Not Too Hot, Not Too Cold

Source : The Straits Times, Oct 30, 2007

THE property sector is agog at the Government's withdrawal of the deferred payment option for buyers. Should the industry be surprised? Dismayed? Hardly. Developers and property consultancies, not to forget flip artistes, had for a couple of months been expecting the guillotine to drop as the data showed an impressive churn rate in sub-sales of condominiums was holding even after an assurance was given of adequate supply. The fact that supply has a gestation of about two years has been the inherent weakness of moves to pace the market evenly. These have included land sales and raised development charges. National Development Minister Mah Bow Tan was the model of caution when saying the scrapping of deferred payments was called for as there were 'signs' real estate was overheating. He has to balance nurturing sentiment in a sector recovering from a decade-long slump, while punishing the cowboys whose punts drive up property prices which in turn feed through to business costs. Prowling speculators, the prime target of the move, should have been chased off months ago. They serve no verifiable market function except to warp prices and cause anxiety to serious purchasers. Speculators' influence on price in premium developments has been noted by developers. The move to discourage speculation indicates the Government figures the line between a stable market and bubble conditions is being crossed.

Would this be enough? What if the speculative element is barely blunted? The time lag between the downpayment and the first progress payments is long enough for those with a decent cash reserve to continue playing the system. Third-quarter URA data showed a drop of one-third in primary market sales over the previous quarter, part of the worldwide fallout on account of the United States sub-prime mortgage crisis. But prices still climbed by 8.3 per cent. Little wonder then that the trade might be bracing itself for the Government's use of a blunt tool, the return of the capital gains tax last seen in the 1996 boom. Such a tax used in tandem with an end to deferred payments is sure to knock out speculators. But, careful. It can be the imperceptible tip into a wholesale withdrawal by institutional buyers, foreign individual purchasers as well as local and foreign group investors who are key elements in holding real estate values. The last time it was used to cool the market, it came ahead of an unforeseen downturn. The combined effect sent the market into an unintended chill, from which it has taken a long time to recover. So, for now, watch if speculators who exhibit nothing but dollar signs and a smirk on their faces make a dash for the door.