Wednesday, 18 June 2014

Property - don't go overboard with cooling measures

Property sales by developers have been pretty weak. It started since beginning of this year. No thanks to the ban on Developer's Interest Bearing Scheme (DIBS) and compliance to the guideline on loan capped at 70% for the third property, many developers are feeling the pinch as sales are not moving. On one hand, the guideline has managed to curb speculation but on the other hand, it will affect the bottom line of the property developers which in turn will affect the company's staffs as they may expect to get lower increment or bonus come year end or not receive at all. This is to be expected. With low sales, companies find it hard to give out good bonus or increment.


There will be cascading effect. Lawyers, engineers, architects, project consultants and property agents are expected to be affected as well. Lawyers will see their business dwindling due to less conveyance works to do. Engineers, architects and project consultants are either have to slash their fees or expecting to get lesser jobs as developers are planning to hold back some of their new launches. If current projects cannot sell, they will not dare to launch the new one.


The buyers. It is good that first time house buyer still enjoy 90% loan from the banks. And it should continue. But with house prices getting higher and not seem to be coming down, it is still a big hurdle for these first time house buyers to fork out the 10% down payment even if he or she qualifies for 90% loan.


Banning the easy financing scheme like the DIBS is a double-edged sword. It helps to curb speculation but on the other hand, the first time house buyer losses the opportunity to buy their first house with easy financing package. You want to help the first time house buyers or focus your energy on curbing speculators? I think the current cooling measures have got the reverse effect on the former.


According to many developers, there are still strong buyers' interest but getting financing from the bank is a big headache. Now property developers are finding ways to promote their units. You cannot blame them. They need to survive. They need to pay their staffs' salaries. They need to pay their shareholders.


Who will get the blunt at the end of the day? Of course the super rich fellow would not have the problem with financing. It is the working class citizen. I am not just talking about the lower income group but the middle income group is also finding it difficult to find a decent house with decent price at a decent location.


The other day, a property developer's staff tried to promote his company's project to me. The project is decent. Below is the price of the unit and its payment scheme.





I asked the sales staff whether their units could still sell well. The reply was yes, but up to end of last year. This year onwards, it is a tough market even as they try to be as innovative as they could to package the deal. The main problem is that  bank is not lending due to stringent requirement set by central bank.


There are several reasons why property price is keep on going up. Chiefly because of higher land cost, coupled with cost-push factors. Construction materials cost is on the rise. With GST coming next year, nobody knows what will be the actual impact. Even though property transaction is not tax under GST, but the material used to construct the property is. Contractors are now asked to cost-in with the 6% GST during competitive tender. So it is only logical for the property developer to capture it in the sale price. And having to sell at higher price, developer has to package an innovative deal. DIBS was being used previously but has since outlawed.


Construction is related to property industry and it is proxy to country's economy. There are so many trades activities that rely on construction industry. Because of our overzealous to introduce more and more cooling measures, everyone will be affected. It is a matter of when it will hit us one way or other. If you killed property development activities, you kill construction activities. With construction down, all other trades related to construction will collapse as well. People will be out of job and out of business. At that time, who cares about property price anymore. The main priority then is to put food on the table. And stock market will be affected too.

I hope the government will do something about this and not just listen to one side of the opinions. I could appreciate the concerns the government has, but there are also other concerns to consider. Hope we could see something enlightening in the coming Budget 2015.

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