Redas holds meetings with industry players regarding cooling measures
A series of meetings has been held by the Real Estate Developers’ Association of Singapore (Redas) with industry players such as developers, property consultants, brokerage analysts and lawyers to discuss the impact of the recently implemented cooling measures.
They discussed the intended objectives of the measures, and proposals for changes in the cooling measures, which may eventually be presented to the authorities. One potential proposal includes identifying districts popular to foreign investors and applying tiered stamp duties. Other proposals include giving incentives such as subsidies to first-time Singaporeans and Permanent Residents (PRs) homebuyers instead of penalising foreigners for buying properties.
According to data collated by Redas, foreigners are not fully responsible for the increase in mass market home prices since only 1 out of 33 selected projects launched recently had more than 50% of its units bought by foreigners. The measures implemented also did not solve the problem of the increasing prices of resale HDB flats which supports demand for mass market private homes and in turn the price increase for mass-market private homes.
Analysts disagree over whether the ABSD is going to be here permanently with some thinking that Singapore’s status as an open economy making it impossible and others thinking that the government’s shift to a ‘Singaporeans first’ policy will result in the permanence of the ABSD. Even if the government decides to relax the measures, it will likely be only for loan-to-value (LTV) ratios or the seller’s stamp duty.
Developers and the government aired disagreement at Redas dinner
The Real Estate Developers Association of Singapore’s 52nd anniversary dinner was where the developers and the government voiced their differing views on the recent cooling measures.
Mr Tan Chuan-Jin, Minister of State for National Development and Manpower, was present at the event as the guest-of-honour. He stated that while he did not expect developers to accept the measures, the measures were implemented to moderate such investment demand in order to avoid the need for a major correction in the future.
Redas president Mr Wong Heang Fine, disagreed, referring to the ABSD as ‘Another Bad Shock for Developers’. He stated that while there are short-term impacts on sales volume and prices, there are other longer-term concerns, such as higher cost structure for developers due to higher land acquisition cost, decline in home equity values and consequently, shrinking wealth and it may even push the economy into recession by dampening foreign investments and business prospects in Singapore.
When he expressed Redas’s wish to engage the government in close dialogues even on sensitive matters before they are implemented, Mr Tan countered that while there are many areas of mutual interest in which the government would be ‘happy to engage in closer dialogue’, this may not be so on some issues and the important thing is about implementing the right policy.
Mr Wong also stated that Redas will assess the impact of the latest measures once it takes effect and provide feedback, and that the policy is likely to be short term.
JLL: Stabilisation of property auctions market in Q4
The property auctions market achieved a sales rate of 10% in Q4 2011, with seven transactions out of the 71 properties listed, up from 6% and higher than expected. Q3’s auction transactions and percentage of properties sold was the lowest since Q1 2009. Q4’s sales rate was a 33 per cent year-on-year decrease more moderate than last year’s 40% decrease in Q4. According to JLL, Q4 auction transactions in the last two years are usually slower, with buyers putting off making decisions until the holidays end.
Residential transactions continued to exceed other transactions but this may change when the latest cooling measures takes effect next year as investors turn to alternative property sectors that offer higher loan-to-value ratios and yields. The proportion of residential sales had also decreased by 15 percentage points from Q4 2010.
ABSD – a long-term or short-term measure?
Many consultants and industry players agreed with the Real Estate Developers’ Association of Singapore (Redas)’s president’s claims that the latest cooling measures were likely to be short-term in nature.
The director of R’ST Research, Mr Ong Kah Seng, feels that after some time for the policy to take effect, the government will likely review it according to market conditions while Mr Lee Sze Teck, senior manager of research and consultancy at Dennis Wee Group, believes that the short-term could be a few years rather than a few months. He also said that if it were meant to be a long-term measure, the government would have adjusted the buyers stamp duty rate rather than imposing an additional stamp duty.
Credo Real Estate executive director Ong Teck Hui, felt that whether the ABSD will stay for the long-term depends on the foreign demand. If foreign demand for local property remains strong, then the ABSD will be here for the longer term. If the demand weakens, the government could review and lift the ABSD but new measures could be introduced if foreign demands increase significantly again.
Knight Frank chairman, Tan Tiong Cheng stated that a 10% price fall should attract buyers which would help stabilise the market and a 30% fall is unlikely unless there is global recession, in which case the government would review and make changes to the measures.
Collective sales expected to slow in 2012
Given the new cooling measures implemented by the government and the increase in supply of new sites under the Government Land Sales (GLS) programme, the collective sales would suffer unless owners are willing to accept lower prices. The global economic uncertainty also made developers more cautious. Collective sales could hit $2 billion in 2012, driven by small and medium-size deals, if owners’ price expectations are realistic. A slight slowdown is expected but there will still be sales since collective sales are still the main source of freehold sites.
With the ABSD which requires developers that apply for remission to build and sell all units on residential sites within five years, developers will be more cautious in buying land. The ABSD will also mean that foreigners are less willing to agree to collective sales because they will have to pay the ABSD when they buy a replacement property.
Developers will also likely turn towards the upcoming supply of GLS sites in the first half of 2012 since there is no development charge and acquisition process is straightforward. Banks are also more likely to lend to developers bidding on GLS sites. However, small developers unable to afford large GLS sites may turn to collective sales sites, the reason behind the general selling price of below $100 million for most collective sale sites sold in 2010/11.
Government moves to moderate industrial land prices
The government has introduced new measures to prevent investors from driving up the prices of industrial property so that genuine end-users will find it more affordable. It can also prevent a potential influx of investors turning their attention towards industrial property due to the cooling measures in the residential market.
To this end, the Ministry of Trade and Industry (MTI) has increased land supply for the Industrial Government Land Sales Programme from 16 hectares in H2 2011 to almost 24 hectares (through both confirmed and reserve lists) in H1 2012. The MTI is also offering 18 smallish 19-year leasehold sites at Tuas South Avenue 12 for industrialists intending to build their own customised premises.
There are also more conditions attached to the building and strata subdivision of industrial property to prevent speculative buying. These conditions will apply for GLS parcels from Jan 1, 2012. Strata subdivision is not allowed for the first 10 years after the project is completed for selected sites in proximity to MRT stations, and if there is strata sub-division after that, there is a minimum strata unit size of 150 sqm gross floor area which is thought to be the minimum size required by industrialists.
The minimum 150 sq m strata unit size will also apply to multiple-user industrial developments on sites that don’t have the initial 10-year bar on strata subdivision, even if the developer holds the project for rental income. All multi-storey industrial developments will also have to meet minimum requirements for goods lifts and loading bays. Units in the industrial GLS project will also have to comply with minimum technical specs for an industrial project with regard to floor loading, floor-to-ceiling height and electrical provision.
Industrial property rents and prices to decrease after increase in land supply
With the upcoming increased supply of industrial land under the Industrial Government Land Sales (GLS) Programme, industrial property prices and rents are expected to decrease to a level which genuine end users find affordable.
The Ministry of Trade and Industry (MTI) have also announced new conditions on strata subdivision of projects on sites sold through the MTI’s Industrial GLS Programme from 2012. This will prevent discourage speculative and investment demand of industrial property which had been driving up prices. Developers of such projects have also, in turn, pushed up the price of industrial land at state tenders.
MTI is also offering 18 small 19-year leasehold plots with a 1.0 plot ratio in Tuas View Extension, which are likely to be developed into landed factories. The short tenure will discourage developers since it is difficult for them to develop factories on such sites and sell them for a profit. Loans for such property will also be hard to get, allowing end users a chance to build their own premises at a reasonable cost.
These new measures may also be implemented to discourage investors from turning to this sector to escape the ABSD in the residential market, hence keeping it affordable for genuine industrialists.