Property investment is no sure thing, contrary to what less-than-diligent investors may think. The uncertainties multiply when the property that a besotted investor is eyeing is located overseas. Now, we get a dose of sense with the cooling of property fervour in the Singapore market as a result of the government's cooling measures. In Iskandar too, across the border. The following Q&A content which emerged from a Parliamentary session yesterday (and is available at the MAS website) gives us further pause in being over-enthusiastic about investing in not only Iskandar but elsewhere.
Name and Constituency of Member of Parliament
Er Dr Lee Bee Wah, MP, Nee Soon GRC
Question:
To ask the Prime Minister (a) whether the Ministry is aware of how many Singaporeans are invested as individual owners of properties in Iskandar Malaysia; and (b) how are our banks safeguarded against any major default in property loans to these buyers.
Answer by Mr Lawrence Wong, Minister for Culture, Community and Youth on behalf of Mr Tharman Shanmugaratnam, Deputy Prime Minister and Minister in Charge of MAS:
1 There are many risks involved in overseas property purchases, especially in markets where there is uncertainty of supply or no effective regulation of supply. If there is an over-supply of properties, investments can lose their value, and it will also be difficult to find tenants for an investment property.
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2 In Iskandar and Johor, some reports have highlighted aggressive land-banking by developers. There is indeed a real concern about future over-supply in the property market there, and hence the potential decline in value of homes. Based on data from Malaysia’s National Property Information Centre, there are 335,838 new private residential units in the pipeline. This is more than the total number of private homes in Singapore. The data does not include another 1,400 hectares of reclaimed land near the Tuas Second Link that will come on stream from 2020. 3 Given these indications, reports indicate that buyers are becoming more cautious. Official Malaysian data suggests that the Johor housing market is already slowing down, with the value of residential property transactions falling by 42% on a quarter-on-quarter basis in Q4 2014. Singaporeans buyers too are becoming wary. According to surveys of real estate agencies in Singapore, the number of Malaysian properties bought through these agencies dropped from 2,609 in 2013 to 838 in 2014. |
4 Nevertheless, not all Singaporeans have recognised the risks involved in overseas property purchases. Hence the MAS and the Council of Estate Agents (CEA) will continue to step up efforts in raising awareness and highlighting these risks. For example, the CEA has issued guidelines on what investors in overseas properties should look out for. These include finding out about rules or restrictions on foreign property purchases and ownership, the taxes payable, and the dispute resolution avenues available in the foreign market. This is besides the risk of oversupply that I mentioned earlier, resulting in investment losses.
5 At the systemic level, financial institutions in Singapore do not have large exposures to loans for the purchase of overseas properties. In fact, the banks themselves are cautious about financing the purchase of overseas properties. Hence such loans make up only 2% of the housing loan portfolios of the key mortgage lenders in Singapore. In addition, the Total Debt Servicing Ratio (TDSR) framework introduced by MAS in June 2013 requires lenders to assess the debt servicing ability of their customers for all new property loans, regardless of whether the property is in Singapore or overseas. All existing debt obligations, including those for overseas property purchases, must be included for such assessments.
6 MAS’ stress tests on banks’ housing loan portfolios indicate that the banks will remain sound even under stressed conditions.
