_Measures For a Sustainable Property Market

Residential property cooling measures announced by the Government on 26 April 2023 and the likely effects on the market

Leonard Tay April 27, 2023

The government announced a new suite of cooling measures before midnight, on 26 April 2023, where the Additional Buyer’s Stamp Duty (ABSD) rates were increased for most categories that included Singapore citizens, permanent residents (PRs), foreigners, entities and trustees. The only category that remained unchanged was for housing developers. With the government stating that these latest measures are to pre-emptively manage investment demand, it could be that the government intends to suppress price growth until such time as the upcoming supply of 40,000 public and private homes in 2023, and the near 100,000 units expected to be completed between 2023 and 2025 catches up with housing demand in Singapore. Should this be a holding measure, it is hoped that some of these ABSD rates can be and will be relaxed in the future, when supply and demand are once again in harmony, making for a stable and sustainable private housing market.

The URA Private Residential Price Index rose 2.2% y-o-y in the pandemic-led recession year of 2020, 10.6% y-o-y in 2021, 8.6% y-o-y in 2022 and then another 3.2% q-o-q in Q1 2023. Overall, the private home price index increased 32% from Q4 2011 (when ABSD was first implemented) to Q1 2023. At the same time, the ABSD rate for Singaporeans buying a third and subsequent home has increased from 3% in December 2011 to 30% in April 2023. For foreigners buying any private home, this has risen from 10% to a prohibitive 60% in the same period. Throughout the history of Singapore’s residential cooling measures, it has been observed that the ABSD rate increases have outpaced private home price growth.

In a period where Singapore’s GDP performance increased by a very slight 0.1% y-o-y in Q1 2023 (based on advanced estimates), where there is widespread inflation and concerns over basic cost-of-living matters, rising interest rates and a deteriorating economic outlook, the latest round of measures comes as a surprise. Perhaps with the URA Private Residential Price Index rising 3.2% q-o-q in Q1 2023 (based on flash estimates), the government felt compelled to impose a new round of measures to ensure that private home prices do not increase any further throughout the year where GDP growth is projected to be lacklustre. However, the launch prices of new uncompleted homes of new projects will continue to be elevated based on the land prices developers paid in the past 12 to 18 months, as these prices reflect the increasing development costs and a decent profit that developers can make in the current market for the amount of risk that they are undertaking.

In the months ahead, developers will grow increasingly cautious and conservative when it comes to acquiring land. Even before the announcement of these latest measures, developers were already showing signs of tentative defensiveness as illustrated by the recent Government Land Sales (GLS) tender at Lentor Gardens in early April 2023. Only one bid was submitted at a land rate of S$985 psf per plot ratio (ppr), and this was the lowest land rate for a GLS tender in the Lentor vicinity and the first time the awarded price was below S$1,000 psf ppr. In the land tenders ahead, developers are likely to submit more subdued bids or else even not participate, adopting a wait-and-see approach to evaluate the impact of the measures on homebuyer demand.

The ABSD rates increased between an incremental 3% and 5% for second and subsequent homes bought by Singapore citizens and permanent residents. But most surprising of all was the two-fold increase in ABSD for foreign homebuyers from 30% to 60%. The ABSD rates for entities and trustees also increased substantially from 35% to 65%, perhaps to take into account foreigners who purchase private homes through a company or trust. As the government has maintained that Singapore’s continued success is contingent on remaining open and relevant to the world, and also to foreign talent to ensure that long-term economic growth is sustainable, this increase in ABSD in this category is astonishing to say the least.

Foreigners buying private homes ranged between 110 to 301 transactions per quarter from Q1 2020 to Q4 2022, with a quarterly average of about 236 during the three-year period that included the circuit breaker, the pandemic restrictions and border closures. Therefore, 264 foreign homebuyers in Q1 2023, when other countries in Asia opened to travel, can be considered fairly normative of the past three years and nowhere near a surge that would set alarm bells ringing. Additionally, with the above changes in the ABSD rates anticipated by the government to affect about 10% of residential property transactions (based on 2022 data), one can only wonder whether the measures are possibly slightly excessive.

The immediate likely effect of these measures is that transaction volume will again enter a state of pause as it did after the December 2021 and the July 2018 measures were announced. Sellers who might need to sell could be compelled to lower price expectation in light of sales activity becoming more subdued, while buyers might begin to congregate on the sidelines. As such, Knight Frank is revising its earlier forecast of 5% to 7% growth in private residential prices for the whole of 2023 to 3% to 5%.

In the collective sales market, sellers who are foreigners are now unlikely to be supportive of any enbloc initiatives, as their replacement cost would have increased drastically. As such, collective sales launches might also taper off in the year ahead.

_Measures For a Sustainable Property Market

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