The government has introduced additional buyer’s stamp duty for private residential properties.

With effect from today, foreigners and corporate entities purchasing private residential properties in Singapore would have to pay an extra 10% in the form of additional buyer’s stamp duty.

Permanent residents buying their second or subsequent homes and Singaporeans buying their third residential property or more in the local market would have to pay extra 3%.

Below are the new stamp duty rates and its impact on buyers (compiled by Straits Times)

“New Private Home Sales Dive”, that is today’s news headline. “The number of units sold last month slowing 25 per cent to 1,182 units from the 1,575 units sold in May – which was down from 1,805 in April.”

However, this should not surpise you at all. Since Jan 2011, the government has implemented policies to curb property speculation. When Khaw Boon Wan started to blog his “concerns” of property market, it is already a clear signal that the property speculation is going to face strong head wind.

I have posted the chart below in my previous post “Is private property investment safe? high yield? inflation hedged?” It is clear that the private property price has surpassed pre-crisis level. What worries me is that there are an increasing number of my clients talking about investing private property, this includes a group of “conservative” investors, who used to only put their money in bank savings or fixed deposits.

Obviously, one of the key reasons, in my opinion is, as stated in the news article, “Experts say despite the latest fall, the numbers still represent a healthy market”.

Have you ever heard these “experts” told you to stay away from property investments at all? When the property price rises, they will picture the once in a life time booming market which you cannot miss. When the property price falls, you will be advised to hunt the bargains.When they really cannot give you any reason to invest in private properties like now, they will tell you to pay attention to the commercial properties.

In my article how information overload leads to bad investment decisions, I highlighted that people tend to “switch off” and leave the decision to “experts”. Property investment is as risky and complicated as stock investment. However, many investors spend less time in valuing and assessing the properties than evaluating if they should buy an iPhone or Android phone, even though the properties cost them millions.

Right investment decision is nothing but common sense; but most of the time, people choose what they want to hear, that’s why investment is so difficult. Look at the chart below again.

Last week, new minister of Ministry of National Development, Mr Khaw Boon Wan, wrote a blog entry, “my worries“. He expressed deep concern for property speculators. He says:

I must keep an eye on the medium term for possible pitfalls. Sharp property price increases cannot go on forever. Gravity cannot be wished away. We have always recognised that unsustainable, rapid price increase brings with it enormous risks and that got us to act earlier on. While sharp rises are painful, sharp declines are just as disastrous. Those who borrow to go into properties thinking that prices will continue to rise, will be thrown into financial hardship should prices drop and banks start calling. The world witnessed this barely 2 years ago when the US property market crashed and we all suffered from it.

He cited a few major factors to consider:

1. 35,000 private units (condos and landed properties) have already been sold, though still in construction, with payments in various stages of completion. But there are 45,000 units in the pipeline, waiting to be built and sold.
2. URA will inject another 8,000 private residential units into the market. Together with committed investments, some 53,000 units will be looking for buyers over the next couple of years or so. That is not a trivial number.
3. The external situation is not exactly bullish. Europe sovereign debt will take a long time to clear. The Middle East crisis can still go ugly. In the event of any external shock, both foreign demand and rental demand can fall quite quickly. The impact can be serious if the drop in demand happens at a time when there is a substantial increase in supply.
4. Low interest rates will not remain so forever. Cost of borrowing and repayment must go up and households must factor this in.

A market correction or any crash is not a given. … But no one is immune to mishaps. With so much uncertainties, I must advise investors and upgraders to bear these considerations in mind when they go to show rooms and contemplate if they should sign up.
What seems rosy today may turn out to be thorny, if we are not careful.

My View? When Khaw Boon Wan blogs, it’s going to be official.

Singapore raise down payment requirements for second mortgages and extend the period homeowners must hold properties to avoid a sales tax as it steps up efforts to curb speculation after prices rose to a record.

Individuals with more than one mortgage can only borrow up to 60% of a property’s value, down from 70%.

On loans to entities other than individuals it will be reduced to 50% from 60%.

Sellers will now have to pay a stamp duty for all homes and land sold within four years of purchase, from three years.