By Gerald Tay (guest contributor)
There have been recent calls to the government asking to relax some of its property-cooling measures as demand for real estate wanes. MrGetty Goh, director at Ascendant Assets voiced his view on this, speaking at a Business Outlook Forum recently.
He said the government should consider repealing the Seller Stamp Duty (SSD) for residential properties introduced in January 2011, because sellers who are keen to dispose their properties may find themselves tied down by it.
Many people I have met who want you to invest in property don’t care two hoots if you make money or not, as long as they profit from your investment. And the same group of people are now calling for property curbs to be removed because of a so-call ‘lacklustre’ property market.
Mr Getty Goh is one of the few respected voices I listen to among the many industry players, and therefore I believe he does not fall into the category of those “Please invest in property so WE can get rich” group. His view on relaxing some property rules may be a personal view of his own and not for profit interests.
Here are six reasons why property curbs should NOT be removed today – at least till a correction happens.
1. It’s too early
Private home prices registered their first drop in seven quarters in the October-December period, falling 0.9 percent quarter-on-quarter. Meanwhile, public housing prices posted their second consecutive quarterly drop, down 1.5 percent – the worst reading in eight years.
Unwinding existing tightening policies for property simply because of a slight drop? This may be too premature as prices in both private homes and public housing are still very much elevated.
For the government to roll back its policies that took four years to have an impact, a major correction has to happen. And I believe the government will continue its stand on existing measures till that happens.
2. The market is not ready psychologically
Market psychology plays a huge part in rising asset prices and Singapore’s economy was resting more and more on asset based inflation supported by cheap liquidity in recent years.
Credit growth and bank financing drive up asset prices, causing lenders and borrowers to believe that even more credit growth is both safe and desirable.
The last four years of rapid property price escalation has been played out, not by real estate or economic fundamentals, but simply because everyone believes in the fallacy of an illusionary demand/supply dominated by the market psychology of lemmings following the crowd.
An even more vicious inflationary cycle will happen. If the government begins to unwind its policies, buyers want to buy, sellers want to sell, banks want to lend, developers see ‘demand’ and want to buy more land and build more, the government sells and releases more land… the whole cycle will turn on itself.
This will cause more supply in future …and if there’s a correction, the results will be distastrous to the economy.
3. Still plenty of liquidity
Even with the recent Fed tapering, the world is still awash with cash and developed-market interest rates are close to zero. Liquidity factors still have the ability to push real estate markets to new highs and to crazy overvaluation.
The dire consequences and outcome of removing Sellers Stamp Duties (SSD) and other property measures in a bullish real estate market is unthinkable.
4. Gamblers don’t deserve sympathy
On the removal of the Sellers Stamp Duty (SSD), Mr Getty Goh explained this move would help property owners offload their properties.
He said, “These owners in the event that they own two or three properties, giving rising interest rates and their inability to do a refinancing because of the Total Debt Servicing Ratio (TDSR), may be compelled to slash their prices to offload their property. This could snowball into a longer term problem when sellers flood the market after the Seller Stamp Duty expires in four years’ time, precipitating a crash in prices.”
Should we protect the interest of these property buyers whose finances are not built on solid foundations?
The owners who buy and sell properties hoping to make a quick buck in a bullish market, either during a sub-sale or when the property T.O.Ps is gaming the property market like a casino. When the Sellers Stamp Duty and other property measures were implemented, they got stuck and hope for some form of salvation.
Removal of SSD by the government will only send a negative message to more speculators that flipping in a bullish market is the right thing to do.
An analogy to the above:
Should we remove all casino regulations to help more gamblers gamble?
Should we extend credit to gamblers to help them recover when they incur bad gambling debts?
Will the casinos in Singapore go ‘under’ because a bunch of gamblers lost money?
Professional gamblers understand risk and protect the downsides to prevent losses before they step into a casino. Shrewd property buyers are the same.
The only downside protection ignorant gamblers have is ‘buy and pray’. So let them pray for now.
5. Higher Cost of Living for Most Singaporeans
Removal of property measures at current bullish levels will cause a further spike in land prices (See Reason 2), adding inflation to all asset prices. And this may result in a higher cost of living for most Singaporeans.
6. Protect Genuine Home Buyers and Conservative Investors
If Sellers Stamp Duty (SSD) and other property measures are removed at current point, property prices may continue to rise given the above reasons. This certainly does not bode well for many genuine home buyers in both private residential and HDB.
Though most of the property measures are targeted to the private residential market, rising land prices have collateral effects on the HDB BTO market as well.
Shouldn’t the implementation of property measures to curb rising prices be meant for the majority of Singaporeans to afford and buy a decent home at decent prices?
Or should the removal of the SSD and other property measures be meant to protect property speculators, and those with vested interests?
Conservative investors can also help support the vibrancy of a stable property market when investing with decent yields. Today’s yields have been molested by current the indecent high prices.
On the contrary, more cooling measures are needed as prices have not come down to acceptable and reasonable levels.
Removing property curbs is supposed to allow more sellers and buyers to come into the market, but in today’s climate where prices are still adamantly high, will only add oil to the fire.
Historically, property curbs are removed whenever there is a major price correction. This removal and correction will bode well for many genuine buyers and investors.
Property prices climb up by the escalator and come down by the lift. A combination of rising interest rates and increased supply in the market could trigger a correction in 2014 to 2015, according to Barclays. The bank estimates home prices will fall 5 percent this year and between 5 and 15 percent next year and maybe more.
For genuine buyers and investors, my advice to you is be patient and avoid buying with the lemmings, as the next eventual major correction may just be around the corner.
Debt and leverage caused the 2008 crisis and now debt and leverage are greater than at any point in history. History always repeats itself and this will end in tears.
As for the speculators, their turn is soon over.
By guest contributor Gerald Tay, CEO of CREI Academy Group, who exposes widely-held property investment myths that have proven highly ineffective in creating wealth, and prevent a comfortable retirement for the ordinary investor.