Singapore property - Much ado about nothing

16 December 2011
Colin Tan

The dive in property stock prices following the Dec 7 announcement of additional cooling measures is an admission by the market that it believes that the bulk of home buying in recent quarters - if not years - were investment purchases and not driven by owner-occupiers or upgraders as many had claimed for so long.

How else can we interpret the strong reaction and thinly-disguised anger and bitterness in some of the comments in news reports over the recent days? I was actually more taken aback by these comments than the actual measures themselves. However, the party which should be the most aggrieved - the developers - appears to have taken the latest measures far better than others.

The day after the announcement of the additional buyers' stamp duties of between 3 and 10 per cent on certain transactions, the developers came out in droves - 22 in all - to bid for a landed housing site in Chestnut Ave in Upper Bukit Timah. There is no doubt that the buyers of landed homes are less affected by the cooling measures, but the number of bids and the prices were above expectations. Only one developer was successful, which means 21 others had spare cash to spend. Is this a sign of vulnerability?

If indeed the majority of home purchases this year had been underpinned by strong demand fundamentals - shrinking household sizes and rapid population growth that had resulted in severe undersupply as suggested by some analysts four to five months ago - why is there a panic reaction now?

We have been overwhelmed by numerous negative comments, with almost all analysts predicting at least a 10-per-cent drop in home prices in the next year, with some forecasting a plunge as much as 30 per cent. This translates to an average loss of 2.5 per cent per month or 7.5 per cent per quarter.

Such a steep drop in such a short period - if it occurs - indicates a severe loss of market confidence. Maybe we are thinking about the last decline during the global credit crisis that followed the collapse of Lehman Brothers. However, we should not forget that Singapore experienced its deepest post-independence recession then. Are we expecting a recession of the same magnitude next year? The latest economists' forecast is that the Singapore economy will grow 3 per cent next year.

If you had read the report in question, the 30-per-cent drop was predicated on slower population growth and unprecedented home supply, not on slower economic growth or a recession. Some analysts have also drawn comparisons to the 1996 price decline which was precipitated by the introduction of anti-speculation measures in May that year. It is not a fair comparison as the problem then was rampant speculation and it was nipped in the bud. There was no low-interest rate environment.

From the statements accompanying the announcement of the latest measures, it is clear that the authorities see potential destabilising investment flows as the problem. Clearly, they are saying that it is a money issue first before it is a real estate problem. However, most of our market analyses thus far have largely ignored this aspect or dwelt on it only in passing.

Many continue to treat it as a real estate problem, ignore the economic aspect of it and then still expect buyers to be rational in their buying. It will be by pure chance if their calls turn out to be right. I am not saying these analysts are wrong but if you truly understand the complexity of the real problem, it is premature to call a drop in prices at this point in time.

I would also not be unduly worried by some analysts' comments that the heavier stamp duties are making a dent in Singapore's standing as a major property investment destination while giving rivals such as Hong Kong a boost. These comments do not give due recognition to what many respected economists are warning about - the destabilising investment flows into our part of the world.

To continue with a non-interventionist approach in the face of such hot money would be foolhardy - it would be courting disaster. In fact, I would say the current measures have enhanced Singapore's standing as a safe haven and an extremely attractive property investment destination.


Colin Tan is head of research and consultancy at Chesterton Suntec International.