Singapore’s cooling measures

A report by Global Property Guide recently highlighted that Singapore’s private residential property prices saw an increase of 34 per cent year-on-year – the highest globally. The reasons for this truly significant leap are the exuberant economic performance and record-low interest rates. Despite earlier anti-speculative curbs introduced by the Singapore government as long ago as September 2009, prices for private properties have been on a steady rise, albeit at a slower pace.

On August 30 the Singapore government announced that private property owners are now subject to a higher cash payment, as well as a lower loan-to-value (LTV) for property buyers with more than one outstanding loan. Sellers’ stamp duty has also been increased from one year – announced in February 2010 – to three years for home owners looking to sell their properties. This translates to as much as 3 per cent should the property be sold within a year of purchase, 2 per cent if sold two years after purchase, and 1 per cent if sold three years after purchase.

The rationales behind the latest anti-speculative measures is to control housing prices and provide aid to genuine home owners. The measures are aimed at protecting the property market, given that there is still much uncertainty lingering in the global markets. Weak employment data from the United States constantly injects fear into the sentiments of the investors. Both China and Hong Kong are implementing policies to prevent their overpriced property markets from turning into asset bubbles. The European economy is still relatively weak, albeit closing in on a self-sustaining recovery according to the European Central Bank. The aforementioned factors, combined with the anti-speculative measures, present a real concern for homeowners, prospective buyers and investors. They now find themselves unable to leverage their financing as much as previously, and now have to hold their assets for a much longer period due to the extension of the stamp duty imposition period.

How will residential properties in the prime districts of Singapore (districts 1 to 11) perform given these new measures, as well as troubled economic times? Let’s not forget that prime properties require larger capital outlays, and they generally constitute to a higher asset risk compared to their non-prime counterparts.

Thankfully not all is lost. Prime properties are desirable investments because of their potential lucrative returns. Data from the Urban Redevelopment Authority of Singapore indicates that the median price per sq ft of completed prime properties within the core central region is almost S$1,300 (US$996), a steady rise from an average of S$1,200 (US$919) in the second quarter. A development representative of the performance of the prime properties is Amaryllis Ville which was also selling about S$1,300 per sq ft during the same period. The condominium, which is located in the prestigious Newton-Novena area, is highly popular with many expatriates.

“While local buyers are holding out in anticipation of a drop in price due to the recent policies implemented, there are as many homeowners who are also waiting for good offers before they consider selling their units,” said Celine Tay, a property specialist at SingaporeCondo.com who has been based at the development for over two years.” Of course, there has been a dip in interests since the announcement of the anti-speculative measures.”. In contrast, rentals in Amaryllis Ville are still performing because the measures do not have a direct impact on rents. Since the measures step in one month ago, Celine still managed to close an impressive number of rental units in the development.

Given the delayed responsiveness of the property market, only time will reveal the full effects these anti-speculative measures will have on private property prices in Singapore. Currently landlords can consider refinancing their mortgage loans to take advantage of the current low interest rates. In cases of vacant units, landlords should be more realistic in their rental pricing and aim to lease out their units as soon as possible to ease their cash flows.

---

About the Author:
Loke Wai Kei is a researcher with SingaporeCondo.com. Additional reporting by Celine Tay of SG Condo Private Limited.