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The Straits Times
Nov 16, 2011
The case for curbs on foreign property buyers

Entry of foreigners into mass-market homes bears careful watching

By Esther Teo

SOME Singaporeans are clearly worried that the growing numbers of foreigners buying private homes are driving prices ever higher - and out of the reach of some local buyers.

This concern has been heightened by a fairly new trend for foreigners to buy mass-market homes, a segment in which they had previously taken little interest.

These, of course, are the same homes that many upgraders aspire to buy.

Are restrictions on foreigners' purchase of private homes, proposed by some, warranted?

First, consider the figures. In the first eight months of this year, one in three buyers of non-landed private residential properties was a non-Singaporean.

Among buyers of private homes - excluding landed property which is more regulated - the proportion of foreigners, including permanent residents (PRs), is creeping up. Last year, it was 28 per cent.

Foreigners are also increasingly turning to new developments. A recent Business Times report showed that foreigners, excluding PRs, bought 843 uncompleted private homes from developers in the third quarter, up nearly 20 per cent from 703 homes in the previous quarter. Their share of the total number of uncompleted private homes sold by developers rose from 16.3 per cent in the second quarter to 20.1 per cent in the third quarter.

Foreigners, excluding PRs, accounted for 16 per cent of all private home purchases in the first half of the year, up from 12 per cent last year.

Perhaps the biggest worry for many Singaporeans is the fact that foreigners are now encroaching on the mass-market segment.

Foreigners' share of homes sold at price tags of under $1 million - taken as a proxy definition of a mass-market home - rose to 28 per cent in the first nine months of this year. It was 19 per cent in 2009 and 22 per cent last year, according to caveats lodged with the Urban Redevelopment Authority.

At recent launches of mass-market developments such as Parc Vera in Hougang, foreigners and PRs made up about 20 per cent of sales, compared to below 10 per cent a few years ago.

In the past, foreigners largely went for expensive homes in districts nine, 10 and 11, and this had minimal impact on the average Singaporean, said Dennis Wee Group director Chris Koh. However, they are now making a splash in the suburban leasehold mass market, he noted.

Faced with such statistics, it is little wonder that some attribute the surge in private home prices to record highs - up 18 per cent last year and a further 6 per cent in the first nine months of this year - to purchases by foreigners.

Amid this concern, some experts like Chesterton Suntec International research head Colin Tan have suggested that curbs on foreigners buying private residential properties could temper the rapid rises in prices.

To a certain extent, foreigners already face curbs on property purchases. Foreigners can buy landed homes only in Sentosa Cove. If they are PRs, they may buy some types of landed housing elsewhere, but only with approval.

The sale of resale Housing Board flats is also restricted to Singaporeans and PRs who meet certain criteria.

But the market for private condominiums is largely open to foreigners, who invest in this market on a level playing field with citizens.

Those who call for curbs point out that Singapore's real estate sector is vulnerable to speculative capital flows.

With interest rates set to stay low for the next couple of years, the plentiful funds washing around the market seeking better returns could well cause price volatility if there are no curbs, they argue.

Last month, MP Christopher de Souza (Holland-Bukit Timah GRC) suggested restrictions on foreigners buying homes. He cited Australia, which has rules that limit foreigners to buying only new properties, which they can subsequently sell only to Australians.

Singapore, like other open economies such as Hong Kong and Britain, does not restrict foreigners from purchasing private condos and apartments.

Others have suggested less onerous financing-related measures such as caps on the number of mortgages foreigners can take out or reducing further for them alone the proportion of a property's value they may borrow.

Dennis Wee's Mr Koh suggested one way would be to introduce a capital gains tax for foreigners who make gains from selling private property here. Or simply keep or impose an additional sellers' stamp duty on foreigners who sell within a stipulated period, he said.

Another suggestion from Knight Frank group managing director Danny Yeo is to differentiate between those who have a stake here and those who do not.

Long-term residents, such as PRs and foreigners working here, should not be subject to restrictions as they also need a home in Singapore. But the purchases of foreigners who do not live or work here could be subject to curbs, he said.

But as National Development Minister Khaw Boon Wan noted last month, it is important to ensure that housing policy shifts do not unwittingly harm the economy and society. Rising prices also cannot be attributed solely to foreign purchases. There are many factors at play, such as low interest rates and Singapore's strong economic fundamentals, he emphasised.

In any case, foreigners are already subject to the same anti-speculation measures as locals - including a sellers' stamp duty of up to 16 per cent. This has creamed off some speculative froth, with prices moderating for the past eight consecutive quarters - inching up just 1.3 per cent in the three months to Sept 30.

Taken together, the case for more curbs on foreign purchases is mixed. A further surge in demand from foreigners can raise prices beyond the reach of locals.

At the same time, any measure that curbs demand in one segment risks cooling down the entire market, especially with a slowing economy.

There may be a case for more calibrated measures: for example, to dampen demand for mass-market homes from foreigners who do not live or work in Singapore.

But the timing and extent of any such move are critical. For now, the trend of foreigners buying into mass-market homes is certainly one that bears careful watching.