Impact of government measures to cool property market

1. Increase the holding period for imposition of Seller’s Stamp Duty (SSD) from the current one year to three years. 

2. For property buyers who already have one or more outstanding housing loans at the time of the new housing purchase:

•  Increase the minimum cash payment from 5% to 10% of the valuation limit; and

• Decrease the Loan-to-Value (LTV) limit for housing loans granted by financial institutions from the current 80% to 70%.

I can think of three major consequences of these measures:

1) They are irrelevant to ‘professional’ property speculators.

– Provided the property prices continue to climb, they can still get out with a profit by flipping the option or sub-sale before signing the S&P.  They don’t even have to make the cash payment or commit any housing loan.

– These people are cash rich.  Many of them are foreigners.  Cash payment of 5% or 10% and a loan of 80% or 70% is not a big difference to them.  Some can even pay in full without the need for a loan.

– They will increase the resale price to cover the SSD.  If one buys at $1.35 million and sells at $1.5 million (after price increases 15%) within the 1st year, the SSD is less than $40k.   One still makes $110k in profit.

– Who knows what will happen in 3 years’ time?  Remember the government measures taken to stimulate the property market in 2005?  The LTV limit was raised to 90%.  10% cash payment and 70% LTV can always be reverted during bad times. 

(The chart below shows relationship between private property price index and impact of government measures from 1960 to 2002.   Click here if you want to check from 2002 to 2010.)

– These measures are only applicable to the residential market.  They can shift their focus to commerical properties such as shophouses, malls or factories.

For speculators, it is always the market sentiments that attract or repel them.  Government policies do have some temporary effects.  Market loses steam much faster with an unexpected economic crisis.

2) Genuine buyers will be discouraged by new measures.

HDB upgraders or buyers who want to upgrade to bigger flats will be discouraged.  In order to upgrade, they have to:

– Pay off their existing loans in full before making 5% cash payment and applying for 80% loan for their new flats;

– Sell their existing flat to clear the loan before buying a new flat.  Rent a place in between buying and selling; or

– Save more and longer for the 10% cash payment and 20% CPF or cash.

3) The high-end market will still be intact, but not the mass market.   

Alas, the developers still have many mass market projects in their launch pipelines.  And many of these land were acquired at high prices during the last or current property boom!