THE surprise hike in the development charge (DC) last week has left some property investors frantically trying to interpret the signals the Government might be sending the market.

The uncertainty has led to a 4.2 per cent dip in property stock prices since they hit a peak a month ago.

While the Government stated that the move last week was not a cooling measure, it was seen by many in real estate circles as a sign that it could hit the brakes if it felt the need.

Experts say it will not come to that but there is talk about what other moves the Government could take if it does opt to step in. These measures essentially fall into two categories - those that hit demand or supply.

National Development Minister Mah Bow Tan tackled the supply side of the equation on Sunday when he assured the public that when supply falls short, land sales will be stepped up.

Some see the 40 per cent DC hike as a supply-side measure in that it could slow collective sales. But supply-side measures could take years to work. 'And if you don't do it properly, you might kill the market down the road,' said one expert.

Moves to hit demand can take effect far quicker, as the anti-speculation curbs imposed in 1996 attest. But these hit the market so hard it took years for it to recover.

One idea at the top of some lists is the axing of the deferred payment scheme, which would hit speculators.

Some experts believe the scheme encourages speculators - which in turn helps to push prices up - as it lets them buy and sell without investing much equity. Deferred payment allows buyers to put off paying the bulk of the purchase until the property is ready for occupation a few years down the road.

Doing away with the scheme will mean buyers have to pay in tranches as construction of the property proceeds.

The Government could also allow a lower loan quantum for purchases, forcing buyers to stump up more of their own cash.

Since July 2005, buyers have been able to borrow up to 90 per cent of a property's value instead of just 80 per cent previously.

Banks could also be encouraged to reduce their exposure to property. Some said the capital gains tax, which was part of the 1996 anti-speculation package, may be revived.

'The chances of implementing a capital gains tax is very low at this point because there are other measures the Government can use,' said Mr Nicholas Mak of property consultancy Knight Frank.

'Also, implementing such a tax can damage investors' sentiment very drastically.'

Although these ideas have been bandied about in the industry, the real unknown is the trigger point that forces the Government's hand.

Some say it will be when business costs get out of control. Others say there is a magic number the Government is watching for when it comes to the level of speculation or price increases.

'Where it sees excessive price movements or unnatural markets being created, then it will act,' said JP Morgan analyst Christopher Gee.

The concern is that excessive speculation leads to distorted prices, said Citigroup economist Chua Hak Bin. Citigroup expects the residential supply crunch to worsen despite government assurances that supply remains sufficient over the next few years.

OCBC analyst Winston Liew anticipates the Government coming up with more soft measures, such as removing the deferred payment scheme.

Knight Frank's Mr Mak said the Government may not need to impose drastic measures at all, but if people believe it might get tough, that may be enough to keep things in check. 'Sometimes, the fear of death is worse than death itself.'

» Possible curbs

Is this article useful to you?