Property Investment Good, Property Speculation Bad

Property speculation is the purchase of property for profit and is short-term in nature, while property investment seeks to obtain income in the form of rent and is long-term. Property speculation is frowned upon as it raises the price of houses, which is an emotive subject when first-time home buyers experience difficulties.

The issue of property speculation in Taiwan came to prominence after property hot-spots appeared in Taipei, where prices repeatedly reached new highs due to competition between insurers seeking to park idle funds. Homes not occupied by their owners will now be subject to a tax of 15 percent. President Ma Ying-jeou said, “Right now speculators are making profits while home buyers are groaning… We hope this measure will ensure ‘housing justice.’” To prevent the hoarding of land, insurers are not able to purchase undeveloped land without a building permit and the prospect of yields within two years.

In China, an official denied that mainland companies were speculating on real estate in Taiwan. Fan Liqing, a spokeswoman for the State Council Taiwan Affair Office, said that $324 million was invested in 129 projects in Taiwan in the year to August, of which 70 were in the service sector, 47 in manufacturing and 12 in agriculture – there is little sign of speculation on residential property. She complained that there were always people in Taiwan “trumping up” stories in an effort to “block cross-Straits economic cooperation,” but that these would not receive public support.

Property speculation is seen as a bad thing on the Chinese mainland, and the Premier, Wen Jiabao, said that measures to limit it had “achieved a marked effect,” but were still at “a crucial stage.” He added that property speculation should be limited at a time when the country’s housing market is rebounding in some cities: interest rates were cut twice in less than a month. Measures that have recently been implemented include a ban on purchasing second homes, raising minimum down-payments and introducing property taxes in some cities. The government is attempting to reduce speculative demand while encouraging banks to lend to first-time home buyers.

In Singapore, a new rule dictates that people who sell a property within a year of buying it must pay stamp duty of as much as 16 percent. Loans will only be available for 80 percent of the purchase price of a property, where previously the figure was 90 percent. It was the fourth time the government had acted to cool the property market in less than two years, and tougher measures are widely anticipated.

A joint statement by the National Development and Finance ministries and the Monetary Authority of Singapore warned of “excessive exuberance” in the property market, as speculators and overextended home buyers could sustain capital losses as a result. The government wishes to avoid a property bubble. Donald Han, the managing director of Cushman & Wakefield Singapore, said that if the government could act so quickly and without warning, it could do worse, and investors wouldn’t like the results. The Real Estate Developers’ Association of Singapore said that genuine buyers and investors wouldn’t be deterred.

A letter-writer to the Malaysian Straits Times made two recommendations to restrain property speculation. The first is that people from overseas should only be able to purchase property on the primary market, i.e. not for resale. The second is that mortgages for second homes should cost more.

In Malaysia, people buying a third home can now only obtain a loan for 70 percent of the value of the property, while a loan of 90 percent can be obtained for first and second homes. The new rule, which is effective immediately, is intended to curb speculative investments which have caused house prices to rise in some areas. Datuk Seri Chor Chee Heung, the Housing and Local Government Minister, said that the government had been effective in addressing the housing issues of people with lower incomes, but that further work was required for people with medium incomes.

Malaysia hopes to attract foreigners to retire in the country or at least spend extended periods there. Advantages cited include the friendliness of the populace, the good climate and environment, developed infrastructure and a low cost of living. Foreigners are preferred as home buyers because they have more purchasing power than the average Malaysian.

In Hong Kong, the supply of land, stamp duties on certain luxury properties and down-payment requirements increased, but Leung Chun-ying, Hong Kong’s Chief Executive, promised even more measures to prevent house prices from rising unduly. They have risen by almost 20 percent between January and September of this year. Leung took office in July after promising to increase housing supply. Buggle Lau, chief analyst at Midland Holdings Ltd, Hong Kong’s largest publicly traded estate agent, said, “He’s sending a message to the market that the government can still act when things get out of control.” According to Savills PLC, Hong Kong is the most expensive place in the world to buy an apartment, and prices are 85 percent higher than in London, where Savills is headquartered. John Tsang Chun-Wah, Hong Kong Financial Secretary, said that measures would be relaxed once supply and demand were balanced.

In Canada, people wishing to purchase property where they will not live are required to supply a down-payment of 20 percent. The proportion of a house’s price that can be borrowed was reduced, to prevent people falling into debt. Borrowers must meet the criteria for a five-year fixed rate mortgage, where previously the standard was three years.

While property speculators are a popular bugbear, people wishing to hold houses for an extended period will not be affected by the many measures adopted by governments to rein in property speculation. If you wish to purchase a house and rent it out, you’ll be fine.

Timothy Chilman was an IT contractor and English teacher in earlier incarnations, but now writes for a living. He has often written for, and has acquired a great deal of knowledge of the Australian property market.

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