In a new practice adopted by property developers recently is offering a reimbursement for the Additional Buyers' Stamp Duty to buyers, both local and foreign. So if the buyer is a foreigner, they will rebate 13% and if the buyer is local they will rebate 3%. This way they can artificially keep the same level of prices for the statistics, even though they will still lose around 10 per cent of their margins. So buyers still buy for the same price and nothing has changed, right?
Wrong. The one segment that suffers the most is the resale market as sellers are small time investors who cannot subsidize the Stamp Duty. No one is going to buy a resale unit now, when you can get a brand new unit from developers for 10 per cent lower price, with a fresh leasehold. Of course the seller of resale unit could try to increase price 10 per cent and then give 'discount' of 10 per cent. Unfortunately this doesn't work as every condo has dozens of units for sale and the prices psf are pretty much fixed. If you're asking much higher price psf, they will be no interest for your unit at all.
Many Singaporeans are already complaining that this new practice creates a bigger subsidy for foreigners than locals. The government is likely to stop all the reimbursements by developers shortly. Then property developers can simply lower asking prices by 10 per cent, followed by a similar decrease in the resale market.
Great, so Singapore is embarking on the creation of its own version of sub-prime.
Already we have over-priced properties and mortgagees compelled into taking excessive and unsupportable loans, now we have the equivalent of a US scam called cash-back.
The problem with including taxes, costs of furniture or cash-back into the price of real estate, is that the instant a sale is transacted, all of those values fall away from the real estate value and the mortgagee is left holding huge negative equity.
If I take a loan to buy a dog box for S$1.6m and that price is inclusive of 10% tax, the real estate value is S$1.44m but I hold a loan for S$1.6m which I will never recover from a re-sale. This is the reason banks today are asking for large down payments against mortgage loans.
In my opinion, this is tantamount to fraud.
The responsibility should lie with Developers, but the banks are complicit especially when they parcel those toxic mortgages and sell them on.
Governments' failure to regulate and control Developers and banking activities is also noted.
