Introduction
As expected, the last month of 2007 was very quiet and uneventful – to the disgust of many agents who subscribe to the notion of productivity equals profit from activities. There were a number of inconsequential policy changes concerning the real estate market. They are not expected to have any major impact on the fate of the property market.
Most of the changes, including CPF changes and Development Charge changes, have already been made known months ago and therefore did not cause a ripple.
More announcements were made regarding the Government Land Sale Programme for next year and that too did not cause any excitement as investors and developers had already been primed. Here are summaries of December’s news.
(A) Global financial market still uncertain in 2008
(A.1.) More bad news from the US sub-prime woes
The US sub-prime problems continue to claim their victims going into Christmas. A couple of embarrassing corporate news was unveiled including one that concerned Switzerland's largest bank UBS and the world’s largest wealth manager. The bank announced further write-downs of around 10 billion dollars (6.8 billion euros) due to the US subprime mortgage crisis.
In an unprecedented move, Singapore’s Government Investment Corporate bought, together with an unknown Middle Eastern investor, roughly 9% stake of the bank.
On 17 December 2007, Washington-based mortgage finance company Fannie Mae forecast further decline in US housing market in 2008. It said that existing home sales will drop 12% and existing home prices will fall another 4.5% in 2008, painting a bleak picture for the troubled US housing market.
According to forecasts from the National Association of Realtors (NAR), median home prices in the US declined for the first time since the Great Depression. Not only have homebuilders and mortgage companies been affected by the subprime crisis, banks and brokerages have been hit, posting write-downs and losses of more than $80 billion.
There was evidence in abundance to show that the US housing crisis is not yet over. Economists of all subscriptions expect US housing prices to decline further as an increase in foreclosures adds to a glut of unsold homes on the market, forcing sellers to cut prices.
(A.2.) MAS sees more uncertainties next year
The Singapore central bank has also sounded warning that there will be more uncertainties in 2008 due to the current financial market turmoil. The region is facing increased risks to its growth outlook.
The Asia Pacific region as a whole is enjoying strong inflows of funds which have been channelled into property, equity and other financial assets. However, the risk is increasing and this makes it difficult for corporations and banks to sustain financial performance.
MAS said that household debts growth in October accelerated to 15.5% due to increase demands which are evenly spread. The growth is the fastest in almost 11 years. Home loan growth was up 14.4% while business loans galloped at 18.5%.
The negative housing equity situation has improved a great deal, with the proportion of negative mortgage accounts having halved to 2.5% in September 2007 from 5.1% in the same period in 2006.
The rise in banks' property exposure has been driven mainly by loans to property-related firms. Loans to individuals for investment purposes have also increased recently.
However, the MAS continues to be concerned about the double-digit growth of business loans being driven by the building and construction sector though the non-performing loans ratio of this industry has improved likewise.
(B) New measures concerning properties announced this month
(B.1.) New definition of Development baseline takes effect 1 January 2008
From 1 Jan 2008, the old definition of development baseline being the highest of either the value resulting from the intensity guideline of 1958 Master Plan or 1980 Master Plan will be abolished.
Development baseline will be simply defined as the value of the approved development. The historical baseline values in the master plans of 1958 and 1980 will no longer play any part in the calculation.
The Development Charge payable is the difference of development ceiling (being the maximum value approved) and development baseline.
However, land owners who keep to the allowed use under the current master plan will still not be affected by the new way of computing Development Charge.
(B.2.) New CPF interest rates to be effective on 1 January
From 1 Jan 2008, CPF members will earn one percent higher interest on their first $60,000 of savings as follows:
- Their Special, Medisave and Retirement Account (SMRA) will attract 5% instead of 4% previously.
- Their Ordinary Account (OA) will receive 3.5% for up to $20,000. Anything higher than the required $60,000 attracts the same interest rate.
For savings beyond $60,000, a minimum rate of 2.5% will apply. However, the HDB subsidised loan rate will not be affected by the latest CPF interest rate change.
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