Call To Allow Foreigners To Buy Landed Homes

Source: The Business Times, 26 June 2007

Goldman Sachs (Singapore) has argued a case for lifting restrictions on foreigners buying landed homes in Singapore, saying this would serve as a catalyst for further foreign buying of private homes and boost the current residential property upcycle.

Its analysis shows that the average price of a top-end bungalow (with a 15,000 sq ft land area) is about $17 million - or 35 per cent below that of a comparable condominium (a 7,500 sq ft unit priced at $3,500 psf), which goes for about $26.3 million.

‘We think this price gap can narrow to parity or very close to it, should the restrictions on foreign ownership of landed properties be relaxed,’ the bank said in a research note dated June 24.

‘In the event of an across-the-board relaxation of restrictions for landed property, we believe the positive effects would be two-fold: (1) developers with landbank for landed developments would benefit; and (2) all residential developers could gain from even greater foreign buying interest given the positive message such a move would send,’ it said.

Although the government has made no announcements on the subject, ‘we see the possibility of the government relaxing restrictions on foreigners buying landed property as higher than previously, because: (1) discussions with developers have affirmed our view of foreign interest in landed property, and (2) the tone of government policy changes has been firmly pro-immigration … We think relaxing restrictions on foreigners buying landed property would accelerate Singapore’s efforts to attract foreign talent,’ Goldman Sachs said in the research note.

‘In our view, foreigners would like the flexibility of greater choice of housing and the positive signal of Singapore’s open door policy emanating from such a move,’ Goldman Sachs argued. It added that a relaxation on foreign buying of landed homes would not hurt the national objective of giving Singaporeans a stake in the country by being able to buy and own residential properties at affordable prices as the public housing market addresses this objective.

In the first quarter of this year, foreigners accounted for 26 per cent of buyers of private homes, up from 23 per cent in 2006 and 21 per cent in 2005.

Under the Residential Property Act, foreigners (including permanent residents) are prohibited from buying landed property without prior approval from the government.

Foreigners have to be PRs before they can receive permission to buy landed homes on mainland Singapore; Sentosa Cove is the only location where foreigners who are not PRs are allowed to purchase landed property.

Foreigners, including PRs, can at any one time own only one landed home in Singapore and must occupy it themselves rather than rent it out.

Among the criteria that the Minister for Law will consider when asked to approve foreigners buying a landed home are the applicant’s qualifications and whether the applicant has made, or will be able to make, adequate economic contribution to Singapore.

However, foreign buyers may acquire an unlimited number of non-landed private homes - condominiums and apartments.

Goldman Sachs acknowledged that ‘for now, we note there is still no certainty of any policy change and the nature of change could be restricted to select types of landed property like Good Class Bungalows or cluster housing’.

The bank’s analysis of 36 landed property transactions at Sentosa Cove between January 2005 and May 2007 showed that Singaporean and foreign buyers each accounted for 44 per cent of purchases, with the balance accounted for by companies.

In contrast, Goldman Sachs’ study of islandwide private home transactions between January and May this year showed that foreign buyers accounted for just 8 per cent of total landed property deals, lower than their 29 per cent share of non-landed home purchases over the same period. This suggests the scope for a higher share of foreign buying if the landed private housing sector is also opened to foreigners.

‘We think relaxing restrictions on foreigners buying landed property would not adversely impact demand for condominiums and apartments, given the positive signal such a move would send to foreigners,’ the bank said. ‘Moreover, we look for a positive spill-over from rising landed property prices to condominiums and apartments.’

Goldman Sachs estimates about 2,800 landed homes with written permission for development, the bulk (2,565 units) of which have yet to be sold, will come on stream over the next few years.

This supply is almost 4 per cent of the current stock of landed homes in Singapore.

Among the developers with exposure to landbank slated for residential housing are Bukit Sembawang, Allgreen Properties, MCL Land, Fragrance Group, and Sing Holdings.