Singapore’s latest pre-emptive measures are not unfamiliar

The latest round of anti-speculative measures that Singapore’s Ministry of National Development released today are largely aimed at curbing potential speculation rather than affecting first time buyers and genuine home occupiers.

Some of these pre-emptive measures are not unfamiliar. In our recent research paper where we described this recent period as the ‘soft policy era’ where measures introduced have enough flexibility built in to accommodate subsequent adjustments; which is exactly what the government has now done with the Seller’s Stamp Duty (SSD).

The recent twitch of increasing the holding period from one to three years is similar to that when the policy was first introduced in May 1996. However in our opinion, these pre-emptive measures are introduced a tad later than we had expected.

While market sentiments have been rather soft of late which is likely due to the Hungry Ghost Festival coupled with Euro zone and double-dip fears, the level of short term speculation (as measured by the percentage of subsales in the private market) is also comparatively low. Subsales transactions have lost some 600 basis points from the high of 16 per cent recorded a year ago in 2Q09, to close at 10 per cent of total transactions in 2Q10.

While in absolute terms the level of transactions has surged by 3.5 per cent (compared to 2Q09), the subsales volume has instead dropped from 1,303 in 2Q09 to 825 in 2Q10 (based on caveats obtained from Urban Redevelopment Authority REALIS assessed on August 24). And while prices in the private market, as measured by the URA Property Price Index (PPI), has also surged a total of 38.2 per cent since 2Q09, the rate of increase has been easing gradually to 5.3 per cent in 2Q10 after an initial spike of 15.8 per cent in 3Q09.

We believe the latest introduction of measures are motivated largely by the unabated rise in public housing prices where HDB Resale Price Index recorded a stunning high of 4.1 per cent in 2Q10, after a continual rise averaging some 3.0 per cent per quarter since 2Q09, stripping the affordability of public housing.

Overall we welcome this policy adjustment, as the impact is more targeted at reducing speculative buying and not affecting occupier demand. This would promote a healthier investment climate for the Singapore residential market in the longer term. Additionally, private property prices (URA PPI) are unlikely to be adversely impacted but could moderate to a more sustainable level of 2-3 per cent per quarter going forward. Similarly public housing price growth (HDB Resale Price Index) could moderate to 1-2 per cent per quarter.

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About the Author:
Dr. Chua Yang Liang is Head of Research for Singapore and South East Asia, Jones Lang LaSalle.