THE TIMES OF INDIA

MONDAY, AUGUST 25, 2003

Singapore property mart jittery

AFP

SINGAPORE: Singapore's property market is nervously awaiting details of
proposed changes in a multi-billion dollar pension fund which are likely to
reduce workers' ability to service home mortgages.

Analysts said the changes in the Central Provident Fund (CPF), expected to
be tabled when parliament sits on August 28, would bear down hardest on the
residential property sector, particularly on the lower end of the market.

Property agents have begun to feel the sting, with response to open-house
viewings of apartments falling by as much as 50 per cent as potential buyers
stay away pending the release of the government's plans.

One property agent likened the slackening in market activity to the silence
in a cemetery. ''The residential market is very much sentiment driven,''
said Teresa Khoo, head of research at property consultancy Jones LangLaSalle
in Singapore. ''Potential buyers who are currently concerned about the job
situation in the market would now have to further grapple with the interim
uncertainty of the quantum and timing of the proposed CPF reduction,'' she
said.

Singapore has prided itself on the high home ownership rate among its more
than three million citizens and permanent residents in a region where vast
squatter colonies blight the landscapes of many cities. A key reason for
this is that a substantial portion of a worker's pension fund savings can be
used to pay mortgages for high-rise apartments, the most common home for
residents in the land-scarce island-republic. But with Singapore facing
tougher challenges from lower-cost countries in the region, the government
is moving to cut the cost of doing business through measures such as
lowering rentals and taxes, and now wages and pensions. Prime Minister Goh
Chok Tong on August 17 proposed that the pension fund contribution may have
to be reduced to 30 per cent of an employee's monthly wage, while lowering
the salary ceiling on which contributions are based.

Currently, employees allot 20 per cent of their monthly salary to the CPF,
with employers chipping in 16 percent for a total package of 36 per cent.
The proposed cut is likely to come from the employer's contribution. The
reductions will effectively reduce the ability of home owners to pay their
mortgages and new buyers would have to settle for smaller, more affordable
flats. Analysts said any impact would depend on how much is actually slashed
and the time period during which it would be implemented. A worst-case
scenario where contributions will be cut by six percentage points and the
salary ceiling for contributions reduced to 4,000 Singapore dollars (2,285
US) would erode Singaporeans' ability to buy private housing by seven to 14
per cent, according to Kim Eng Securities.

The worst affected will be workers currently earning a salary of between
$5,000 and $6,000 dollars a month. ''While the change will negatively affect
sentiment in the private housing sector, the actual impact would depend on
how the government will phase in (the cuts) and the performance of the
economy over long term,'' Kim Eng Securities said. United Overseas Bank said
in an analysis: ''With the reduced affordability, we expect private
residential prices to remain under pressure, despite recent signs that the
market appears to be bottoming out.'' However, the high-end market appears
to be unaffected by the news. Southeast Asia's biggest property group
CapitaLand said it will go ahead with the launch this year of three projects
targetted at expatriates and wealthy Singaporeans.

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