_The Impact of Cooling Measures on Singapore’s Private Residential Market

The latest cooling measures implemented by the Singapore government include raising the Additional Buyers’ Stamp Duty rates and tightening Loan-to-Value limits on residential properties.

Lee Nai Jia July 10, 2018

On 5 July 2018, the government announced new measures to cool the property market and keep price increases in line with economic fundamentals. The measures came after the Urban Redevelopment Authority (URA) released flash estimates for Q2 2018, which recorded price increments of close to 9.1 per cent, year-on-year.

The latest cooling measures include raising the Additional Buyers’ Stamp Duty (ABSD) (Exhibit 1) and tightening Loan-to-Value (LTV) limits on residential properties (Exhibit 2).

Exhibit 1: Adjustments to ABSD Rates for Residential Property

^{# As entities, developers will also be subject to the ABSD rate of 25% for entities. Developers may apply for remission of this 25% ABSD, subject to conditions (including completing and selling all units within the prescribed periods of 3 years or 5 years for non-licensed and licensed developers respectively). Details are provided under the Stamp Duties (Non-licensed Housing Developers) (Remission of ABSD) Rules and the Stamp Duties (Housing Developers) (Remission of ABSD) Rules.}

^{^ Developers refer to entities which engage in the business of construction and sale of housing units.}

^{* This new 5% ABSD for developers is in addition to the 25% ABSD for all entities. This 5% ABSD will not be remitted, and is to be paid upfront upon purchase of residential property.}

Exhibit 2: Revised LTV Limits on Housing Loans Granted by Financial Institutions

What is the difference in impact, this time?

With the cooling measures from 2009 to 2013 (Exhibit 3), there was little speculation during the current upturn as compared to the last upswing then. The bulk of demand emanated from genuine home buyers and investors looking to own a second property, as well as pent up-demand from investors who had been waiting for cooling measures to be tweaked.

Exhibit 3: Cooling Measures, URA Residential Price Index and Transaction Volume (Q1 2008 – Q2 2018)

^{Source: Knight Frank Research, URA REALIS}

Separately, the active collective sales market led to an uptick in demand from owners seeking replacement homes, after selling their homes through collective sales. With the Singapore market bottoming out, foreign buyers who had already divested their assets in other markets that showed similar signs of cooling, were further attracted to come on board.

With the latest round of cooling measures in place, we could likely witness the following:

First-time buyers who are financially constrained and without cash savings may face difficulties with home affordability, unless prices decline by at least 5%.
More buyers looking to purchase their second homes are likely to adopt a wait and see approach for now, given the higher initial outlay.
Investors and buyers who are cash-rich will withdraw temporarily from the market in the short term. However, they are likely to monitor the market closely and be more discerning, seeking out projects that offer good value.
We are likely to see demand from buyers who have been waiting on the sidelines for measures to be tweaked, to build up and enter the market 1 to 2 years down the road.
The HDB public housing market is unlikely to be adversely affected by the new measures. Historically, cooling measures on the private market has had limited impact on the HDB market.

With the new cooling measures in place, private home sales are likely to drop by 30% to 40% month-to-month in Aug 2018, as stakeholders rationalise the policies. Looking ahead, prices are expected to revert to similar levels as that in 2017, as the market recalibrates with time and the general acceptance of the new cooling measures.

With Singapore’s economic fundamentals holding firm, the market will continue to grow and remain an attractive place to invest, work, study and have a family in.

Tan Tee Khoon, Executive Director and Head of Residential (Project Marketing), says, “The market will need time to digest the new measures, with sales likely to be moderated over the next 3 to 6 months. However, projects that are in prime districts, growth areas and close to lifestyle amenities will continue to attract discerning buyers."

Separately, the collective sales market could moderate in the immediate term with the new measures in place. The new ABSD for entities and the additional 5% that is non-remittable for developers will further translate to higher acquisition costs.

Ian Loh, Executive Director and Head of Investment and Capital Markets, shares, “All related stakeholders, owners and developers will need time to rationalise the new policies and make the necessary adjustments. With these new measures, interest from investors may temporarily shift to commercial properties.”

This post is authored by Lee Nai Jia, Senior Director and Head of Research, Knight Frank Singapore.