Cooling measures may turn investors away from S'pore residential property into stocks

SINGAPORE: Singapore's property cooling measures could deter investors from residential property and into stocks, according to investment experts.

The latest measures imposed an additional 10% stamp duty on foreigners buying private homes, a move that could affect demand and investment strategies, said DBS Group Research.

“Owner-occupier buyers are likely to hold back in anticipation of a dip in prices,” said the research house, which expected home prices to retrace by 5% this year - a muted impact due to the low interest rate environment.

Potential buyers already appear to be adopting a wait-and-see attitude, suggesting they may place their cash into stocks instead.

Lorraine Tan, director of Asia equity research at Standard and Poor's, told The Straits Times: “The property curbs limit the speculative element in investing in properties. When you don't have that and there is expectation that prices could come down, it's going to affect buying. As equities are more liquid, the money will get channelled into equities.”

Colin Tan, head of research and consultancy at Chesterton Suntec International, agrees: “Most people who have held back buying properties could invest in the stock market. There are lots of funds swirling around from one asset class into another.”

Not all concur. Teoh Kok Lin, managing director of Singular Asset Management, which manages funds in Kuala Lumpur and Singapore, said the stamp duty affected foreign buyers most but “these purchasers are likely, if they choose, to channel their cash to property markets in other countries.”

Just what effect the cooling measures might have on the share market was also a hot topic among most investors at a recent roadshow by CIMB Singapore, held in Asia and the United States.

“That was the question investors asked. My view is that there are other factors that drive stock market liquidity,” said CIMB Singapore research head Kenneth Ng.

He pointed out that retail participation in the stock market tapered off in 2010 and last year.

That coincided with the opening years of the two casinos and very strong transaction volumes in the property sector.

A resolution to the financial turmoil in the eurozone this year could spur more interest in shares, he noted. “That might be a good reason for market interest to come back and stock market volumes to rise.”

Tan of Standard and Poor's said confidence needed to improve significantly before shares would go up.

That appears to have happened already somewhat. The benchmark Straits Times Index has gained 10.2% this year to 2,916.26 points.

“The risk appetite has definitely come back a bit. But the eurozone debt issue is still a dampener.

“And global growth as well as Asia's is slowing. Those are two big issues that will continue to drive interest in equities,” said Tan.

Many potential property investors may be moving into shares while they wait and see how the cooling measures play out on prices.

There has been much talk since the Dec 8 stamp duty came into effect that prices would fall, but Tan of Chesterton Suntec is not convinced.

“There's too much liquidity in the market and borrowing costs are low. I don't think property prices are coming down soon, not even in a slow growth environment,” he said.

The Watertown project in Punggol has achieved strong sales since its preview on Jan 18.

OSK-DMG Research attributes the robust showing to the penchant among Singapore property buyers for mixed developments. But the research house expects primary transaction volume to fall by 20% year-on-year this year.

By The Straits Times