PROPERTY SPECULATION AND FOREIGN OWNERSHIP OF PRIVATE CONDOMINIUMS

Mr Low Thia Khiang asked the Minister for National Development whether there is a need to introduce further measures to curb property speculation and to limit foreign ownership of private condominiums.

The Minister for National Development (Mr Lim Hng Kiang): Mr Speaker, Sir, can I have your permission to take Question Nos. 1 and 2 together?

Mr Speaker: Yes.

Mr Lim Hng Kiang: Mr Speaker, Sir, the MPs have raised two separate issues: (1) limiting foreign ownership of properties, and (2) curbing property speculation.

The policy on foreign ownership of property in Singapore is set out under the Residential Properties Act, passed in 1976. Foreign investors are allowed to invest freely in commercial and industrial properties. For residential properties, foreigners can apply for a licence to develop, but can only purchase condominiums and apartments which are over six storeys. In other words, foreigners are currently excluded from 93% of the total housing stock in Singapore: HDB flats, landed properties, and apartments below six storeys. Foreigners have access to only 7% of the total housing stock.

Our economic development strategy succeeded because we encouraged foreign investment in Singapore, including foreign investment in property development. Allowing foreigners to buy private residential properties has encouraged foreign talent to bring their assets and their families to Singapore, and contribute in many other ways to our economy.

Foreigners own about 13,000 units, or less than 2% of the total housing stock in Singapore. If we look at the private property segment of about 140,000 units, foreigners own about 9%.

The question is whether 2% of total housing stock, or 9% of private residential properties, is too high a percentage for foreigners to own in an open market economy like Singapore. We need and have thrived on the free movement of capital, talent and expertise.

Foreign buyers are not the principal cause of the property price increases. Other basic factors are:

1. The high growth of incomes and savings among Singaporeans;

2. The increase in resale values of HDB flats, following the liberalisation of HDB's financing rules for resale flats. This has increased the number of HDB owners who can afford to upgrade to or invest in private properties;

3. Low interest rates and readily available mortgage financing; and

4. The prevailing mood of the market, and the confidence that Singapore will enjoy high economic growth and political stability for the foreseeable future. The recent spate of letters and reports in the press on foreign ownership of properties has blown the issue of foreign buyers out of proportion.

Besides foreigners, "speculators" have also been blamed for rising property prices. "Speculators" are people who buy properties to resell at a profit after a short holding period, instead of for long term investment or living in. There always is some property speculation, in falling as well as rising markets. Within limits, these "speculators" play a useful intermediary role. They help the property market to function efficiently and bridge the gap between long term buyers and long term sellers.

But in a rising market, property speculation can get out of hand. Excessive speculation can create a false mood of euphoria, and push prices up higher than long term fundamentals can justify. Eventually, this will result in a property market collapse, which can seriously damage the rest of the economy. In Japan, when the bubble burst, not only did many home buyers on mortgages suffer, but property companies went bankrupt and many banks incurred huge losses on huge loans on properties and had to be bailed out by the government.

The Government is therefore carefully monitoring the situation. We are examining current market practices to see whether we need to adjust the rules on foreign ownership, or dampen excessive property speculation. However, any steps affecting the property market should only be taken after the most careful consideration. Acting hastily and unwisely will shake the faith of investors, local and foreign, in the Government, and undermine the confidence of the market.

Mr Goh Choon Kang (Braddell Heights): Sir, does the Minister think that the Residential Properties Act, 1976, need to be further amended at this point of time? Secondly, will he consider the following measures:

a) imposing a minimum holding period on foreign buyers;

b) no resale of uncompleted units in all condominiums for three years; and

c) all developers should report to the Tax Department all resale transactions with details of the resale prices.

Mr Lim Hng Kiang: Sir, the Residential Properties Act, passed in 1976, has served us well all these 20 years. I think it will be very unwise to tinker with the Act without studying the situation very carefully. As I have said, the Government is monitoring the situation. The percentage of foreign ownership is not something that has changed over the years. The number has remained fairly constant. It is not something that has gone up dramatically in the last few years. So we would not want to amend the Residential Properties Act unless there are very good reasons for it.

As I have explained in my answer, the Act has served us well. We have kept an open economy which encourages foreign investment in Singapore, both in other sectors as well as in the property sector, and the number of foreign purchases in the residential property market is not something that has turned out to be very large. So it will be wise not to tinker with the Act.

Mr Low Thia Khiang (Hougang): In the light of escalation of prices of private residential properties, is the Minister of the view that there is a possibility that Singaporeans have over-invested in private properties?

Mr Lim Hng Kiang: Sir, buying private properties is an individual decision by the investors. As far as the financial market and the banking sector are concerned, there are sufficient rules to make sure that prudence is exercised in the borrowings to purchase properties. Right now, the rules on mortgage loans have made sure that the financial sector exercises due prudence in giving out such loans. Whether or not individuals are over-extended in buying properties, we will have to leave it to the individual.

Mr Low Thia Khiang: The Minister mentioned just now that one of the factors which has resulted in the increase in private residential property prices is that loans are readily available. Looking at the nation as a whole and that the financial sector is prepared and willing to give the loans, are we as a nation over-invested in property?

Mr Lim Hng Kiang: Sir, macro-economists have some rules of thumb about investment in property as a fixed investment. If I remember the numbers correctly, as a percentage of our GDP, investment in fixed assets, primarily properties, is not unduly high in Singapore at this stage of our development. If I were to answer his question, we can look at it in different parameters.

The first parameter is, in a country's economic development, what proportion of its investment is in property and what investment is in other economic sectors. Based on the statistics that we have, our share of GDP in fixed property investment is not unduly high at our stage of development.

The second parameter that we can look at is: are we over-extended as a country in terms of mortgage loans on property? Again, the banking system is well regulated. There are sufficient rules in place to make sure that the credit-worthiness of borrowers is assessed correctly and limits are put on the amount that they can borrow. These are prudent rules. The bank association on their own have decided to reduce the ceiling of the loans in line with the rising property prices. It shows that the financial market is acting cautiously and there is no extension of the mortgage loan sector.

Mr Low Thia Khiang: Sir, how about looking from the parameter of our CPF savings?

Mr Lim Hng Kiang: If you look at the individual, whether or not he has over-extended, as I say, that is up to the individual, ie, what proportion of his savings he wants to put in property and what proportion in other assets. If you look at the total country's investment, ie, the country's net savings translated into investments, as I said earlier, that percentage does not show that we are over-investing in properties.

Mr Heng Chiang Meng (Cheng San GRC): Sir, I would like to declare my interest as a property developer.

Sir, would the Minister agree with me that today, banks in Singapore are not allowed to lend Singapore dollars to foreigners wishing to buy property in Singapore? Would the Minister also agree with me that no country had really been successful in putting an imposition on foreign purchase of property in their own home markets, except by causing a blip in the market due to some initial loss of confidence whereas subsequently the fundamentals take over, and the market continues on, because of the fundamental reasons of that particular country?

Mr Lim Hng Kiang: I am afraid I lost him somewhere along the line. But I can agree with what he said about the rules of foreigners borrowing in our markets. The question that Mr Low wants answered is this notion that, as a country, we are over-extending ourselves in property. I think this is a macro-economic question. You look at your country's fixed investments, and you ask yourself what percentage is put in different so-called productive assets and non-productive assets. I think what he is trying to get is that we are putting too much in property, which is non-productive assets.

The gross investment in Singapore is very high. This translates from our very high rate of savings and that results in a very high rate of investment for macro-economic growth. Out of these domestic investments, you will notice that a high percentage of it goes into infrastructure. A lot of our Government's development expenditure goes into port, airport expansion and roads. These are probably what you will consider productive investments. So if you look at the stage of our development today, our investment in infrastructure and properties is not unduly high. And if you look at the investment in property, and a high percentage of this is in public housing, you can reach the conclusion that our actual investment in private property is also not very high.

Mr Chng Hee Kok (Tampines GRC): Sir, first, I would like to declare my pecuniary interest as a managing director of a public-listed company involved in property development.

Three questions for the Minister. Firstly, will he enlighten the House on the percentage of foreign ownership of private property, say, five years ago, compared to the 9% today?

Secondly, will the URA publish these numbers on a regular basis, so that there will be no wrong perception in the public's mind as to the extent of foreign ownership of private property?

The last question, Sir, is this: will he like to paint a scenario of what will be the problem if we impose sudden curbs on foreign ownership of property? In other words, what impact will it have on the current property market and property owners?

Mr Lim Hng Kiang: Since the enactment of the Residential Properties Act in 1976, ownership of properties by foreigners has never been a big issue because 93% of our properties are protected and not made available to foreigners. So there has never been a need to monitor the percentages of foreign ownership of our properties in a regular way. We have not had these data five years ago. URA started monitoring the purchases of foreigners in the new launches since 1994, and the percentage of foreigners has remained consistently in the same range, between 17% and 28% of new properties, ie, of all condominiums. So when you restrict ownership of private property, and 93% of properties in Singapore are not available to foreigners, then, of course, foreigners can only buy the remaining 7%. And out of the 7% private condominiums, for new launches, foreigners take up between 17% and 28% of these properties. These numbers were released in 1994 and the numbers have remained consistent. It has gone up; it has gone down, depending on each quarter, but it has hovered around this percentage. So there has not been a major shift in the ownership of private properties by foreigners.

As to what will be the impact on the property market if we were to restrict foreigners on the purchase of private property in Singapore, I would like to caution that there are several implications. The first implication is the level of confidence on the policies and the market that we operate in Singapore. Singapore has thrived because we have kept our economy open, even in those days when conventional wisdom in many countries kept their markets closed. We wisely kept our markets open, encouraged foreign investments in Singapore, and we had benefited from that policy. If we were to react unwisely now and close the market, this sends a wrong signal about the openness of our markets. So I would hasten to make any drastic changes to the Residential Properties Act when the factors and the situation in terms of foreign ownership of our properties do not warrant such a drastic change.

Mr Low Thia Khiang: Two supplementary questions. First, Sir, I know that the Australian government has allowed foreigners to invest freely in the property market but has imposed certain restrictions on sale of property. They could only sell to Australians, not foreigners. Will the Government consider some measure to that effect in the future, if there is a need?

The second supplementary question is: would the Minister reveal the number and percentage of foreign ownership of private residential condominiums in districts 9, 10 and 11?

Mr Lim Hng Kiang: If Members start comparing Singapore with other countries, they will draw the conclusion that Singapore's property market is, in fact, more highly protected than the Australian market, because 93% of our market are not open to foreigners. The HDB sector and the landed property sector are not open to foreigners. So, in fact, only 7% are open to foreigners. When other countries, for example, Malaysia, put a levy on property, they are protecting the lower-priced properties. But in Singapore we do not need to do that because the HDB segment is already protected. Foreigners cannot compete to buy HDB properties.

So if you restrict the sector which is open to foreigners, you are in fact making the situation worse. You are in fact making the sector even smaller and with the high level of foreign confidence in our Government, in our economy, foreigners going for properties in a smaller market will then accentuate the prices. Today, with foreigners being allowed to buy only private condominiums, I think that is the right approach because the lower segments and the landed properties are protected, so that foreigners cannot own land in Singapore. That is a sound policy. It has served us well since 1976 and there is no need to make any drastic changes unless foreigners are buying in very large numbers, and they are not.

Mr Chng Hee Kok: Sir, in view of the take-up rate of new properties by foreigners in the range of 17% and 28%, as disclosed by the Minister, will the Minister take this into account when the Planning Department or the URA releases the supply of land for tender?

Mr Lim Hng Kiang: I would urge Members to look at this issue in its entire perspective. The very reason why the property markets have moved is because there is strong confidence in the Singapore economy, in the Singapore Government. If that confidence is not there, property prices will collapse. When we look at the new releases of land for private condominiums, we take all these into consideration. First, the changing aspirations of Singaporeans and, therefore, we have moved from releasing 2,000 units to 6,000 units a year. Do not forget that not very long ago, less than seven or eight years ago, in the private property market, we were only talking about 4,000 units every year. And out of the 4,000 units, nobody quarrelled or discussed about foreign ownership in the 4,000 units. We have put in more land sales to raise the availability of such units to more than 10,000 now -- 6,000 by the Government and 4,000 from the land banks of private developers.

So we have made private condominiums and private property more readily available to Singaporeans and, in so doing, Singaporeans now have better access to private property. As we track the purchases of Singaporeans and foreigners in the private property market, and we detect a strong demand for private property, Members can be assured that we will continue to adjust the supply to meet this demand. So the answer is, yes, we are monitoring this very closely and if indeed there is a greater demand for private property, the Government will adjust its land sales accordingly.