Time To Relook Singapore Property Cooling Measures

SINGAPORE: A shortage of resale flats in the market is causing prices to shoot up and it may be time to re-look some of the property-cooling measures, say property watchers.

Resale flat prices, which were already at an all-time high, rose 3.8 per cent in the third quarter this year – higher than the 3.1 per cent pace recorded in the second quarter.

Since property-cooling measures were introduced last year to take the heat off the exuberant market, the number of HDB resale flat transactions has dropped significantly – by 30 per cent compared to a year ago, said property firms.

Market watchers said there has been a slowdown in the supply of resale flats, as home owners are put off by the rule that requires them to sell off their flat first before they are granted a higher bank loan of 80 per cent.

Eugene Lim, key executive officer at ERA Realty, said: “Most sellers prefer to buy first, then sell. For people who do not qualify for HDB loan and they have to take a bank loan, they only would be able to get a maximum 60 per cent loan. And therefore there is a requirement for 40 per cent equity.”

HDB resale flats have also been generating good rental yield. Industry players said they have seen a spike in rental transactions and it is unlikely that home owners will give up their HDB flats, thus adding to the supply crunch.

Tan Kok Keong, head of research and consultancy at OrangeTee, said: “Some segments of the public housing can be rented out. Every unit that’s kept from the market means that one new household does not have the choice to buy that public housing.”

Mr Tan also pointed out that the Minimum Occupation Period (MOP) before flats can be rented out used to be one to three years. For home owners who bought a flat in 2008 or 2009, before the MOP was raised to five years, they would have been able to rent out their flats and use the yield to pay for a second mortgage on a private home.

The government has increased the supply of new flats to draw first-time home owners away from the resale market. But there is a limit to how much demand can be diverted – first-timers account for a quarter of resale transactions. And not all are willing to wait two-and-a-half years for a new flat to be built.

With such market conditions, sellers are commanding higher cash premiums – adding to the overall transaction price. Industry players said the median cash-over-valuation (COV) in the third quarter is about S$35,000 to S$37,000, similar to the previous quarter.

To ease the supply crunch, there was a suggestion to relax the bank loan criteria for HDB upgraders.

ERA Realty’s Mr Lim said: “I think when the 60 per cent rule was implemented, the objective was to instil prudence in the buyers. But if you look at the practical point of view, if I’m selling my flat to buy another flat, eventually I will still end up with one property and one mortgage.”

If the shortage situation is not resolved, market watchers expect resale flat prices to inch up by another three to four per cent in the last quarter of this year. This would bring the overall price increase to more than 10 per cent in just one year – which makes owning a flat an increasing financial burden.

Source -CNA/ac

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