Lee Su Shyan
THE regulator's recent move on bank lending is not meant to be another property market cooling measure but it will certainly have a bearing on anyone contemplating a real estate investment.
It's not that buyers haven't already been softened up somewhat, given there have been seven rounds of cooling measures since 2009 in a bid to slow rising home prices.
The Urban Redevelopment Authority (URA) index for private properties is up about 60 per cent from 2009.
But even as prices remain at an all-time high and even as buyers appear to take every new cooling measure in their stride, there is little doubt that the market has started to cool its heels.
Data shows that flash estimates of prices for the second quarter increased just 0.8 per cent. For the first quarter, they inched up 0.6 per cent.
Measures to date
THE first round of measures in 2009 included scrapping an interest absorption scheme which allowed buyers to avoid interest for a certain period. The confirmed list of government land sites for sale was reinstated.
In February 2010, a seller's stamp duty was imposed on residential property and land bought and sold within a year.
Loan-to-valuation (LTV) limits - the proportion of a home's value that a buyer can borrow - were tightened. They were reduced to 80 per cent, meaning a 20 per cent downpayment was required.
In August 2010, the holding period for the seller's stamp duty was increased to three years.
The LTV limit was cut to 70 per cent for those with other home loans, meaning a downpayment of 30 per cent would now be required.
In January 2011, the seller's stamp duty was extended to homes sold within four years of acquisition and the rates were increased.
The benefit of these moves was to help remove the speculative froth from the market. People had been turning up at new launches and then flipping properties within a few months for a quick buck.
In December of that year, the additional buyer's stamp duty (ABSD) was introduced. Foreigners now had to pay a 10 per cent duty on their first purchase while Singapore citizens were hit once they bought a third and subsequent properties.
These measures were aimed at curbing foreigner demand, one of the factors seen as responsible for surging prices.
The measures changed tack last year and focused less on speculation. This time there was more of a focus on curbing investor demand while tackling more comprehensively the risk of borrowers taking on too much debt.
First-time buyers remained untouched.
Last September's measures included capping new home loan tenures at 35 years.
The seventh set of cooling measures unveiled in January this year included raising the ABSD by between 5 and 7 percentage points. The proportion of a home's value that a buyer can borrow was slashed to as low as 20 per cent for certain buyers, while minimum cash down payments for those with at least one housing loan were raised.
Chief operating officer at DTZ Southeast Asia Ong Choon Fah noted that the measures "have resulted in a sharp decline in foreign demand from about 20 per cent in the last quarter of 2011 to the current 7 per cent."
Total debt servicing ratio
WHILE not regarded as a cooling measure as such, the latest policy move - called total debt servicing ratio - took effect on June 29 and imposes a new lending framework on banks.
A person's total monthly debt repayments cannot now exceed 60 per cent of his gross monthly income so anyone applying for a new mortgage will have to consider how their entire debt load stacks up. That means any car or personal loan will now be factored into the debt equation as well.
These measures are timely as the cheap flow of money stemming from the United States Federal Reserve that has depressed interest rates here and elsewhere looks like it is going to be eased.
It is also clear that there is a group of borrowers in Singapore who are potentially at risk from rising interest rates. First-quarter numbers from the Credit Bureau show that about 12 per cent of borrowers held multiple loans.
Deputy Prime Minister Tharman Shanmugaratnam noted over the weekend that with interest rates set to rise, between 5 and 10 per cent of borrowers may be over-leveraged.
EVERY policy has side effects. One of them here is that banks may end up having their hands tied too much.
Take the 30 per cent discount that has to be imposed on the variable element of a borrower's pay. While that is a prudent move, banks need to appreciate that in the ever-changing workplace, there are fewer jobs where a fixed pay is the norm.
In efforts to be more responsive to changes in market conditions, more jobs may offer pay with a higher variable element. Banks should be given some leeway to ensure that while prudence remains the priority, they are also sensitive to the growing number of people whose pay fluctuates from month to month and indeed year to year.
Rethinking property investing
THE question is often asked if all these measures will sound the death-knell for the Singaporean's undying love affair with property, one that is shared by those in Malaysia, Hong Kong and China.
Yet the issue may be wider than that. To encourage people to invest in other asset classes may require a review of the alternatives out there.
What drives many investors is the search for yield in a market where it is increasingly difficult to find good returns.
But many are loath to view stocks as the new Prince Charming in waiting. One reason could be investors' painful experience of the global financial crisis.
Another could be how the Central Provident Fund (CPF) rules skew investors towards property.
If I have $5,000 in my account that is allowed to be invested in equities or unit trusts, I can buy only $5,000 worth of SingTel shares. However, I can start paying for a $1 million residential property in Singapore with regular monthly CPF payments.
And while investing in blue chips on the Straits Times Index should be a safe bet from a corporate governance point of view, investors have to be conscious of market risk as these big boys expand overseas.
What it means is that putting $100,000 in CapitaLand requires an understanding of the risks the firm faces in the China market, for example, while buying DBS Group Holdings shares means understanding policy risks in Hong Kong and Indonesia.
Indeed, the daily gyrations of shares may engender a sense of insecurity and the challenge of deciphering financial statements makes stocks appear riskier and more complex.
While the price of some S-chips has plunged practically to zero, the perception is that property in Singapore will at least retain some of its value and offer a regular income stream.
That is why many investors feel comfortable buying a property here. Simply put, a property investor living in Pasir Ris and buying an investment property in the same area feels more comfortable with the risks and growth potential. He knows if new amenities are coming up nearby. He can see the condo taking shape. He knows there are laws to protect him should a developer go bust.
Meanwhile other suitors stand waiting in the wings.
Anecdotally, many investors have made a beeline for property in Iskandar, Kuala Lumpur, London and Australia.
DTZ's Ms Ong notes that since January, there has been a sharp increase in demand for properties in Iskandar. Others have ventured into more speculative investments such as land in the United States, she adds.
A few hundred thousand dollars can get you a property in Thailand. Around $200,000 offers a chance to own a serviced apartment in Dubai.
The irony is that Singaporeans are starting to put their funds in markets overseas, which are harder to track and where the investor protection framework is sometimes less established.
There are risks to owning property such as not being able to rent out the place or not being able to meet loan repayments.
But for most people, a property still speaks to a fundamental need for a source of retirement income and a sense of security. A change in that mindset will require a review of our investing framework.