DEVELOPMENT COST CHARGES

Property Development Charges
Marina South, Sentosa see sharpest increases in rates

The Government has not made much change to average development charge (DC) rates payable for enhancing a site's use. But DC rates for the New Downtown/Marina South and Sentosa - where the integrated resorts (IRs) with casinos will be located - saw some of the biggest increases ranging from 10 to 25 per cent in the latest half-yearly revision.

Market watchers see the increases at these locations as a move that anticipates rising land values in the two locations ahead of the IRs and other infrastructure enhancements. In addition, Marina is the location of the mega Business & Financial Centre (BFC) site, which drew a bullish top bid a couple of months ago.

Property consultants were quick to point out yesterday that increases in DC rates at Marina and Sentosa by and large will not affect existing developments. The IRs, for instance, are future projects.

Where existing properties would have been affected by a substantial 

rise in DC rates - in the prime residential districts, for example - the latest increases are generally more muted, despite evidence of recent land transactions at higher prices.

As well, commercial DC rates in the existing financial district - Raffles Place, Shenton Way and Tanjong Pagar - were left intact, despite an appreciation in office rentals.

SINGAPORE DEVELOPMENT COSTS

Some market watchers, such as Jones Lang LaSalle's head of research (South Asia) Feng Zhi Wei, suggest that the authorities may not wish to upset the recent pick-up in property market by jacking up DC rates too soon.

Agreeing with this view, DTZ Debenham Tie Leung director (investment sales) Tang Wei Leng said: 'In a collective sale, a substantial increase in DC rates could cream off a few per cent of a site's value, and assuming the owners are not willing to lower their asking price and developers reluctant to raise their offer price, this would jam the deal.

'Of course, the Chief Valuer could well have considered that while there have been cases of land transactions at higher prices, these were still not sufficient evidence for increasing the DC rate by a similar magnitude for the entire location.'

DC rates are specified according to use - for example, commercial, non-landed residential, landed residential, industrial and hotel - across 118 locations throughout Singapore.

The revisions are made by the Ministry of National Development in consultation with the Chief Valuer, who takes into account current market value in half-yearly reviews.

JLL's analysis of the latest DC rates, which take effect today, shows that on average, the rate for landed residential use rose 0.1 per cent and that for non-landed residential use increased 2.7 per cent. The average commercial DC rate was up 1.1 per cent, while that for the industrial sector was trimmed 4.5 per cent.

Hotel DC rates on average went up 0.4 per cent, driven by increases at just four locations - all in the New Downtown/Marina South area. The biggest rise of 23.8 per cent was for the area that includes the Marina Bayfront IR location.

This same location also topped the increases for commercial DC rates, with a 25 per cent jump. The next highest increase of 20.7 per cent for commercial DC was for the area around Marina Bay (where the BFC will be built), followed by gains of 14.3 per cent each for two other nearby locations that make up the rest of the mass of reclaimed land at Marina South. The rate for Sentosa was up 9.5 per cent. Commercial DC rates rose in 16 locations, and remained unchanged for the other 102.

For non-landed residential use, the top five areas in terms of increases were again all in the Marina South/New Downtown stretch and Sentosa. The increases ranged from 11.1 to 14.3 per cent. Prime districts such as Orange Grove/Fernhill, Cairnhill, Tanglin/Cuscaden and Ardmore/Draycott saw gains of 4.2 to 6.3 per cent. Non-landed residential rates went up in in 69 areas but remained unchanged in the other 49, according to JLL.

The landed residential DC was raised in only one location - Sentosa. There was no change in the other 117.

CB Richard Ellis executive director Soon Su Lin said the Sentosa rise reflects prices of hillside bungalow sites sold by auction in June at between $382 and $451 per sq foot - higher than the $265 to $380 psf for sea and waterway bungalow plots sold earlier.

The drop in industrial DC rates was expected, given the government's overall intent to keep the cost of doing business competitive, notes JLL's Ms Feng. Industrial DC rates were trimmed in 115 of the 118 locations, with no change in the other three. Heading the falls were Mandai/Woodlands (down 5.7 per cent), followed by traditional prime industrial spots such as Kallang Bahru/Boon Keng, Kallang Way, Aljunied and MacPherson - all with declines of 5.6 per cent. - by Kalpana Rashiwala    SINGAPORE BUSINESS TIMES    1 Sept 2005

Property consultants believe development charge (DC) rates will see some of their biggest hikes in five years, especially those covering commercial and residential use.

They say the latest half-yearly DC rate to be announced tomorrow will reflect the rising prices of land transactions in the past six months or so. A DC is payable to the state for enhancing a site's use. The latest revision will take effect on Sept 1.

Generally, consultants expect non-landed residential use to see the biggest gains - averaging 5 to 8 per cent - compared with a 2.8 per cent rise in the previous revision six months ago.

Some are looking at increases of up to 15 per cent in prime districts which have seen bullish land deals, compared with an appreciation of about 6 to 7 per cent previously.

Rates for landed residential use are expected to rise by a smaller quantum, but still above the 0.2 per cent average in the last revision.

Commercial DC rates are forecast to rise by up to 5 per cent on average, with some of the biggest gains expected in the Marina Bay area in the New Downtown, where the July tender for the Business & Financial Centre site drew a bullish top bid.

Analysts expect DC rates for hotels to increase slightly following positive news for tourism after the government decided to have two integrated resorts (IRs).

But the rate for industrial use will probably continue to dip, by up to 2 per cent on the whole, consultants say.

The government revises DC rates twice a year, on March 1 and Sept 1. The changes are tracked in property circles because they reflect values and can affect the breakeven costs of developers seeking to redevelop sites. Increases in DC rates can also affect collective sales.

The rates are expressed in terms of per square metre of gross floor area (GFA) and specified by land use - such as landed and non-landed residential, or commercial and industrial - across 118 locations 'or geographical sectors' in Singapore. The revisions are made by the Ministry of National Development in consultation with the Chief Valuer, who takes into account current market value.

Jones Lang LaSalle's head of research (South Asia) Feng Zhi Wei reckons that 'while past transactional evidence remains a key consideration for the Chief Valuer to determine the adjustments to the DC rates, future plans for specific locations are also taken into consideration in some instances'.

Colliers' associate director (research and consultancy) Tay Huey Ying says: 'Developers' confidence has definitely been on a high in the past six months - boosted by numerous government announcements such as the development of the two IRs, the July package of property measures including relaxation of home financing rules, and the better-than-expected Q2 economic performance.'

The residential sector in particular has seen numerous development sites changing hands at bullish prices. For example, the Tang brothers' land at No 27 and No 33 St Thomas Walk was sold this month at about $601 per square foot of potential GFA - 22 per cent more than a nearby Quelin Gardens plot sold in June last year.

Colliers predicts that DC rates for non-landed residential use will likely rise by 5 to 8 per cent on average, with the prime districts 9, 10 and 11 seeing the biggest gains of 12 to 15 per cent. Rates for Sentosa Cove, where residential land deals have been running hot, as well as the existing financial district and New Downtown, could also see rises of 8-10 per cent, the firm predicts.

Locations that should benefit most from their proximity to the IRs, like Tanjong Rhu and Telok Blangah, may also see DC rates head north.

JLL's Ms Feng forecasts an average 5 per cent rise in non-landed residential DC rates. 'Investment interest in prime land was high in the past six months,' she says. 'Hence, we see more upward potential of DC rates for prime districts, including the Ardmore/Draycott, Cairnhill, Paterson and Fernhill/Orange Grove locations - all of which have seen recent deals at prices exceeding the implied land values based on March 2005 DC rates'.

As for landed residential use, Colliers predicts an average increase of 3 to 5 per cent, with the biggest gains of 8-10 per cent in Good Class Bungalow areas and Sentosa Cove.

CB Richard Ellis executive director Soon Su Lin sees more modest increases of less than 5 per cent for landed and non-landed residential DC rates on average, reasoning that recent land deals are, on the whole, still within market expectations.

As for commercial DC rates, Ms Soon does not expect major adjustments except for the New Downtown. The figure for the geographical sector that includes the BFC may rise about 10 per cent, 'reflecting the general enhancement in land values in the Marina Bay area, which will see new infrastructure projects over the next 10 years', she says.

Cushman and Wakefield managing director Donald Han also sees a 5 per cent average appreciation in commercial rates, supported by the recovery in office rentals and the BFC top bid. - By Kalpana Rashiwala     SINGAPORE BUSINESS TIMES     30 Aug 2005

POLICY

'If you look at the entire package, it has potential to stimulate demand for a whole range of housing types - from entry level, to upmarket homes for foreigners.'

Among the measures which Mr Mah announced was a new option to the Economic Development Board's (EDB's) Global Investors Programme which allows private residential properties to make up to 50 per cent of a minimum $2 million investment sum requirement for foreigners to be considered for permanent resident status.

Much of the initial flurry of marketing activity is expected to focus on entry-level, low-priced private housing developments. This is because such projects appeal to young, first-time private home buyers who in the past had the greatest difficulty in meeting the cash downpayment and who now therefore stand to benefit the most from the halving in the downpayment. - BUSINESS TIMES   21 July 2005

Re-tuning property policies

The following is the speech delivered in Parliament yesterday by Minister for National Development Mah Bow Tan on policy changes affecting the property market

Over the past few years, the Government has implemented several key policy changes related to the property market. These included adjustments to the CPF Ordinary Account contribution rates and cash downpayment requirements, and limiting the amount of bank financing for the purchase of private residential properties. We also capped the amount of CPF that could be withdrawn to purchase properties using bank loans.

Such re-tuning of policies from time to time is necessary to ensure their continued relevance to broader social and economic objectives. These objectives include enhancing Singapore's cost competitiveness, ensuring retirement adequacy for an ageing population, and maintaining a healthy financial sector. These changes in CPF policies, mortgage financing rules, and policies relating to home ownership affect the property market, in one way or another. As such, we need to ensure that the rules set will foster the free and undistorted functioning of the property market. It is in our interest to ensure that the property market is stable and consistent with economic fundamentals, as it affects home ownership, asset values, retirement savings and the health of the banking sector.

So far, the various CPF, home ownership and mortgage rules have been introduced at different times to fulfil various objectives. Hitherto, we have not comprehensively reviewed all of them together. We have thus decided to do a holistic review of various property-related policies, and implement them as a package. This way, we can provide stakeholders in the market with a complete picture, and ensure that the measures are consistent with one another.

The review has covered three major areas, namely caps on bank financing for residential properties;

• limits on the use of CPF for property purchases; and
• restrictions on foreign ownership of lands and properties.

Let me stress that the purpose of the changes is neither to boost nor depress the property market. Rather, the review is to improve structural rules in the above areas to improve the functioning of the property market, and to better achieve broader economic and social objectives in today's context.

Some of the measures introduced will have a positive effect on the property market, while others may have a dampening effect. The net effect will depend on many factors, many of which are beyond these measures. We believe that with prudent and realistic decisions, the market will find a new equilibrium that will be based on economic fundamentals. I will now proceed to elaborate on the measures that will be put in place in the next few months. Details of these policy measures will be provided by the respective Government agencies separately.

Mortgage and financing policies

Raise LTV limit for housing loans from 80 per cent to 90 per cent: The first of these measures is the raising of the Loan-to-Value (LTV) limit for housing loans. MAS introduced the 80 per cent LTV limit for bank-originated housing loans in 1996, together with the Government's package of measures to cool the private property market. The 80 per cent LTV limit was intended not only to counter the market overheating at the time, but to ensure sound bank lending practices across property market cycles. The 20 per cent payment by borrowers provided a buffer for banks in the event of a property downturn. This was particularly important as bank loans at the time ranked second behind borrowers' own CPF claims on mortgaged properties.

In 2002, the priority of claims over properties was changed so that banks now held the first charge for the property ahead of CPF. It has been three years since, and the market has had sufficient time to adjust to this change. Currently, over two-thirds of banks' outstanding housing loans are secured by first claims over properties. MAS is now ready to increase the housing financing limit to 90 per cent of the property value.

The remaining 10 per cent which the purchaser has to pay will continue to deter over-borrowing by purchasers and minimise potential losses by banks arising from borrower default. However, to mitigate the increased risk that banks will take, MAS will require banks to hold more capital against housing loans which exceed 80 per cent of the property value. MAS will also expect banks to apply rigorous internal credit evaluation criteria before extending high LTV loans.

In some countries, mortgage insurance is available to insure lenders against the risks of high LTV loans. MAS is prepared in-principle to consider mortgage insurance as an alternative to the capital charge to mitigate the risks of high LTV loans. However, mortgage insurance is not yet available in Singapore. MAS will be studying its viability here and how best to regulate mortgage insurers.

HDB will similarly raise the loan limit for its flat buyers from 80 per cent to 90 per cent. The actual loans to be granted will be subject to the banks' and HDB's credit assessment and mortgage financing policies.

Limit minimum cash payment required for residential properties at 5 per cent: Another revision to the housing loan rules in 2002 was the reduction of the cash payment for private residential properties to 10 per cent of its value, down from 20 per cent previously. The Government will now lower the cash payment for private residential properties from 10 per cent to 5 per cent.

This means that a purchaser who is granted a 90 per cent loan for his housing unit can pay his remaining 10 per cent through a combination of at least 5 per cent of the property value in cash, and the remaining with CPF. For HDB flats financed with bank loans, the payment to be paid in cash is currently 4 per cent and is slated to increase gradually to 10 per cent in 2008.

In line with the reduction in the cash payment for private residential properties to 5 per cent, the Government will adjust the cash requirement for HDB flats financed with bank loans to 5 per cent, instead of to 10 cent as initially planned. The raising of the LTV limit will take immediate effect and apply to all properties purchased from today. The 5 per cent cash requirement for private properties will take immediate effect, while that for HDB flats will apply to flats purchased from 1 Jan 2006. These changes will give consumers a wider choice of financing options when purchasing a property. However, I urge property buyers to continue to exercise prudence in their home purchase and financing decisions, and ensure that they can comfortably afford the expenses.

Central Provident Fund policies

The CPF Board will streamline its policies to increase flexibility for the use of CPF savings to purchase property, while ensuring that adequate sums are put aside for retirement needs.

Reduce Minimum Lease Period (MLP) for use of CPF savings: The first policy change is to allow the use of CPF savings to purchase private residential properties with shorter leases. Currently, CPF members are allowed to use their CPF savings to purchase private residential properties only if these properties have remaining leases of at least 60 years. This is to ensure that the lease can last the average life expectancy of buyers.

This policy intent is still valid, but older members can also meet this objective when they choose to buy properties with shorter leases. The Government has therefore decided to allow CPF members to use their CPF savings to purchase private residential properties with remaining leases of 30 to 60 years. CPF withdrawal limits for the purchase of such properties will be pegged to the age of the purchaser and the remaining lease of the property. CPF will provide further details shortly. This policy change will take immediate effect.

Allow non-related members to jointly purchase private residential properties using CPF savings: The second change pertains to the purchase of private residential properties by non-related members. Currently, CPFB does not allow non-related CPF members to use their CPF savings to jointly purchase private residential properties.

However, non-related singles have been allowed to use their CPF savings to jointly purchase HDB flats. To align the treatment of private residential properties with HDB flats, the Government has decided to allow non-related singles to use their CPF savings to jointly purchase private residential properties.

This policy, which will take immediate effect, is expected to benefit singles who have been hitherto constrained by CPF regulations to share purchases of private residential properties.

Simplify the Available Housing Withdrawal Limit (AHWL): The third change to CPF policies is to simplify the Available Housing Withdrawal Limit (AHWL). The AHWL limits the amount of CPF savings that CPF members can withdraw for housing purchases.

Currently, for CPF members below 55 years of age, the AHWL is set at either 80 per cent of the gross CPF savings in the Ordinary Account and Special Account in excess of the prevailing Minimum Sum, or the available Ordinary Account balance after setting aside the Minimum Sum cash component, whichever is lower. However, the current AHWL is complex and difficult for members to understand.

Therefore, CPF Board has simplified the requirement to set the AHWL only to the available OA balance after setting aside the Minimum Sum cash component. This will raise the AHWL for a small number of CPF members. This policy change will take immediate effect. Government's plans to reduce the CPF withdrawal limit for housing expenditure to 120 per cent of the property's valuation limit by 2008 will remain unchanged.

Transfer Medisave Account (MA) overflows to Special Account (SA) or Retirement Account (RA) instead of to Ordinary Account (OA): Currently, Medisave Account (MA) contributions in excess of the Medisave Contribution Ceiling, or 'MA overflows', are automatically transferred to CPF members' Ordinary Accounts (OA), whose funds can be used for property purchases and other investments.

To improve retirement adequacy for CPF members, the Government has decided to transfer MA overflows into the Special Account (SA) for members aged below 55 and into the Retirement Account (RA) for members aged 55 and above. The interest rate for the SA and RA is higher than that for the OA. This will benefit members and better ensure adequate retirement savings for members.

However, as savings in the SA and RA cannot be used for property purchases, the measure could affect a small number of members who currently rely on their MA overflows to finance their mortgages in properties. CPF Board will allow existing mortgagors who have difficulty servicing their loans arising from this measure to use their MA overflows to do so upon appeal, subject to conditions. This change will require the CPF Act to be amended and the effective date is set as July 1, 2006.

Impose restrictions on the use of CPF savings for multiple property purchases: The CPFB has also reviewed its policy on the use of CPF savings to purchase multiple properties. Currently, CPF members can use their CPF savings to purchase more than one property.

To ensure that retirement needs are not compromised, the Government has decided that only the CPF savings in the OA in excess of the Minimum Sum cash component can be used for the purchase of 2nd and subsequent properties. Members with inadequate Minimum Sum cash amounts will be allowed to use their CPF funds for the purchase of 2nd and subsequent properties if they undertake to sell their existing property within 6 months from the purchase of the second property. For the second and subsequent properties, the amount of CPF savings that can be used for their purchase is capped at 100 per cent of the valuation limit of the property. This measure will take effect on July 1, 2006.

Phase out the Non-Residential Properties Scheme (NRPS): The final change to CPF policies pertains to CPFB's Non-Residential Properties Scheme (NRPS). Currently, the NRPS allows CPF members to invest their CPF savings in non-residential properties such as office space, shops, factories and warehouses.

Since members who wish to invest their CPF savings in properties can now do so by investing in property funds instead of physical properties, the Government has decided to phase out the NRPS by July 1, 2006. Existing NRPS users will be allowed to continue to use their CPF savings to pay their mortgage installments for non-residential properties.

CPF Board will release the details of the above six changes to CPF policies shortly.

Foreign purchases and ownership of residential properties

Allow investment in private residential properties to qualify for PR status under EDB's Global Investor Programme (GIP): Currently, under the Global Investor Programme (GIP) administered by the Economic Development Board (EDB), foreigners can be considered for Permanent Resident (PR) status if they invest a certain minimum sum in business set-ups and/or other investment vehicles such as venture capital funds, foundations or trusts that focus on economic development.

Private residential properties, which had been allowed under the GIP, were removed from the list of allowable investment instruments under the scheme in 1996. The Government has now decided to re-allow investment in private residential properties.

Under a new option to the current GIP, a foreigner can now be considered for PR status if he invests at least $2 million in business set-ups, other investment vehicles such as venture capital funds, foundations or trusts, and/or private residential properties. Up to 50 per cent of the investment can be in private residential properties, subject to foreign ownership restrictions under the Residential Property Act (RPA). This additional option will complement our efforts to attract and anchor foreign talent in Singapore. This policy change will take immediate effect.

Foreign ownership of residential properties under the RPA: Under the Residential Property Act (RPA), foreigners can buy restricted properties only with approval. Restricted properties are landed properties as well as apartments in non-condominium developments of less than six levels.

The Government has reviewed the RPA rules and has decided to fine-tune the RPA rules in three aspects.

First, with immediate effect, foreigners can purchase apartments in non-condominium developments of less than six levels without the need to obtain prior approval. For landed properties, prior approval is still needed if foreigners wish to buy. Landed properties is a special class of residential property that Singaporeans aspire to own, and should remain restricted.

The second change, concerns the exemption granted to some foreign companies from applying for a Qualifying Certificate (QC) when they purchase residential land for development. Under the RPA, foreign companies are required to apply for a QC.

To obtain the QC, they must provide a Bankers' Guarantee for 50 per cent of the purchase price of the land and commit to complete the development in three to four years. The purpose of these requirements is to ensure that foreign companies do not hoard land or purchase land for speculation.

Currently, a small group of foreign companies are exempted from these QC requirements. To level the playing field, the Government has decided to revoke the exemption status of currently-exempted foreign companies and subject all foreign companies to the QC requirements, with immediate effect. The existing land stock held by currently-exempted foreign companies will be given grandfather rights.

The third change concerns the requirements attached to the grant of a QC. We recognise that the QC requirements impose costs on businesses. To lower these costs, the Government has decided to reduce the required Banker's Guarantee from 50 per cent to 10 per cent of the land price. In addition, to allow foreign developers some flexibility to ride out unexpected changes in market conditions, the period allowed for completing developments is extended from the current three to four years, to six years. The Ministry of Law will release further information on these changes and their implementation dates separately.

Conclusion

To reiterate, the proposed policy changes are not intended to steer the property market in any direction. Some of the changes will have a positive effect on the property market, while others may have a dampening effect. The overall impact of these measures on the market may be positive or negative, but that is not the purpose of our review.

Rather the changes must be seen in their totality, as a package that will enable the property market to work better, and to find its own equilibrium based on firm economic fundamentals.

Some changes are refinements of rules put in place in earlier reviews. Others are to remove provisions or controls no longer relevant, or to introduce new opportunities. Where necessary, we have put in place adequate, but not excessive, safeguards.

We will continue to review our rules and policies from time to time, and to change them if conditions change or unexpected situations arise. But I believe that these new policies, which lay the foundation for us to achieve longer term objectives, will be relevant through the ups and downs of the property cycle.   - 20 July 2005    BUSINESS TIMES

Property package gets thumbs up 
Consultants, developers, analysts unanimous in saying it's positive for housing market

National Development Minister Mah Bow Tan took pains to stress yesterday that the package of measures he announced on the property market is meant neither to boost nor depress the market.

But property consultants, developers and analysts unanimously agree it will be positive for the residential sector, which has been languishing for most of the past eight years.

The measures announced yesterday - the most important of which is an increase in the housing loan quantum and an accompanying reduction in the cash downpayment - are seen as boosting demand, especially for big Housing and Development Board flats and the entry-level/upgrader segment of the private sector.

Yesterday's package is also expected to fuel an increase in private home purchases by foreigners.

And hopes of a mini property boom are running high in some quarters, although key factors that will likely prevent prices from suddenly surging yet are worries about affordability and job security, especially in the upgrader segment.

Still, the increase in the loan quantum from 80 to 90 per cent of property value could see improved demand for HDB flats and private homes. And in the private market, the accompanying halving of the cash downpayment to just 5 per cent - with immediate effect - is expected to boost demand in the entry-level segment.

'Looking at the past, each time there have been changes in policy on financing of property, it has had a direct impact on demand and consequently property prices,' said DTZ Debenham Tie Leung executive director Ong Choon Fah. 'We should see more visitors to showflats and more people willing to commit. Prices should go up when demand picks up sufficiently.'

Knight Frank executive director Peter Ow predicts a 10 per cent increase in private home sales for the whole of this year and a price increase of at least 5 per cent for the next six months. Many developers are hoping the increase will be much more.

Other demand-boosting measures announced yesterday include allowing two unrelated singles to use their CPF savings to jointly buy private homes, and a rule change that allows foreigners to buy apartments in projects of less than six storeys that do not have condo status. 'This could encourage foreigners to buy properties with potential for collective sale. Many of these properties are low-rise apartment developments,' said Knight Frank managing director Tan Tiong Cheng.

Developers also got another long-standing wish granted yesterday, when Minister Mah announced a new option under the Economic Development Board's Global Investors Programme to allow private residential properties to make up to 50 per cent of a minimum $2 million investment sum requirement for foreigners to be considered for permanent resident status.

However, foreigners will still need to get prior approval if they wish to buy landed property. 'Landed properties are a special class of residential property that Singaporeans aspire to own, and should remain restricted,' Mr Mah said.

There are also a range of measures involving the use of Central Provident Fund savings. Most notable is that CPF savings may be used to buy private homes with remaining leases of 30 to 59 years, compared with the current minimum 60-year threshold. DTZ's Mrs Ong described this as a 'good move because we should not unduly penalise our assets with leases approaching 60 years'. 'That is when they usually see a significant drop in value because of a lack of financing options,' she added.

CB Richard Ellis director (residential) Joseph Tan said: 'We might see house hunters looking at older leasehold developments or HUDC flats in choice estates without the traditional financial and psychological barriers.'

Property consultants found very little that could be dampening for the real estate market in yesterday's package, except perhaps for the move to transfer CPF Medisave Account overflows into the Special Account for those below 55 and into the Retirement Account for those aged 55 and above.

The latter two accounts pay higher interest and this will benefit CPF members and better ensure adequate retirement savings for members. But with the end of Medisave Account overflows into the Ordinary Account, where funds can be used for property purchases, the change could also mean less funds for real estate purchases.

Still market watchers like Knight Frank's Mr Tan said: 'That's not such a bad thing. What may seem negative are actually necessary safeguards, for example, to protect the nest egg of people reaching retirement age. Frankly, I don't see anything really negative for the property market in this package. It's all positive.' -  by Kalpana Rashiwala    BUSINESS TIMES   20 July 2005

Singapore eases Financing Rules
Singapore eased restrictions on property financing and foreign home ownership Tuesday in a move that analysts say would boost the city-state's fragile property market.

Singapore Minister of National Development Mah Bow Tan told parliament that buyers would be allowed to borrow more from banks and use more of their pension funds to finance property purchases.

He also said the government has decided to make it easier for foreigners to buy private homes. In Singapore, 93 percent of the population owns a home - the highest ownership level in Asia.

The eagerly anticipated announcement, which will take effect immediately, gave a boost to property-related stocks on the Singapore stock exchange.

Virtually all property stocks soared to multi-year highs. The property index jumped 8.4 percent - its biggest rise since December 2001 - to its highest level in more than five years.

The broader market rose 2 percent, its biggest single-day jump since May 2004, to close at its highest level since January 2000.

Bank stocks, such as DBS Group Holdings and Oversea-Chinese Banking Corp, also gained on investor hopes of rising demand for home loans.

Singapore real-estate prices are about 36 percent down from 1996 peaks and analysts say the new measures will spur a property sector recovery that has lagged other cities in Asia. ``It opens the window for those at the margins who couldn't afford to buy property before. It just depends on whether banks will take the risk or not,'' said GK Goh Economist Song Seng Wun.

Under the new regulations, property buyers will be able to borrow up to 90 percent of the total purchase price instead of the previous 80 percent.

The bank lending limit was introduced in 1996, just before the Asian financial crisis, as part of a raft of measures designed to cool an overheating property market.

Mah also said the central bank would study how to make mortgage insurance available in Singapore to protect banks against losses arising from loan defaults.

Under the new rules, buyers will also be able to use pension funds to buy private properties with 30 to 60 year leases. Previously, buyers could tap their mandatory pension savings to finance properties that had at least 60 years until the assets reverted to the holder of lease.

``This will give buyers a wider choice of financing options when purchasing properties,'' Mah said.

Singapore is also easing restrictions on foreign home ownership, allowing foreigners to buy apartments in buildings with less than six floors.

But foreigners will still need approval to buy landed property. Analysts also said investor confidence remained the key factor for the trade-dependent country as it was facing an uncertain export outlook.

``The question remains whether this move will make borrowers any more comfortable than they were before, given the jobs situation and the general lack of confidence among consumers,'' said Daiwa Institute of Research analyst David Lum.

Over 80 percent of the 4.5 million Singaporeans live in public flats purchased from the state housing agency.   - REUTERS   20 July 2005

A crippling blow for property owners
Policy of upping plot ratios only on empty land changes rules of game

2003 March 4 :  Last Friday Dr Vivian Balakrishnan, a medical doctor and hospital administrator turned politician, made an announcement that drove a stake through the heart of the property market. And he did it with a smile.

Speaking at the launch of the draft west region Master Plan, part of a blueprint for Singapore's future physical development, he said the government will raise plot ratios for residential land near 'public transport nodes'.

But this will be done selectively and only land currently empty will benefit from the higher plot ratios, which allow for more intensive development. This is to 'enable areas that have already been built-up to be left intact, so that the estate's established character can be retained', he said.

Dr Balakrishnan, the No 2 man at the National Development Ministry, is an accomplished debater. Perhaps his audience was lulled by his voice. Perhaps they were more concerned with the government's Budget announcement on the same day. Whatever the reason, few realised that he had quietly changed the most fundamental rule of the property market.

Property is 'location, location, location'. More than anything else, location decides the value of a property. With the right location, a shop will get more customers, a hotel more guests, a condominium a better class of tenants and a factory more willing workers. Get it wrong, and nothing else - be it design, facilities, or other factors - will be enough to compensate for the disadvantage.

This may no longer be true in Singapore. In his soft, even voice, Dr Balakrishnan in effect disclosed that location will no longer be the main criterion for value, because properties in the same area may not be treated in exactly the same manner anymore.

Take the policy on plot ratio. It used to be that a higher plot ratio benefits all properties within a prescribed area. Now the windfall only goes to empty land, and a block of condos may stand between two vacant lots and still be denied the higher plot ratio given to its neighbours.

Private property owners are certain to be upset. They will also point out that it is the government that will benefit most from the change as almost all vacant land in Singapore is owned by the state.

Markets thrive on certainty and transparency and the new policy Dr Balakrishnan unveiled has robbed the property market of both.

The market is no longer certain, as the rule change will result in different parties benefiting differently.

And it is not transparent because no one knows how the new rule on empty land has come about.

Previous bad call

One guess in the property market is that the Urban Redevelopment Authority, author of the Master Plan, may have misjudged badly when it last raised plot ratios in the mid-1990s.

Those inclined to this view cite various examples as evidence. Higher plots ratios were given in URA's design guide plans, but were disallowed when owners tried to put them into practice.

There is also a strange policy that allowed high-rise redevelopments in the central, crowded areas, thus causing more congestion, but not in outlying areas where high-rise developments would do less harm.

And, of course, by limiting the higher plot ratios this time round to owners of empty land, it is hard to avoid the conclusion that the beneficiary will be mostly the government.

So what next for a property market that is no longer as certain and transparent? The answer is simple. Like all markets that have lost their direction, it is likely to soon see the departure of investors.

In Singapore, most property owners are stuck with their properties and cannot leave. But the fortunate ones who can may soon pull up stakes and put their money in greener pastures.

After all, what's the point of investing in a market where you might wake up one morning and find yourself disadvantaged by a new set of rules? - by Lee  Han Shih   SINGAPORE BUSINESS TIMES    4 March 2003

Copyright ©  2007
By opening this page you accept our Privacy and Terms & Conditions