Singapore has become the latest country in the Asia Pacific region to impose cooling measures on the buoyant property market.

This is the first time the Government announced cooling measures which take effect within the next 1 hour, giving buyers, sellers, developers and agents little to no time to react. It is a smart move considering that we are in the midst of a pandemic with a new variant and crowds/mass gatherings could increase the chances of another wave of infections. It will also reduce impulse buying just to avoid the new measures.
There will be two set of measures: one targeting demand and another targeting supply. Demand side measures include the increase in Additional Buyer’s Stamp Duty (ABSD) and tightening of the Total Debt Servicing Ratio (TDSR). The supply side measures will come in the form of more land supply and BTO flats.
The increase in Additional Buyer’s Stamp Duty (ABSD), a form of wealth tax is aimed at slowing down the flow of hot money into the property market. Singapore is a well-known safe haven because of its political stability and strong rule of law. Despite travel restrictions, the number of foreigners (including SPRs) have shown a sharp increase in 2021 compared to 2020. The jump in number of companies buying private properties is worrying.
The tightening of TDSR to 55% is a pre-emptive move to encourage financial prudence in case of a sudden increase in interest rates. In particular, purchases by Singaporeans have spiked in 2021. This will ensure that households are not financially stretched/burdened should there be an increase in interest rates.
As with all cooling measures, there will be a knee jerk reaction immediately as everyone tries to understand and assess the impact. Sales in Dec 2021 is expected to slow down. New home sales could ease to between 400 and 600 in Dec and project launches could be held back. Nevertheless, new home sales are still expected to be around 13,000 for 2021. Volume could ease in the next 1 to 2 quarters in 2022.
Before cooling measures was imposed in July 2018, private property prices increased an average of 2.3% per quarter from 2Q 2017 to 2Q 2018. The slope of price appreciation eased to 0.3% per quarter from 3Q 2018 to 1Q 2020. This is a sustainable pace of price appreciation and benefits the market.
In the last cooling measures on 6 July 2018, property prices eased for two quarters before recovering. However, that was against the backdrop of a large unsold inventory of 37,799 units as of 1Q 2019. When the pressure of reducing unsold inventory eased in 2Q 2019, property prices inched up accordingly.
From 1Q 2020 to 3Q 2021, property prices increased an average of 1.4% per quarter. This is due to dwindling unsold stock in the market. The estimated unsold inventory in the market is at an all time low of around 15,000 units as of end-Nov 2021. Most developers have little to no difficulty to meet the 5-year ABSD timeline for current projects. While the cooling measures is expected to slow down price appreciation, there is little pressure on most developers to reduce prices.
While first time buyers do not see an increase in tax payable, they will benefit from the slower price appreciation which ensures affordability.
The enbloc market which had just picked up pace in the last couple of months is likely to slow down. The risks to developers have been increased by 10% to 35% should they fail to sell within 5 years. This is onerous on developers and enbloc hopefuls have to temper their expectations to increase their chances of a successful enbloc. Developers will be more cautious in bidding for land which will have a trickle-down effect on selling prices.
Quite a number of HDB upgraders sell off their HDB flats when they buy a new private property as they do not have the cash to pay ABSD upfront. Hence HDB resale volume could drop in the next 3 to 6 months as upgraders assess the situation. If conditions in the private market are stable and HDB resale prices maintain its growth momentum, upgraders are likely to cash out and upgrade to a private property.
Currently there is a demand and supply mismatch in the property market. It takes at least 15 months from the launch of a site for tender to a project launch. The new cooling measures will ease demand and buy some time for supply to catch up.
The new home market may see sales between 8,000 and 9,000 units while prices may move up to 3% in 2022 on the back of higher construction costs.
The reduction in Loan to Value (LTV) ratio for HDB loans to 85% has little impact. Most buyers will opt for a loan from the banks as the interest rate is much lower than HDB’s interest rate.