SIingapore's Home-Price Decline Accelerates After Property Curbs

Singapore’s home-price decline accelerated in October, falling 1.2% from the previous month, adding to evidence that the government’s efforts to cool the property market are working.

The city-state’s residential property index fell to 159.1 points last month after declining a revised 0.9% in September, according to the National University of Singapore’s Singapore Residential Price Index. The measure tracking prices in the central region decreased 1.4% in October.

Record home prices amid low interest rates raised concerns of a housing bubble and prompted the city-state to introduce new taxes and higher minimum downpayments since 2009 to curb speculation in Asia’s second-most expensive housing market.

Home sales have been falling in the past four months after the government imposed new rules in June governing how financial institutions grant property loans to individuals.

“The latest statistics is a reflection of the current measures starting to bite the residential market,” said Alice Tan, head of consultancy and research at Knight Frank LLP, in Singapore. “Price quantum is still the key consideration for many prospective homebuyers.”

Home sales fell 19% in October to 1,009 units from a month ago, according to data from the Urban Redevelopment Authority released Nov. 15. From the previous year, sales dropped 48%, the data showed. -The Rakyat Post

Bank Negara’s New Circular Meant To Be A “Property Financing Guide"

Property sources said Bank Negara’s new circular which bans interest capitalisation schemes (ICS) is not an attempt to fine-tune the measures proposed for the property sector under Budget 2014 but is merely “a guide for banks” when they finance house purchases.

The new circular, effective Nov 15, which strikes at the core of Developers Interest-Bearing Scheme (DIBS) also includes all other schemes in which interests are factored into the cost of the house.

Said a source who declined to be quoted: “Interest Capitalisation Schemes (ICS) is a generic term in which the interest is capitalised, or factored in as part of the cost of a property. When developers do this, it invariably and inevitably, rises the cost of the property price.”

ICS covers a range of interest payments which may be not necessarily fall under DIBS, the source said.

How this is done, or the mechanics of it, is not the issue, the source said.

What is of greater importance is the outcome, and in this case, the outcome is the increased price of the property, he said.

A check with developers reveal that most of them have already removed DIBS as a selling strategy. However, they will honour past agreements signed before the Budget 2014 measures were introduced.

A developer offering three property projects for sale in Petaling Jaya says they will continue to offer DIBS in one of their three projects “because that project is almost all sold and will be completed in June next year. So we will continue with the old scheme.

“As for the second project, we are offering Developers Interest Subsidisation Scheme (DISS). The buyer will pay the interest and we will reimburse him every quarter if he comes with the statements or receipts,” a staff of the developer said.

The third project has been given to marketing agents, she said.

A prominent developer developing a gated and guarded project north of Kuala Lumpur said they have removed DIBS from their sales including the giving of rebates. They have also outlined the cost of freebies provided and in the process, made the marketing process more transparent.

“The net price of the house is provided to our developers as a result of the measures proposed in Budget 2014,” he said.

A property consultant who declined to be quoted said the Bank Negara circular to banks and lending institutions may have resulted from a statement by by Urban Wellbeing, Housing and Local Government Ministry.

The statement, signed by National Housing Department director general, said following the announcement of Budget 2014, the ministry is implementing a new condition in approving housing development licence and advertisement and sales permit.

The new ruling will not allow the use of ICS, or any other permutations, including DIBS effective Nov 15 in advertisments.

The statement said the measure is being taken “to enhance the ability of the people to buy a house and to ensure stable home prices and also to curb speculation.

“In additon, speculative activities have an impact on house prices as well. This situation may adversely affect the property market in the long run,” the statement said.

The statement also called on the public to report to the department if they come across any dubious schemes related to ICS or any other forms of permutations.- The Star

Market Forces Will Decide Property Prices

Have developers become too greedy?” Ask this question to Real Estate and Housing Development Association (Rehda) president Datuk Seri Michael Yam and there is a momentary pause on the other side of the line.

Then just as quickly, Yam springs to the defence of developers, insisting that this is just perception and not at all true.

“It is because property affects every facet of people’s lives that it becomes so sensitive and almost a political issue.”

He points out that developers have over the years delivered more than four million housing units including a huge number of subsidised units.

“Ninety-five per cent do a proper job, so it’s not fair to call us greedy,” he says.

Yam says property prices are based on supply and demand, and that prices will be kept at an equilibrium when the supply in the market meets the demand.

“When there is an oversupply, people will stop buying and the less efficient developers will be forced out of business.”

He stresses that developers have had a lot of conditions and requirements imposed on them in the past, like building low-cost housing, offering bumiputra subsidy for housing, building community centres and other approvals, which all adds to the cost.

“If people claim developers make a lot of profit, don’t forget a number of developers are SMEs. Those who develop Kelantan, Terengganu and Johor – ask them if it is very profitable,” he says.

Even for the public-listed property companies, he points out that their profit margins are usually less than 20%.

“If they make more than 20% to 25%, then it’s usually from the sale of parcel of land and they realise the profit from that year,” he says.

Yam says the property sector is no more different than those in manufacturing or trading but points out that the top public-listed companies that made billions are in fact not property companies but those in banking, plantation, trading and services.

He admits that the stringent measures announced in Budget 2014 to curb property speculation took the industry by shock because the quantum of the real property gains tax (RPGT) was even higher than the rates imposed before April 1, 2007, which were already deemed to be high at that time.

“We expected a revision of RPGT upwards but not by this quantum.”

On the RM1mil minimum for foreigners to buy property in Malaysia, Yam says Malaysia has never been a spot for property speculation by foreigners in the past because the appreciation had been too slow compared to its neighbouring countries.

“But property prices in Hong Kong and Singapore have gone to dizzying heights to the detriment of their citizens, and so these countries are doing some serious curbing. So what Malaysia has done (with regard to purchases by foreigners) is a pre-emptive move because knowing that all the other doors are closed, you don’t want the horse to bolt.”

Still, he notes that foreign property ownership in Malaysia is only 5.5% of the whole housing stock which is really not a significant percentage.

“If Malaysia was such a fertile ground, foreigners would have bought it up.

“You must remember that investors do not just buy because land or property is cheap. it’s about the whole packaging. It’s about crime, security, lifestyle, quality of living etc. The most expensive places are Hong Kong, Singapore and London and people are still rushing to buy there. So let’s not look at things in isolation,” he adds.

With the stringent measures in place in January, he says, developers will now need to be creative and find “various marketing mechanisms” to survive.

He concedes too that consumers should also be enlighted and educated with regards to purchasing property.

“But people are not idiots. They know what they are buying.” - The Star

http://www.thestar.com.my/News/Nation/2013/11/17/Market-forces-will-decide-property-prices.aspx

Bubble Trouble Seen Brewing In Australia Home Prices

Gigi Wong beat four other bidders in an auction of a three-bedroom Sydney house with peeling wallpaper, cracked doors and an overgrown backyard by paying A$856,000 (RM2.6 million), 14% more than the realtor expected the property to fetch.

“I’m not sure if I paid too much,” said Wong, an accountant at the University of Sydney, after winning the bidding war for the investment property in an inner-west suburb where prices have tripled in the past 15 years. “Since I can, and have capacity to borrow money, I should utilise it.”

Australia, where housing accounts for about 60% of average household wealth compared with a global average of 45%, joins countries from Canada to Sweden to China seeing rapid price gains amid low borrowing costs that are sparking fears of a housing bubble. For now, constrained housing supply and demand from investors are driving prices higher, overpowering the downdraft from slower economic growth and a rising jobless rate.

“It’s easy to see how bubble-like conditions could emerge,” said Saul Eslake, chief Australia economist at Bank of America Merrill Lynch in Melbourne. For now, while prices are climbing, the increase isn’t being accompanied by a rapid rise in borrowing or building, he said.

In Sydney, the nation’s most populous city, the average home price surged 13% in the 10 months to Oct 31 to a record A$718,122, according to the RP Data-Rismark home value index. That compares with US$806,000 (RM2.6 million) in New York as at Sept 30, according to the Real Estate Board of New York, and £331,338  (RM1.7 million) in London, according to the Nationwide Building Society.

Australians are used to high home prices and debt. Average household debt has hovered near 150% of annual income since 2006, compared with 135% in the US.  House prices haven’t fallen more than 10% in any one year for more than 40 years, according to data cited by the Reserve Bank of Australia (RBA).

In Newtown — a former working-class suburb 5km from the city centre where Wong bought the property, her first as an investor — prices have risen 13% this year, according to researcher Australian Property Monitors (APM).

More than 81% of homes that went to auction in Sydney over the Nov 2 weekend were sold, even as the number of properties for sale rose to 739, the highest number in three years, according to APM.

The average home price across Australia’s biggest cities was A$605,336 as at Oct 31, after recovering from a decline of 7.4% between October 2010 and May 2012, according to the RP Data-Rismark index. While that’s a record, it’s about the same level in real terms as at the end of 2010, based on the statistics bureau’s inflation calculator.

Houses in Sydney took 26 days on average to sell in the week ended Nov 3, down from 36 days six months earlier, according to RP Data. In Melbourne, houses took 34 days to sell, down from 46 days.

Investors like Wong and self-managed pension funds, along with foreign buyers, are spurring the recovery. The value of loans to investors rose a seasonally adjusted 26% in August from a year earlier, while those to owner-occupiers increased only 9.7%, government data show.

Rising sales to investors puts the housing market in a more precarious position if economic conditions unexpectedly sour, Eslake said.

“Investors aren’t as committed to their properties as owner-occupiers,” he said by telephone. Changes in the outlook for home prices, rising interest rates or unfavourable changes in regulation could lead them to “dump their properties, putting sharp downward pressure on prices,” he said.

Australia’s tax structure, which allows property investors to claim deductions on investment losses and offset them against other income, encourages investors to buy when they otherwise wouldn’t, Eslake said.

Among investors, self-managed-superannuation funds — pensions managed by individuals rather than large money managers — have been boosting purchases of homes. Investment by SMSFs in residential property has risen 65% since mid-2008 and 10% in the 12 months to June to A$17.5 billion, according to data from the Australian Taxation Office (ATO), which oversees regulation of the small funds. The ATO’s June 2013 data are extrapolated from the funds’ tax return filings for the year through June 2012.

While do-it-yourself pensions borrow on average about 70% of the value of a home, compared with about 90% for regular borrowers, based on Australia & New Zealand Banking Group Ltd figures, they could “potentially exacerbate property price cycles,” the RBA said in its Financial Stability Review last month.

Foreigners accounted for 12.5% of purchases of new homes in the three months to Sept 30, compared with about 5% through most of 2011, according to a survey of more than 300 property professionals by National Australia Bank Ltd. The government doesn’t publish data on the level of foreign investment in residential property.

While Australia is the world’s sixth-largest country by size with a land mass of 7.7 million sq km, about two-thirds of its 22 million people live in its eight state and territory capitals, which occupy less than 0.5% of the total area, according to the statistics bureau.

“This population concentration puts upward pressure on capital city dwelling prices,” Michael Blythe, chief economist at Commonwealth Bank of Australia, said in an Oct 15 report. Valuations based on capital city home prices and Australia-wide incomes “will have a natural upward bias,” he said.

Sydney now has 122 suburbs — or one in five — with a median home price above A$1 million, a 31% jump from a year ago, according to researcher APM. — Bloomberg