Starting from the article, Singapore Tightens Mortgages to Cool Property Market by Shamin Adam and Joyce Koh, Dated August 30th 2010 from Bloomberg Businessweek
With the issue of housing hot in Singapore, this article states measures taken by the government to subdue rising prices, which surged 38 % in the second quarter of 2010. A number of Quantitative Tools were quickly introduced, the most notable being increments of down payments for second mortgages and seller’s stamp duty (SSD) imposed on property held for less than three years.
The government reacted without incurring much time lag, implementing these policies, to ease the property market amid concerns that asset bubbles are forming with increasing prices. Majority of this policies are targeted against repeat buyers and speculators who buy and sell over short term, seeing it as an investment and have readily available money to pay for housing. This was done to aid first time buyers and locals who seek homes but do not have enough money and CPF to pay. Giving them the opportunity to be homeowners.
A Further Tightening Grip
Following the implementations in 2010, the property market still did not cool down as expected. Despite these steps prices rose by nearly 40% of the second quarter, after a rise of just over 25% in the year to the end of the first quarter. So measures were taken further and in a press release from the MAS as of 14th January 2011 the SDD is now increase to four years and individuals who have more than one outstanding loans from financial institutes can only loan 60 % of the value of homes.
Stamp duties
SSD was imposed for property held for less than four years, to aid people who were looking for a home to settle down, reduce buoyancy of the property market and buyers who were looking to make a quick dollar. The Inland Revenue Authority of Singapore (IRAS) states that SSD is a tax on executed documents relating to properties or interest in properties and shares or interest in shares. These documents include a lease, sale and purchase, gift or mortgage of property.
The SSD rates are 16%, 12%, 8%, and 4% for properties sold within first, second, third and fourth year respectively. From the table below it is calculated how much SSD is to be paid and percentage gains for selling a property within a given time. Hence the introduction of SSD is a good policy that has significantly reduced profits of selling homes. Looking less appealing for investors and helping to aid individuals who are in a real need of homes.
Tax Incidents
Tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare. Tax incidence is said to "fall" upon the group that, at the end of the day, bears the burden of the tax. The key concept is that the tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply (Baumol and Blinder, 2009).
From IRAS, Property Tax in Singapore is calculated by the percentage paid per year of the Annual Value (AV) of property, tax rates for owner-occupied homes is 4% per year and 10% for all other properties. The Singapore Budget 2010, the government decided to move from a Flat Property Tax rate to a system of Progressive Property Tax based on AV of properties, stating this system of tax incidents are more beneficial for low income families. Leading to collection of more taxes from top income brackets, systems of property tax rebates aimed at supporting the lower and middle-income groups by significantly reducing the tax payable by HDB flat owners.
Results of cutting mortgage loans
By reducing the percentage of loan granted to individuals who have more than one outstanding mortgage to 60%, of the loan-to-value limit of the home. How this works in easing the market is as such, if investor Mr. A has 1 million dollars, prior to this he could get a loan of 80% from the bank. If a home cost 1 million dollars and minimum down payment is $200, 000:
Mr. A could then purchase 5 homes with a down payment of 20% relating to $200, 000 and get a bank loan of the remained 80%.With the new system, Mr. A can only purchase 2 homes now, as he can only loan 60% of the value of the home and now he must pay a down payment of 40% of the home.
The purpose is to make sure in the long-term making homes are affordable. The government’s objective is to ensure a stable and sustainable property market where prices move in line with economic fundamentals.
This implementation to cool the market has shown some benefits, an article by Rashiwala (2011), ‘Latest property measures more effective: NUS Study’, the Singapore Residential Price Index (SRPI) has increased only about 0.19% per month since the January 2011 measures were introduced as compared to about 1.23% in February 2010.
Additional Measures Adopted
With press releases from the Housing development Board (HDB), Mr. Mah stated that supplies of flats in 2011 would increase; there will be a revised Income Ceiling for Purchase of 3-room flats and Special CPF Housing Grants (SHG) to bring home ownership within reach of more low-income families.
Effectiveness of measures
The effectiveness of these measures needs to be weight out and can only be seen in the years to come as housing can be catergorised as Inelastic Supply as a big change in price only results in a minor change in the quantity supplied, the supply curve is steeper and its elasticity would be less than one.
Effectiveness of these measures can be further advanced by the government realising that private housing and public housing should not be intertwined, as property developers are not concerned for poor Singaporean who can't afford HDB flats due to trade, who welcomes foreigners, PR to buy public housing thus raising the price of HDBs.
Additional measures can include changing the public housing ruling such that PR's are not allowed to buy HDB flats as more than often these people do not use this flats but instead rent it out to make their investment fruitful and when the time is right will cash out their properties.
Funny enough with all the talk with the rising housing prices, the government ensured that this issue of housing prices was a key mandate of their polices right before the 2011 General Elections. They were looking into it and trying to make housing 'affordable' again for all Singaporeans. So after the elections were over and the ruling party won again, they did some major reshuffling. At that time, Mr Mah stepped down and retired from politics as the minister for National Development. The government tried to freshen up their image to showcase that they were keeping up with times in giving the citizens what they wanted. But not long after the elections when the hype died down, it seemed everything became stagnant again.
Months later with a new minister at the helm, Mr. Khaw, people were looking forward to see what was the new steps the HDB was going to take in easing the volatile and increasing house prices. From Channel News Asia, 'Unit prices for DBSS project in Tampines hit record high', in June 2011, the HDB announced its latest project Design, Build and Sell Scheme (DBSS) in Tampines priced at a whopping $880, 000 Singapore dollars for a HDB flat. This new project sparked a pandemonium among locals. There was a serious amount of unhappiness among the society and everyone questioned the HDB was pricing public housing at such a exorbitant price. After the uproar from the public, the price of the 5 room flat fell from $880, 000 to around $780,000, approximately $102, 000. Which sparked even more questionings, if it could reduce the price by so many in such a short time, why didn't they just market it at that price.
With all the unnecessary attention garnered by the DBSS in Tampines, the HDB decided to scrape a similar DBSS project in Sengkang, from Asiaone 'HDB withdraws Sengkang DBSS site'
So what lies in the future for Singapore's housing issues is still unsure, whether if the government sticks to their promises of trying to find a solution for affordable homes for its people or not.Or if another shocker comes again like that of the DBSS scheme, its something we do not know. As of now, it seems that the new minister is trying to come up with ways to ease the market and prevent the 'Rich' from exploiting the market and making it harder for middle and low income families to have the chance of owning homes.
In conclusion, much has been done in improving the rising cost of home ownership but in order for policies to continue to work well, the government has to remain open and readily alter polices to suit current times. As I see housing as an issue, which evolves over time, with the influx of many foreigners, income gap increasing within Singapore’s rich and poor, such policies may only remain valid over one or two business cycles. Which needs to be rethought with the chances in the economy, if inflation or recession is to hit our shores or any other issues, which can stir up this volatile market.
No comments:
Post a Comment