What next for Singapore’s slumping market?

1

With sales in the Lion State’s luxury segment plummeting, the property market is feeling the chill of the cooling measures

The big chill

With summer just around the corner, Singapore’s steamy heat is currently around its highest pitch. Government-enacted cooling measures, however, will continue to bring the temperature down on Singapore’s high-end property sector, resulting in falling prices and transaction volumes throughout 2015, according to real estate insiders.

Signs of a housing market slump were evident as early as February, when home sales dipped by 48 percent compared to the same period a year ago, while residential prices throughout 2014 dropped 4 percent, year-on-year, based on data published by the Urban Redevelopment Authority last March.

“I think the decline will continue as long as cooling measures are in place for the rest of the year,” Christine Li, director and head of research at Cushman & Wakefield Singapore, said. “I expect the full year decline for the high-end market to be in the range of 5 to 8 percent, as most owners still have deep pockets who are able to hold it out.”

More: Decreasing prices and falling sales volumes in Singapore

Since 2009, the Singaporean government has introduced a raft of cooling measures aimed at bringing a sense of reality back to the island’s overheating property market. The initiatives included higher taxes on foreigners, increased stamp duties, caps on the amount of debt a borrower is allowed to incur and stiff levies designed to discourage immediate resells.

Residential sales subsequently skidded to a six-year low in 2014. Now, developers are saying the measures have overreached its bounds and are wrecking the city-state’s once booming high-end residential market.

In late February, the Real Estate Developers’ Association of Singapore lambasted the Additional Buyers Stamp Duty (ABSD) and called on the government to ease property-cooling measures to prevent prices in the high-end real estate market from sliding more.

The introduction of the ABSD in late 2011 imposed an additional 10 percent tax on foreigners buying residential properties in Singapore and was later jacked up to 15 percent in 2013, resulting in a reduced transaction volume.

“Not many Singaporeans are buying into this segment, and prices have indeed come down substantially,” the association’s president Augustine Tan told the media in February. “The imposition of ABSD on this segment runs counter to the government’s efforts to encourage foreign investment flows into the country, to activate the economy, grow investments and create jobs for Singaporeans.”

More: 50 dynamic years of Singaporean real estate under the late Lee Kuan Yew

Putting an additional dent in the demand for luxury housing in Singapore is the elimination of the Financial Investor Scheme in 2012, which allowed wealthy foreigners to fast track the procurement of permanent residency through the purchase of property,.

Analysts also noted that the implementation of the Total Debt Servicing Ratio framework since 2013 helped reduce the level of financing domestic buyers were able to access, further curtailing the market.

Singapore’s second-biggest developer, City Developments Ltd, recently noted that the housing market might face fire sales and mortgage defaults as rents continue to fall, making it increasingly difficult for homeowners to make payments on their loans.

“Average residential rents across all market segments, particularly the high-end…are on the decline, coupled with a weak secondary market,” cautioned Kwek Leng Beng, executive chairman of City Developments Ltd, as reported by local newspaper The Business Times. “If this trend continues, with prices dipping more, some mortgage borrowers affected by lower rentals may have difficulty servicing their loans, possibly leading to forced fire sales.”

However, Cushman & Wakefield’s Li warned against using alarmist terminology to describe the state of Singapore’s top-end market.

More: This Asian city has been voted as best place to live for expats in 2015

“I won’t use the term ‘collapse’ because official price index for luxury property (covering districts 1, 4, 9, 10 and 11) has only declined by 6.6 percent from the peak in Q1 2013,” she explained.

In a report published in March, JLL’s Singapore branch described the domestic housing sector as weak but stable. But a polarised market – comprising those who welcome moderate prices and those who oppose the government’s current real estate policies – could certainly face a challenging year as sellers increasingly find it difficult to convince buyers, including overseas investors, to sign on the dotted line,

“Developers and buyers are likely to remain cautious with developers likely to feel the pressure more given the state of the unsold inventory (both launched and non-launched) at some 21,000 units,” wrote JLL.

With Singapore’s ruling People’s Action Party (PAP) under pressure to strike a balance between restoring a semblance of sanity to the high-end housing market while concurrently allowing it to thrive, it is clear that something has to give. Developers and mortgage borrowers will be hoping a reckoning will come sooner rather than later.

is a Hong-Kong based journalist who has lived and worked in Asia for the past six years.

  • Is Australia next? As it too now seems to be on the road of govt. intervention so to cool its overvalued property market.