Officer of General Storage Company
“The dismal economic climate has led to households and businesses tightening purse strings. The warehousing sector has been hit particularly hard, with rising vacancies resulting from business closures.
“The leading self-storage operators in Singapore, who offer a mix of self-storage and warehouse units, would benefit from the tax relief, which is claimable against vacant warehouses.”
Property a key concern, but not an immediate crisis
ALICE TAN
Director and Head of Consultancy & Research, Knight Frank Singapore
“In my personal opinion, the government’s key concern remains the prices of private homes, which are still at a high level compared to before the Global Financial Crisis. As of Q4 2015, prices had been trending downwards over the past nine quarters. However, the price drop is not steep enough to warrant an immediate relaxation of the cooling measures.
“The underlying demand for Singapore property remains fairly high, given the country’s stable fundamentals. Thus, policymakers would be mindful of any unintended effect of demand resurgence, should the measures be adjusted.
“Amid global uncertainty, the government’s immediate concerns are likely to be Singapore’s economic health and future direction, as well as job security. We believe the government is focused on promoting the survival and long-term sustainability of business enterprises, to ensure that Singaporeans continue to have jobs. This would in turn support the stable demand for property.”
Why we’re unlikely to see new measures
TAY HUEY YING
Head of Research, JLL Singapore
“Although property prices have yet to register sharp declines, the market is expected to remain suppressed under the weight of a large supply pipeline and weakening demand, amid low economic growth.
“Furthermore, the cooling measures put in place in recent years have yet to fully kick in, since the Additional Buyer’s Stamp Duty (ABSD) remission clawback will only start to affect projects from end-2016 or early 2017 onwards, while the Qualifying Certificate (QC) rule is still running its course.
“In view of the downside risks far outweighing the upside potential, and given that it is in the interest of the government to ensure a soft landing rather than a hard landing, more cooling measures are unnecessary and unlikely.”
TDSR to stay, but other curbs could be adjusted
MOHAMED ISMAIL
Chief Executive Officer, PropNex
“We affirm our support for the Total Debt Servicing Ratio (TDSR) in the long term, as it was put in place to encourage financial prudence among borrowers and to strengthen credit underwriting practices by financial institutions. The TDSR places restrictions on household debt and stipulates the debt-to-equity ratio, meaning how much cash you need to put down to qualify for a mortgage. This reduces the risk of households overextending themselves financiallyby taking on homes they cannot afford, especially if interest rates increase.”
Reduce the ABSD
“We propose that the ABSD rate be reduced for all groups of buyers, depending on the number of homes purchased. For foreigners, we propose a ‘tiered approach’, with a higher ABSD rate for home purchases of $3 million and below, and a lower rate for home purchases above $3 million.
“The ABSD needs to be reduced for foreigners as well as for PRs and Singaporeans buying their first or second property, as long as their TDSR meets the guidelines. This will enable Singapore to remain an attractive investment location not only for foreigners, but also for Singaporeans investing in their second property onwards, to prevent large capital outflows to other countries.”
Source: PropNex Research
Loosening the LTV limits
“As this measure was introduced before the TDSR, the tighter loan-tovalue (LTV) cap is less effective, as the TDSR framework does not allow borrowers to take loans of more than 60 percent of their monthly income. Moreover, those who currently hold more than one property may not be able to get another loan, as their TDSR threshold may have already been exceeded.
“With the existence of the TDSR and non-performing loans at just 0.4 percent, our recommendation for LTV limits for second and subsequent properties to be at 60 percent for standard loans and 50 percent for loans exceeding 30 years is reasonable, with a sufficient safety net to protect our financial institutions.
Source: PropNex Research
Higher MSR limit of 45% for EC buyers
“Setting a 30 percent mortgage servicing ratio (MSR) is similar to that for Build-To-Order (BTO) flats is not realistic for someone who wants the lifestyle of a private property owner, knowing they can get a 60 percent loan for a private property due to the TDSR.
“Also the side effect of a 30 percent loan cap is that developers construct smaller executive condominiums (ECs) to meet the MSR restrictions, which again run contrary to the government’s repeated calls for Singaporeans to procreate, as the constraint of smaller living spaces would likely discourage couples from having more children.
“As such, we propose the MSR to be set at 45 percent for ECs. This figure will create a distinction between BTO flats (30 percent) and private properties (60 percent).”
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