BT: UBS sees more downside to property on gov't new cooling measures

Business Times - 08 Dec 2011

UBS sees more downside to property on gov't new cooling measures

By YEO AIQI

UBS Investment Research on Thursday sees further weakness in the physical prices of property given the severity of the government's new measures unveiled on Wednesday.

'We believe it is not in the government's interest to drive down property prices. But, given the severity of the new measures, it is hard to see how physical prices will not start falling. Assuming stocks fall as per Jan 2011, first quarter of 2012 may be a good time to start putting cash to work in the developers. In 2009, stocks recovered in Mar 2009, even as property prices fell another 14 per cent quarter on quarter in first quarter 2009 and 4.7 per cent quarter on quarter in second quarter of 2009,' said UBS.

It cited historical data where stocks typically bottomed ahead of physical market prices. In 2009, the Singapore market index bottomed in March 2009, even though the URA property price index continued falling.

Similar experiences happened during the Asian crisis in 1998, post the 9/11 incident, in 2001 and SARS period in 2003.

On Wednesday, the government announced harsh new measures that will raise buyer's stamp duties to as high as 13 per cent for foreigners and companies, 6 per cent for permanent residents buying beyond their first property and 6 per cent for citizens buying beyond their second property.

BT: New terms may hit large collective sales

Business Times - 09 Dec 2011

New terms may hit large collective sales

To avoid paying ABSD, developers must build, sell all units on residential sites within 5 years

By KALPANA RASHIWALA

(SINGAPORE) The latest measures unveiled by the government are expected to have major implications for developers buying residential land, especially involving collective sale sites. They will have to develop any residential sites they buy from Dec 8 and sell all the units in the new project within five years - if they want to avoid paying the new 10 per cent additional buyer's stamp duty (ABSD).

'This can be very onerous especially when the property market is slow,' said Credo Real Estate executive director Ong Teck Hui.

Drew & Napier head of tax practice Ong Sim Ho said: 'For developers, it has become more difficult and costly to land bank.' He suggested one intention of the new rule could be to give more certainty to supply numbers on the completion of private homes.

Information in the Inland Revenue Authority of Singapore e-tax guide on the ABSD indicates that the new 10 per cent ABSD is payable by corporate entities buying vacant land and development sites for residential use - although they can apply for upfront remission if the buyer (developer) undertakes to develop and dispose of all units in the new development (which must have more than four residential units) within five years of the date of contract or agreement to buy the site, among other conditions.

If this condition is not met, the ABSD (with interest) becomes payable immediately upon the expiry of five years. The residential sites include Government Land Sales (GLS) plots and private-sector sites including en bloc sales.

Market watchers say that with the five-year limit to complete the project and sell all units, developers will have to weigh their land purchase decisions more carefully.

'They must be confident of developing the project and disposing of all residential units in it within five years - taking into account the possibility of any turn in market conditions and in the case of en bloc sales, the risk of a possible delay in court approval,' says Lee Liat Yeang, partner in real estate practice group at law firm Rodyk & Davidson.

For en bloc sales, the date of contract or agreement refers to the date when the site is awarded by the Sales Committee. From this point, it can take six to 12 months or even longer for legal completion of the site's purchase (including court approval of the en bloc sale).

This additional time eats into the five-year limit the developer has to complete building the new residential project on the site and selling all the units, said Mr Lee.

But for sites bought through the GLS programme, the impact will be less as there is certainty that the legal completion of the land purchase will take place by the 90th day of the site's award (the latter is deemed date of contract), added Mr Lee.

Credo's managing director Karamjit Singh said the new rules will hit big collective sales very badly. 'For the small and medium-sized en bloc sale sites, most developers would already aim to buy the site, develop it and sell new units within five years, even before the new rules kicked in - whereas for the bigger sites it can be very difficult to be certain that you can clear all your units within five years.'

This will further reduce the attraction of bigger en bloc sale sites, which have already put developers off due to their steep pricing, say analysts.

There has not been any collective sale deal this year exceeding $200 million.

KPMG partner, tax services, Leonard Ong, said: 'The ABSD will certainly increase the costs of acquisition by developers who are unable to meet the conditions for remission.

'These costs are then likely to be passed on to end-buyers when the developed residential properties are sold. This would be regardless of who the properties are eventually sold to, including first-time home buyers. This cannot be the intention of the government.'

Under the new rules that took effect yesterday, foreigners and non-individuals (that is, corporates) buying any private residential property in Singapore will pay the 10 per cent ABSD. However, foreigners of certain nationalities - the United States, Switzerland, Liechtenstein, Norway and Ireland - who fall within the scope of respective free trade agreements will be accorded the same treatment as Singapore citizens.

Singaporeans pay a 3 per cent ABSD for their third or subsequent residential property purchase. Permanent residents pay the same ABSD rate when they buy their second or subsequent home in Singapore.

Even before the ABSD kicked in yesterday, any developer buying a GLS residential site has been given a five-year limit by the state to complete the project, although the GLS conditions do not stipulate any timeframe on the sale of units.

However, when it comes to buying a private sector residential site (for example, through an en bloc sale), foreign developers have to obtain a Qualifying Certificate, conditions for which include a five-year limit to obtain Temporary Occupation Permit (TOP) for the project and another two years from TOP date to finish selling all the units in the project.

Any developer with even a single non-Singaporean shareholder or director is deemed 'foreign'. Hence all the big listed developers, including City Developments and CapitaLand, are counted as foreign developers.

Hitherto, Singapore developers (such as Far East Organization and Hoi Hup) have been spared any time limit for completing or selling a residential project on a private site, although they face the five-year limit to complete GLS projects.

'So now the Singapore developers too will face a time limit to complete and sell units in all residential projects on sites bought from Dec 8, - if they wish to avoid ABSD,' said Mr Lee.

BT: Stocks fall, sales stall as new normal kicks in

Business Times - 09 Dec 2011

Stocks fall, sales stall as new normal kicks in

Analysts project big drop in private home prices and sales with new measures in place

By CHEN HUIFEN

(SINGAPORE) Bank and property stocks tumbled yesterday as investors reacted with shock to the latest round of measures to curb foreign and speculative buying in Singapore's private property market, potentially setting the stage for a period of uncertainty with implications for the economy.

Counters of City Developments Ltd, DBS, UOB, UOL, CapitaLand and OCBC shed between 2 and 9 per cent, as increasingly shrill and sombre analyst reports flagged the pitfalls facing these companies.

Developers, especially those in the luxury markets, are seen to be the most vulnerable, given that their projects tend to attract a sizeable pool of foreigners who, together with corporate entities, will have to fork out 10 per cent more in buyer's stamp duty from now on.

This is higher than the 1-3 per cent that they paid previously, depending on the purchase price or market value of the transacted property.

As well, permanent residents will have to pay 3 per cent more in additional stamp duty on their second and subsequent homes, while Singaporeans will be taxed similarly on their third and beyond.

These measures are expected to dampen the residential property market by lowering overall demand in the purchase of private residential properties for investment.

Coupled with the release of new government land sites in the first half of next year that will give rise to about 14,100 private homes, the measures are aimed at giving Singaporean households the chance to own or upgrade to private housing.

While the intent is laudable, industry players and observers are questioning the timing of the announcement.

One economist has suggested that the latest moves could potentially tip Singapore into a recession, given that there could be spillover effects on peripheral sectors such as legal, banking and construction. Consumer spending may be hurt as well if falling property values lead to shrinking wealth.

'Given that the economy is already fairly weak and we are sort of bouncing on the edge, it may have tipped the balance into recession given that our readings are already pointing to a possible recession,' said Bank of America Merrill Lynch economist Chua Hak Bin.

Already, sales agents have indicated that clients who had previously shown interest in projects here are now holding back on decisions. Developers are said to be deferring upcoming launches as they take stock of the situation. It remains to be seen if any buyers who have signed options to purchase may back out of their deals in the coming weeks.

Analysts are projecting a fall of up to 30 per cent, in terms of both home prices and monthly sales volume, next year. But of significance is the message that the calibrated taxes may send to foreign talent and investors.

'In cosmopolitan Singapore, property and housing not only showcase the country but are the best key expression of our city,' said Norman Ho, a partner at Rodyk & Davidson LLP. 'To our foreign friends and investors one of the few things Singapore can offer is a good environment for living and place to call their own while they invest their talents and time here.

'This past year, the financial crises in Europe, struggling recovery in the United States, civil uprisings in the Arab Spring as well as slowing economies amidst our region are cause for consolidation and reflection.

'The measures should only be announced with careful and prior consultation with the stakeholders in the real estate industries and with the view of the possible macro 'knock-out' effect which may have on the already fragile economy.'

BT: Govt to release smaller supply of residential land in H1 2012

Business Times - 08 Dec 2011

Govt to release smaller supply of residential land in H1 2012

Industry players fear it may still be too much, given latest cooling measures

By UMA SHANKARI

(SINGAPORE) The government will release a slightly smaller supply of residential land in the first half of 2012. But industry players feared that it would still be too much, given the latest cooling measures and the substantial supply of private homes already in the pipeline.

The Ministry of National Development (MND) said yesterday that it would release new land for about 14,100 private homes in the first half of 2012 as part of its twice-yearly land sales programme. This includes 3,500 executive condominium (EC) units.

Of that amount, around 7,000 units (including 2,900 ECs) will be rolled out through the confirmed list.

This is slightly less than the 8,100 units offered under the confirmed list in H2 2011. Land parcels under the confirmed list are sold according to scheduled dates.

MND said that it took into account the new policy measures announced yesterday and the large supply pipeline of 81,600 private homes when it decided on the land sales programme for the first half of 2012.

'In deciding on this supply, which is slightly less than the 8,100 units in the H2 2011 confirmed list, MND has taken into consideration the large supply of 81,600 private residential units - including 5,300 EC units - that are already available in the pipeline as at Q3 2011, as well as the possible moderation in investment demand for private housing due to the policy measure announced today,' MND said.

Of the 81,600 units available in the pipeline, about 41,000 units (including 1,900 EC units) were still unsold, the ministry added.

But while it cut the total land supply for private homes, more land for building EC units will be up for sale.

Sites for 3,500 EC units will be made available in H1 2012 - including 2,900 EC units on the confirmed list. This is comparable to the 2,985 EC units from five sites sold in 2011.

Demand for EC units is expected to climb after the government raised the monthly income ceiling for the purchase of new EC units to $12,000 from $10,000 in August 2011.

National Development Minister Khaw Boon Wan pointed out that the EC supply is being ramped up. 'This will help higher-income Singaporeans own private condominium units in an affordable way, as the sale of new EC units is restricted to Singaporean households only,' he said.

EC units are initially sold with eligibility and ownership restrictions similar to HDB's public housing flats, but will be converted to private housing after 10 years.

Analysts were worried that the total supply of residential land for H1 2012 is excessive as it comes on top of the new cooling measures.

'I think that under normal circumstances, the market will probably be able to absorb the supply,' said Bank of America Merrill Lynch economist Chua Hak Bin. 'But with the kind of measures that have just been announced, there is a danger that demand could collapse altogether.'

International Property Advisor chief executive Ku Swee Yong similarly said that the upcoming supply seems to be 'abundant'.

He also noted that more than half of the supply from the confirmed list will be concentrated in the north-east of Singapore (specifically, in Sengkang, Pasir Ris and Punggol). 'The concentration of supply is a risk for home owners in those locations,' he added.

Jones Lang LaSalle's head of research Chua Yang Liang said that in the slightly longer term, the rate of immigration will play a large factor in whether the supply will be absorbed.

'Currently in the market, there is a mis-match between supply and demand due to the quick growth in population over the last few years,' Dr Chua noted. 'The measures will reduce some of the demand. But a lot will also depend on the rate of immigration next year and the years after.'

In addition to the supply of residential land, the H1 2012 government land sales programme will also comprise some 2.35 million square feet of commercial space as well as 4,800 hotel rooms.

The programme also includes a commercial plot in Paya Lebar at the junction of Sims Avenue and Tanjong Katong Road - which was put up for tender in 2011 but not awarded as the sole bid from UOL Group and Singapore Land was deemed to be too low. It will be added to the reserve list for H1 2012.

BT: Developers fear impact of targeted stamp duty

Business Times - 08 Dec 2011

Developers fear impact of targeted stamp duty

Extra 10% duty for foreigners set to help cool prices for S'poreans

By KALPANA RASHIWALA

(SINGAPORE) The government yesterday announced significant steps that could bring private home prices back within the reach of Singaporeans. Developers, however, have called these steps, which are expected to hit sales and prices, untimely.

Starting today, foreigners and corporate entities buying private homes in Singapore will have to pay an extra 10 per cent by way of an additional buyer's stamp duty. This duty will also apply to permanent residents (PRs) buying their second or subsequent homes and Singaporeans buying their third residential property or more - though only to the tune of 3 per cent. Overseas properties are excluded from the count of properties owned.

The move is aimed at reining in private property prices, which some felt were slipping beyond the reach of many Singaporeans. Real Estate Developers Association of Singapore (Redas) said, however, that the measures are untimely given that the local economy is expected to slow down next year. 'Redas is disappointed in the lack of consultation on the latest measures. They came as a surprise as the current market outlook is uncertain. The good take-up rate in the primary market is driven by the increased number of new launches and unique selling points of certain projects. It is not indicative of a return to a speculative market.'

The government also boosted the supply of land for executive condos in H1 2012 as part of its land sales programme.

Though the additional buyer's stamp duty (ABSD) kicks in today, remission will be given for options granted on or before Dec 7 and exercised within three weeks (that is, on or before Dec 28) or the option validity period, whichever is earlier.

Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam said: 'We have always had open markets and must keep them that way. However, the reality is that investment flows into our property market are now larger than before, and unlikely to recede as long as interest rates remain low. The additional buyer's stamp duty should help cool investment demand, and avoid the prospect of a major, destabilising correction further down the road.'

A joint release from the Ministry of Finance and the Ministry of National Development yesterday evening said: 'A higher ABSD rate for foreign buyers in particular is necessary, in view of the large pool of external liquidity and strong buying interest from abroad, and the relatively small size of the Singapore market.'

It added: 'Excessive investment demand will . . . make the property cycle more volatile, and thus increase the risks to our economy and banking system.'

Foreign purchases accounted for 19 per cent of all private residential property purchases in H2 2011, up from 7 per cent in H1 2009, it noted.

Credo Real Estate's analysis showed that foreigners' presence is much stronger in the prime and mid-prime districts, where they accounted for nearly a quarter of caveats lodged in Q3 2011 - up from 16 per cent in 2010 and 13 per cent in 2009.

For the suburban mass- market segment (Outside Central Region), the proportion has also been rising, from 5 per cent in 2009 to 7 per cent in 2010 and nearly 15 per cent in Q3 2011.

'The suburban mass market is probably of greater concern as buyers of first private homes would feel threatened by increasing number of foreign purchasers,' said Credo executive director Ong Teck Hui.

DTZ's Southeast Asia chief operating officer Ong Choon Fah said the ABSD is not a blunt policy tool. 'They have made distinctions between foreigners and PRs and whether they are buying for owner occupation or investment. This is very carefully calibrated to strike a balance between the price that Singapore has to pay for being an open economy and ensuring property prices remain within the reach of Singaporeans.'

She reckons developers will take a wait-and-see attitude, evaluate their options and watch how buyers react.

'Prices should fall but activity has to drop significantly first before developers re-price their projects. The likelihood is that some may first take soft measures to mitigate the situation - such as absorbing the additional buyer's stamp duty or giving furnishing vouchers - before resorting to a price cut.'

Knight Frank chairman Tan Tiong Cheng too acknowledged that prices will soften. 'With so much supply coming into the market, developers will either have to revise their prices to move units, or absorb the additional buyer's stamp duty.' The latter will be tantamount to a price cut as far as a developer is concerned, note analysts.

'This set of measures will definitely help to cool prices. The concern has been that foreign buying is pushing up prices,' said Mr Tan. With the 10 per cent ABSD on foreign buyers, the long-awaited recovery in demand in the luxury sector will take even longer, he added.

Standard Chartered Bank said in a research note last night: 'We expect the policy to induce a 20 per cent decline in sales volume in Q1 2012. . . We continue to expect residential prices to fall 20-30 per cent next year.'