Jan 13, 2014

    Call to relax some rules as property market wanes

    THE Government should relax some of its property-cooling measures as demand for real estate wanes.

    This was the view of Mr Getty Goh, director at Ascendant Assets, who felt this was necessary, given "the lacklustre property market" and the likelihood that interest rates will rise this year and the next.

    Speaking at the 12th Singapore Chinese Chamber of Commerce and Industry-Business Times Business Outlook Forum on Friday, Mr Goh said the Government should consider repealing the seller's stamp duty for residential properties introduced in January 2011, because sellers who are keen to sell their properties may find themselves tied down by it.

    At the same time, the total debt servicing ratio (TDSR) framework, in place since last June, deters buyers from coming into the market by making it harder to finance new property purchases.

    Specifically, property owners may have bought their assets in the past two years at low interest rates of between 1 per cent and 1.5 per cent, with a contractual clause that the rate may be increased to about 3 per cent beyond the third or fourth year, he explained.

    "Before TDSR came in, all of these owners could simply refinance with another bank but, now, because of TDSR, all of them are stuck as they cannot go to another bank and refinance in the event that they own two or three properties," he said.

    Given rising interest rates, sellers may be compelled to slash their prices to offload their property. This could snowball into a longer-term problem when sellers flood the market after the seller's stamp duty expires in four years' time, precipitating a crash in prices, Mr Goh warned.

    Mr Pu Yonghao, regional chief investment officer for the Asia-Pacific at UBS Wealth Management, reckoned that while property has been the best asset class over the past few years, "that game is now changing".

    With interest rates gradually rising and low rental yields across Asia (those in Singapore, Taipei and Hong Kong are hovering around 2 per cent), a point may be reached in the near future when rental yields are lower than interest rates.

    In the light of this, Mr Pu feels it is wise to cap the allocation to property in portfolios at not more than 30 per cent.

    Being liquid would come in handy as stock markets improve, panelists at the forum said.