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Saturday, January 28, 2012

Master Lynn Yap's Prediction for Dragon year 2012

Master Lynn Yap's Prediction for Dragon Year 2012

How did you fare last year? Did you follow what Master Lynn taught? What are the things to look out for in the year of the dragon 2012?

WILL MONEY VELOCITY FURTHER SLOW DOWN DUE TO PROPERTY REGULATION IN SINGAPORE

WILL MONEY VELOCITY FURTHER SLOW DOWN DUE TO PROPERTY REGULATION IN SINGAPORE

Let’s just say the risk is not about whether it will Cool inflation, but rather whether it will totally put out the fire and Freeze the property market in Singapore.

Inflation is influenced by the following equation.
{MV = PQ} = (by Irving Fisher, 1911)

Where

• M is the total dollars in a Nation’s money supply (generally the M3 or M2)
• V is the number of times per year each dollar is spent (Velocity of money)
• P is the avg. price of all the goods and services sold during the year.
• Q is the quantity of Assets, goods and services sold during the year.

When M2 or M3 increase, where V and Quantity stays the same, then P increase. The rate of P’s increase is inflation.

Right now, we are seeing M2 or M3 increasing faster than GDP in many nations, while prices are fairly stable at ~5.4% (in 2011) in Singapore and production (Quantity) is rather stable, this means that V, the velocity of money has yet to pick up. In other words, people are not yet spending.

Once Velocity of money V picks up, in order to control price rise, Quantity will have to pick up dramatically as well. Not all quantity can be ramped up quickly enough.

[M2 or M3 increase] x [V] = [P] x [Q]

So by taking out Foreign M2, M3 as well as M2 in Singapore attributed to foreign ownership by imposing a 10% Additional buyer stamp duty, Singapore has effectively reduced the M2, M3 money supply from the property market.

In short, this policy may somewhat reduce inflation attributed from Housing. However it may not stop these money from being channeled to other parts of the economy, especially commercial properties.

USA M2 Money Supply


(Source: Wikipedia)


European M2 Money Supply



Australian M2 Money Supply



Singapore’s M2 Money Supply

S$ MILLION
END OF PERIOD M2
2010
Nov 401,429.3
Dec 403,078.2
2011
Jan 406,246.8
Feb 406,280.0
Mar 413,255.5
Apr 422,475.6
May 422,716.1
Jun 423,516.7
Jul 431,311.5
Aug 431,253.4
Sep 434,818.4
Oct 439,817.4
Nov P 442,144.4

AS you can see, M2 from Dec 2010 up till Nov 2011, has grown by 10%, this exceeds the GPD growth figures.

As there are ample funds in Singapore, interest rates can stay low, due to low velocity of money, once there is signs of up-trend, then we expect markets to rally very quickly and these money will be drawn down. And cost of funds will consequently go up.

Call Property Buyer Mortgage Consultants at 9782-8606 or email
loans@propertybuyer.com.sg to assess your Home Loan Financing Needs.

Saturday, January 14, 2012

Property investors hit by Singapore's Additional Buyer Stamp Duty

Effective 8th Dec 2011 – Singapore’s URA imposes additional buyer stamp duty



If you are buying a property in Singapore and you are a foreigner, you will now be faced with an additional buyer stamp duty on top of the existing stamp duty imposed on property transactions.


Currently the stamp duty for purchasing a residential property is: -



• 1% of the selling price for the first $180,000

• 2% of the selling price for the next $180,000

• 3% of the selling price for the from $360,000 onwards.



Will Luxury Condominiums targeted at foreigners to be hit by new regulation?



Additional stamp duty is being imposed to cool the RESIDENTIAL property market.



The Additional Property Buyer stamp duty (ABSD) from 08 Dec 2011 is:



Foreigners and Corporate entities buying Residential private property have to pay an additional buyer stamp duty of

10 percent

Permanent residents (PR) owning one and buying the second and subsequent residential property will be liable to an Additional buyer stamp duty

• 3 percent




Singapore citizens owning 2 and buying the third and subsequent residential property will pay an additional buyer stamp duty

• 3 percent




Permanent Residents owning 1 and buying the 2nd and subsequent residential property will pay an additional buyer stamp duty

• 3 percent




Singapore Citizens (Singaporeans) owning two2 and buying the third and subsequent residential property will pay an ABSD of

• 3 percent




Foreign purchases account for 19% of all private residential property purchases in 2H 2011, up from 7% in 1H 2009. (URA)




In the case of a joint purchase, as long as any party is a PR or Foreigner, the higher additional property buyer stamp duty will apply.




HDB Property Buyers not affected URA clarified that HDB property buyers are not affected






Buyers for HDB properties are not affected by Additional Buyer stamp duty. Only Singaporeans and PR are eligible to buy a HDB flat. Someone buying into HDB flat or a new unit under the DBSS or EC will not be subjected to Additional buyer stamp duty since they will have dispose of their current property as part of the conditions for the purchase of the HDB, DBSS or EC units.

Buying property in singapore is becoming a complicated affair.

Likely Effects of Singapore's Additional Buyer Stamp DutyWhat is the effect of the Additional Buyer Stamp Duty (ABSD)?





We praise the URA for making this additional cooling measure. This measure will further cool the market. This cooling measure is also timely as it prevents foreign owned corporate entities from cheaply buying up private properties. There is currently a lot of Money supply in the world as the M2 money growth has often outpaced the growth of the GDP, especially since 2009 when the US has printed more money via quantitative easing. This may be a preemptive move against possible asset inflation. (Appendix 1: US M2 Money Supply and European M2 Money Supply).



What this means is, if these money is to be put to use to buy up assets, 10% of additional buyer stamp duty won’t entirely stop them from buying into Singapore properties, but only slow them down.



Inflation reduction?



What affects inflation?

MV = PQ = (by Irving Fisher, 1911)




Where




• M is the total dollars in a Nation’s money supply (generally the M3 or M2)

• V is the number of times per year each dollar is spent (Velocity of money)

• P is the avg. price of all the goods and services sold during the year.

• Q is the quantity of Assets, goods and services sold during the year.




When M2 or M3 increase, where V and Quantity stays the same, then P increase. The rate of P’s increase is inflation.




In recent years, money supply has grown largely faster than GDP growth. What this tells you is, the money velocity is slow. People are not spending. Even in Singapore, although inflation is 5.4% in 2011, it is still fairly stable and controllable in view of looming recession in Europe.



However there is risk as money supply is ample. Once there is light at the end of the tunnel, confidence returns, velocity of money will pick up. And at that time, the Quantity (Supply) will have to pick quickly to control price rises. As far as property is concerned, the lead time to complete a unit is 2 to 4 years and this will lead to imbalance in prices.



M2 or M3 increase x V = P x Q



Imposing a stamp duty has the effect of reducing the foreign owned portion of M2 or M3 from the Singapore property market.

In short, this policy may somewhat reduce inflation attributed from Housing. However it may not stop these money from being channeled to other parts of the economy, especially commercial properties.



Singapore Recession worries






Now, with the European debt crisis looming, we wonder whether this is the right time to impose such a regulatory measure. After all the property market has already cooled dramatically. Moreover, this policy hurts the mid tier private property markets and entry level luxury more.



Should the policy target run away prices in HDB instead?






In view of the massive under-supply of HDB’s physical stock given the massive mass increase in population, it will still take several years to balance the supply and demand. Currently demand far outstrip supply.




HDB pricing index will likely continue to rise into 2012 and 2013 as imbalance is gradually more balanced.




While DBSS is being added to the supply, these Design, Build and sell housing by private developers of HDB houses lead to a even more severe rise in HDB housing prices.

DBSS developers buy expensive land from the Singapore government, add on their profit and then pass on these costs to helpless Singaporeans and Permanent citizens.

Singapore government is the ultimate winner in terms of the good price for the land.




Spill over may soon be seen in Executive Condominium (EC) with some ECs approaching prices of Mass Market condominium prices. This supports the prices of mass market condominium to be launched in large volumes.




Unfortunately this additional buyer stamp duty (ABSD) does not apply to HDB, Design, Build and Sell (DBSS) and Executive Condominium (EC). This ABSD affects Private property while what it should have done is to manage HDB price rises, especially the Run-away prices of DBSS flats. It’s unfortunately for Singaporeans.



Severe Demographic effects – Singapore’s Resident Population to dramatically increase?






Could more PR become Singaporeans so as to buy more private property (a third or more)?.




More foreigners holding employment pass will apply to become Permanent residents to qualify for buying HDB flats, leading to more housing demand pressures.




Expatriates faced with additional Buyer stamp duty on buying private residential property and is not well off enough to buy a private property will likely want to become Permanent resident (PR) so as to buy a HDB. This scenario is quite unfavourable for Singapore as we may be attracting the lower level and lower skilled expatriates competing with native Singaporeans.




Our Proposal for the regulatory changes: -





If we cannot keep regulations simple, then perhaps this regulations could be considered.



To impose the following regulations on: - Proposal to Impose regulations on: -



Housing Development Board Flats

• HDB flat owners who own a private property must stay in their HDB regardless of whether they meet the minimum occupation period (MOP), within 2 years of this announcement. Else these HDB home owners must sell their HDBs in the resale market.

o This stops existing HDB home owner from owning a HDB and staying elsewhere and making money by renting out their HDB flats.



o No force to be applied to them to sell their HDB flats, but they cannot make money via renting out their HDB flats while owning other Private residential properties and staying in private residential properties.

• To prevent new Permanent Residents from competing in the HDB market, all Permanent Residents (PR) must wait 5 years upon attaining PR before qualifying to buy a HDB flat. (This is to prevent lower tier foreign talents from speculating in the public HDB Singapore property market).

o All PRs to pay additional buyer stamp duty of 10% on HDB resale flats.



Proposed regulation on Private Properties

• Corporate entities who buy residential properties will pay an additional buyer stamp duty of 10% (As URA proposed)

o This should be especially applied to landed properties where it is scarce.

• All New PRs must wait 5 years before being eligible to buy a landed property.

o PRs not meeting the 5 year waiting period shall be rejected by the Land Dealings Approval Unit (LDAU), else a 15% additional buyer’s stamp duty of 15% is applied.

For Foreigners or PR purchase of private property (non landed): -

o NO additional buyer stamp duty, but

o Loan to value from Singapore banks to be reduced to 50%.

Regulation for Commercial Properties

• Apply the additional property buyer stamp duty of 10% on Foreigners buying commercial properties.



Summary of additional buyer stamp duty



URA’s imposition of the additional buyer stamp duty is generally correct in pre-emptive prevention of inflation given the massive money supply, however the timing is questionable as European debt crisis is still unfolding and money velocity is still slow.



This policy seems like another political knee jerk reaction, while it hides dangerous and possible side effects of massively increasing the Singapore Citizen population and PR population through lower tier foreigners.



This additional buyer stamp duty should stop speculation in HDB instead and leave the private residential property market alone.

If the intended thinking behind this policy is to make HDBs more affordable, then our proposed policy changes will likely be more effective.