Singapore residential market – moderation expected after latest government measures

January 18, 2013 / By

When the Urban Redevelopment Authority (URA) announced the flash estimate of its residential property price index for the final quarter of 2012, it surprised many as the 1.8% increase reflected a pick-up in prices following minimal growth of 0.6% and 0.4% in the third and second quarters respectively. That this occurred shortly after loan tightening measures were imposed in early October 2012, causing developer sales to drop 44% in November from the previous month, made it even more perplexing.

The residential market was left with a sense of discomfort that the Government could again intervene with another set of cooling measures. True to form, the latest measures were announced on 11 January 2013 jolting the market by their severity. The additional buyer’s stamp duty (ABSD) which was imposed in December 2011 was raised significantly. After the revision, foreigners and corporate entities will have to pay 15% ABSD for the purchase of any residential property, for permanent residents the ABSD rate will be 5% for their first purchase and 10% for second and subsequent purchases while citizens are levied 7% ABSD for their second purchase and 10% for third and subsequent purchases.

Housing loans were also tightened further. The loan-to-value (LTV) limit for buyers obtaining a second housing loan was reduced to 50%. If the loan tenure exceeds 30 years or extends past the borrower’s retirement age of 65, the LTV is only 30%. For third and subsequent housing loans, the LTV was cut to 40% and will be further reduced to 20% if the borrowing period is more than 30 years or it is goes past the borrower’s retirement age of 65. Borrowing for corporate entities was also severely cut to a LTV limit of 20%. Besides lowering LTV limits, the minimum cash down payment for buyers with one or more outstanding loans has been raised to 25%.

From our analysis, the ABSD and loan tightening for private residential properties is targeted more at investors and foreigners. Buyers with no outstanding loans escape unscathed as it is still possible for them to borrow up to LTV of 80% with only 5% cash down payment. The robust measures can be expected to substantially discourage demand from investors and foreigners leaving mainly first-time buyers or those without outstanding loans in the market. As a significant proportion of buyers are investors, we expect demand for private homes to moderate significantly. In the near term prices are likely to stagnate and beyond that it depends on the impact of the economic slowdown.

Measures specific to public housing and executive condominiums (EC) were also imposed simultaneously. For public housing, the measures were targeted at moderating its buoyant resale market and rising prices. The EC measures include capping EC strata floor area at 160 sqm to ensure more affordable size units are built following a recent controversy of “EC penthouses” being sold as well as addressing other irregularities in EC development.

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