Are Speculations Playing The Spoilsport In The Realty Game?

Speculations are at the forefront of factors that make property markets across the world vulnerable as well as risky. In hopes of doubling their money quickly, investors often involve in speculations, which often has an adverse impact on property markets. No property market is the world remains unaffected by speculative activities.

Canada: Fear of short supply

Canadians have been buying and many industry experts have termed this as a “housing lust”. Some are even ready to pay higher than the listed price. According to reports, lenders, despite tightened mortgage eligibility criteria, are still furiously scouting deals and homeowners are given assurances that their houses are worth more than they think. Overall, the speculation is that prices will only go up.

The rental market is moving at an equally maddening pace. Property ownership is becoming pricier and many are left with no other choice but to rent. Taking advantage of the situation, landlords have escalated rents. Foreign investment, speculative activity and buyer psychology are also driving the market.

A Canada Business report says: “For those sitting on the sidelines, the gnawing fear of getting permanently shut out grows more intense as prices climb, and some take the plunge no matter the cost. At this pace, waiting just a month or two can be the difference between owning a home and resigning oneself to renting.”

“The average selling price for all homes in the Greater Toronto Area, including houses and condos, surged to $916,567 in March, a 33 per cent rise from the year before, according to the Toronto Real Estate Board. Since January alone, prices are up 19 per cent. A lowly semi-detached house in the city is now worth more than $1 million,” reads the article.

Those willing to pay higher owing to speculation have ended up shooting up prices for others as well.

However, the country does know the trick to handle the situation, past records show.

In 1974, the ruling party introduced a provincial tax in Toronto called the Land Speculation Tax which allowed 50 per cent tax on land profits, and primary residences and farmlands were exempt from this. For investors holding a lot of property, this came as a bolt from the blue. The authorities did tame speculation but only after a lot of loss to speculative investors, who read the market of gains rather incorrectly.

Singapore: Residential realty registering a lull

As of January 2017, residential, retail and commercial property markets are facing a downturn in Singapore. But, this is something new. Between 2009 and 2013, property prices had swelled by 60 per cent while property markets across the world witnessed a slowdown. The government had to introduce some cooling measures to prevent bubble forming.

The Additional Buyer's Stamp Duty (ABSD) was introduced which led to an additional 15 per cent increase in prices for overseas buyers. Even Singaporeans with more than one property had to pay an elevated priced. Then came the Total Debt Servicing Ratio (TDSR), which aimed to ensure that buyers' monthly debts do not exceed 60 per cent of their income.

However, while the control has cooled the buying format, it has impacted the residential market, too. Now, with organisations de-staffing, the lull may prolong. The government may try tweaking the ABSD for local buyers. As of now, with a lot of supply in the commercial and residential segments, rents may also come down.

The boom in real estate, therefore, led to homebuyers destabilising the economy and when authorities did try to stabilise, sentiments seem to have weakened.

The India riddle

After a bull run, the Indian residential market experienced a halt starting 2014. Corrective measures were implemented, as result of which real estate in India is now crawling back towards revival. Speculations were the primary cause that led to the over three-year long doom and gloom. In 2014, when the elections results were awaited, buyers hoped for a change in the government and shift in policies. This resulted into muted activity in the real estate sector starting then; the tremors are being felt till now.

With certain new triggers from the government, real estate is limping back to revival. However, the sector still need a push after policy changes such as the Real Estate (Regulation & Development) Act, 2016, the Goods and Services Tax (GST), and the Benami properties law have been introduced.

At the moment, speculations are in play already. With delays in state RERA to occupy office in different states, even active buyers are largely confused about whether to buy right now or hold back for a few months. Little do we realise that this lull could further hold back the economy from growing. This is the sector that contributes almost five to six per cent towards gross domestic product, besides providing employment avenues for hundreds of ancillary industries. Can we afford the speculation? Clearly, no. Mindless investments and holding back from investing at a time when you are ready with the budget is equally straining for the market.