The spotlight has fallen on foreign buyers of private homes, after a recent call by Goldman Sachs for a liberalisation of rules

The spotlight has fallen on foreign buyers of private homes, after a recent call by Goldman Sachs for a liberalisation of rules governing their purchase of landed property. LYDIA LIM and SUE-ANN CHIA look at foreign buyers’ impact on the home-owning aspirations of Singaporeans

FOREIGNERS who buy real estate run the gamut from the fabulously wealthy looking for a place to park their money, to rich couples with plans to spend part of their retirement years here, to middle-income professionals in need of a stable roof over their head.

Not all of them have deep pockets, says Australian journalist David Fogarty, 41, who has worked here for 10 years.

He lived in rented apartments for most of that time but finally bought a place in a condominium in the River Valley area last year.

After being asked to vacate two rented homes in fairly quick succession, due to a collective sale and a buyover by a landlord’s daughter, he says he ‘got tired of living in other people’s property’.

‘The decision was based purely on the need for a place to live, not the prospect of making money,’ he tells Insight.

Still, there is concern among young home buyers like lawyer Aaron Kok that foreigners are nudging out Singaporeans to the suburbs for more affordable property.

But even in the suburbs, the 27-year-old feels the heat of the activity in the upper end of the property market. In the past six months, Mr Kok has seen the price of a new two-bedroom condominium he is eyeing in the east soar from $580,000 to over $700,000.

It is now out of his reach.

At the same time, he and his girlfriend do not qualify for a new HDB flat as their combined monthly income exceeds the $8,000 income cap.

‘With Singapore wanting to attract more and more foreigners here, properties in the prime locations will be snapped up and they will start to look at suburban areas. This means Singaporeans will be pushed to the periphery,’ he says.

Demand from foreigners has been on the rise since last year. Their share of private home purchases rose to 27.2 per cent in the first quarter of this year, a peak surpassed only once during the last boom, when the figure hit 32 per cent in the fourth quarter of 1995.

Buyers from traditional markets Indonesia and Malaysia continue to dominate, but demand is coming in strongly from other quarters as well - notably Indian nationals.

Foreign interest in landed homes is also on the rise, with applications to the Singapore Land Authority for permission to buy up 30 per cent last year, from the previous year.

Last week, Minister Mentor Lee Kuan Yew observed that demand for high-end offices and homes has increased with new inflows of financial sector professionals. He warned that rising rents must be kept in check or Singapore will lose its competitiveness.

Given the combination of soaring prices and looming anxiety among some first-time buyers, one view emerging is that it is time to review foreign ownership of residential properties.

Then again, a contrarian argument was put forth a fortnight ago by a property analyst of investment firm Goldman Sachs, in which he urged that rules on foreign buying be eased as it would spur the drive to draw foreign talent.

What is at stake in this nascent debate? Will foreigners lift the property market and the economy to greater heights? Or will more Singaporeans find themselves priced out of parts of their city, the way natives of other big cities found themselves elbowed out to the suburbs because of foreign buying?

No foreign hoarding of land

A CLOSER reading of the Residential Property Act, which regulates foreign buying, reveals that the Government’s concern is less over foreign ownership of homes than their holding and control of land.

Foreigners can buy as many private homes as they wish, but they cannot do the same with land.

The Act states that only permanent residents (PRs) can buy landed property, and they must first seek permission from the Law Ministry. Each PR can buy one landed property and only for his own occupation.

For apartments and condominiums, foreigners cannot, without prior approval of the Law Minister, buy every single unit in a particular development. That is the only way for an individual to gain control of a piece of land governed by strata title.

Apart from that restriction, foreigners are free to own as many units as they wish.

Underlying these rules is a simple matter of scarcity - homes can be built a lot faster than land is made.

Property analysts say the law is designed to prevent ‘land hoarding’ by foreigners. Without it, there is a risk that foreigners could acquire large tracts of land in Singapore and manipulate supply and pricing to their advantage, not to mention obstruct the Government’s urban renewal plans.

One outcome is that in the 30 years since the law was enacted, prices of luxury condominiums have outstripped those of bungalows, as foreigners are largely confined to the former category of homes.

Goldman Sachs analyst Leslie Yee estimates the price gap to be around 35 per cent. In his report, he called for these rules to be relaxed, ‘on the grounds of accelerating Singapore’s drive to attract foreign talent and bulk up its population’.

He argues that such a change will not detract from the national objective of widespread home ownership, as there is a ‘world-class public housing system’ in place to cater to the needs of 80 per cent of Singaporeans.

The Law Ministry responded quickly to say it has no plans to ease the curbs on foreign ownership of landed homes.

Mr Yee’s call was also met with consternation by other property analysts, who said the market is already bubbling and in little need of such a catalyst.

Mr Nicholas Mak, head of consultancy and research at Knight Frank, says any such relaxation would ‘open the floodgates too wide’.

Foreigners bought 249 landed homes last year, 65 per cent more than in 2005, according to an analysis by property firm DTZ Debenham Tie Leung.

Of these, 105 were in prime districts 9, 10 and 11.

Of the 68,402 landed homes here, only 10,526 are in these prime areas.

With many rich foreigners from the region waiting in the wings to snap up landed homes, Mr Mak says an easing of rules will serve mainly to profit property developers.

The big losers will be middle- and upper-middle class Singaporeans who aspire to own landed homes, as they will be ‘priced out’, he warns.

Moving up the property ladder

WITH public housing accounting for 79 per cent of homes here, most Singaporean home buyers are protected from foreign competition.

Only foreigners who are PR can buy HDB homes, but only on the resale market.

However, the top 20 per cent of families are not eligible to buy new HDB flats as their monthly household income exceeds the $8,000 ceiling.

They will be in the market for private homes and may find themselves up against foreigners with deeper pockets.

It was concern for this group that led to the Government’s first clampdown on what it termed ‘land speculation’ by foreign buyers in 1973.

It said then that if it did not step in, young middle-income earners such as engineers, teachers, junior executives and officers in the police and armed forces, who were not eligible to buy HDB flats, would find ’suitable housing beyond their means altogether’.

Thirty years on, this remains a concern, with a booming economy causing the tide of foreign interest in Singapore real estate to rise again.

Foreigners accounted for 27 per cent of all private property deals in the first quarter of this year. But for top-end luxury apartments, their share has now risen to around 60 per cent.

Ms Tay Huey Ying, director of research and consultancy at Colliers International, estimates that 70 per cent of these foreign purchases are for investment and 30 per cent for living in.

The impact of such strong foreign demand on prices bears watching, she says.

‘Although the high-end and luxury tier is most attractive to foreigners at this time, the very strong foreign demand has led to a spate of collective sales at this end.

‘This creates a supply crunch at this tier. Demand then filters down to the lower tiers, causing prices to go up,’ she adds.

Such a cascading effect is apparent in the latest Urban Redevelopment Authority flash estimates, which show that in the second quarter, home price increases spread beyond the high end to other parts of the market, including mass-market private condos and the HDB resale market.

Mr Charles Chong, who chairs the Government Parliamentary Committee on National Development, says there could be a political cost if more Singaporeans find themselves priced out of mass-market properties.

But he stresses that the rise in prices affects both Singaporeans and foreigners alike, as both groups include those in need of a home.

‘With rising prices, people need to put the blame somewhere and foreigners are a convenient place to park the blame,’ he says.

If the current surge in demand were to result in a short-term dearth of homes, property regulations may need to be tweaked, he adds.

But Professor Ong Seow Eng, deputy head of research at the National University of Singapore department of real estate, cautions against restrictions that may be seen as anti-foreigner.

‘I do not think it is appropriate for a government policy to protect local ownership, not if we truly want to become an international hub of choice,’’ he says.

‘Foreign ownership is a vote of confidence in Singapore,’ he adds.

Concurring, Mr Mak says he finds the current rules on foreign ownership ‘quite balanced’.

Unlike landed property, there is less need to restrict foreign buying of condominiums since supply is flexible, he argues, with government planners able to raise the plot ratio of land parcels should the need arise.

Property analysts also question the appropriateness of singling out foreigners for blame, given that the speculative activity of Singaporeans contributes to the price spiral as well.

Calming fears of S’porean buyers

THE Government has been at pains to reassure Singaporean buyers on two counts.

First, it has said that supply of new private homes is more than enough to meet demand.

This is unlike the situation in cities such as London, where a real estate boom coupled with a huge shortfall in housing supply has resulted in many locals being priced out of parts of the city.

London and Hong Kong also have no restrictions on foreign buying of real estate, whereas Middle Eastern states tend towards the other extreme, banning such purchases apart from exceptional cases. Singapore’s laws are in between these two extremes.

Second, National Development Minister Mah Bow Tan said two weeks ago that rapid price escalation is still confined to the luxury tier whereas prices of HDB resale flats are appreciating at a sustainable rate, in line with economic growth.

Even young home buyers like businessman Tan Sin Yat, 32, acknowledge that there are still affordable private homes to be had.

‘But you may have to look harder,’ he says.

The consensus appears to be that there is no urgent need to change existing rules on home purchases by foreigners, for now.

But the situation remains one that bears watching lest a speculative bubble builds up through a combination of local and foreign investor activity.

AS SINGAPORE draws more foreigners to work and invest here, how concerned are you at the impact this might have on property prices?

What do you think can be done to help Singaporeans and foreigners in search of affordable housing?

Source: The Straits Times, 14 July 2007