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Tough new cooling measures will likely dampen inflow of foreign money into private housing market

Some analysts have noted that the increase in additional buyer’s stamp duty for foreigners seems a bit too punitive. ST PHOTO: LIM YAOHUI

Dec 16, 2021, 9:04 PM SGT

SINGAPORE - Tougher. Harder hitting. The most aggressive.

Market observers used these words to capture their surprise at the latest round of property cooling measures that were announced just 20 minutes before they kicked in at midnight on Wednesday (Dec 15), giving buyers, developers and property agents no opportunity to react.

This is in stark contrast to the night of July 5, 2018 when thousands of home buyers and property agents swarmed showrooms in the hours after cooling measures were announced in a last-minute bid to beat the clock before higher ABSD rates took effect.

And it is an astute move considering the Omicron variant is starting to make its rounds here and showroom crowds would heighten the odds of more infections. It also puts the kibosh on impulse buying to beat the new measures.

The latest round of property cooling measures appear to be targeted at dampening the inflow of red-hot foreign capital in the higher-end private housing market, while ensuring housing affordability for first-time home buyers.

Tightening the total debt servicing ratio (TDSR) for borrowers is aimed at ensuring households are not overstretched once interest rates start to increase. This in turn, should protect banks against excessive financial risks, especially those with high exposure to real estate debt.

Talk of fresh cooling measures has been percolating since earlier this year, but the strongest signal came from the Monetary Authority of Singapore's (MAS) Financial Stability Review report on Dec 6, which found that household debt as a percentage of gross domestic product (GDP) rose to 70 per cent in the third quarter of this year, and housing loans contributed significantly to the debt growth.

In absolute terms, household debt had increased by 6.8 per cent over the past year - and in the event of a shock to the property market, the correction in property prices could ripple across the economy.

There were already signs of a divergence between home prices and fundamentals in 2020, when the Urban Redevelopment Authority (URA) residential price index rose 2.2 per cent during the recession, Mr Ong Teck Hui, senior director of research and consultancy at JLL, pointed out.

The sharp increase in transaction volumes this year could fuel further price growth as demand remained robust amid shrinking unsold inventory.

As at the third quarter, private home prices had run up for six consecutive months, gaining about 9 per cent since the first quarter of 2020. More en bloc sales are starting to come on the market, which could inject more liquidity and reinforce the growth in home prices.

Mr Ong called the latest round of measures "harder hitting" compared with those in 2018, and the tightening of the TDSR framework an additional dampener. The TDSR limits the amount that a person can spend on monthly debt repayments. Loan-to-value ratios (LTV) for HDB loans have also been reduced from 90 per cent to 85 per cent.

Investors, including foreigners will likely be discouraged by the punitive ABSD rates, he said.

Cushman & Wakefield noted that Singaporean buyers now face higher ABSD of 17 per cent and 25 per cent for their second and third property purchases, respectively, as compared to 12 per cent and 15 per cent in the 2018 measures.

Permanent residents will now have to pay 25 per cent and 30 per cent ABSD for their second and third private home purchases, up from 15 per cent previously.

Interestingly, local bank stocks rallied on Thursday (Dec 16) in the wake of this round of measures, in contrast to knee-jerk declines the day after the 2018 cooling measures were announced.

So far, shares of real estate agencies seem to have taken a bigger hit, compared with property counters. Head of OCBC Investment Research Carmen Lee noted that the agencies' operations are perceived to be more directly affected by the measures, as opposed to the developers which are somewhat shielded by their diversified portfolios of assets. Developers are also carrying less unsold inventory now, and their current valuations are much cheaper than in July 2018.

Some analysts have noted that the increase in ABSD for foreigners from 20 per cent to 30 per cent seems a bit too punitive, given that foreign purchases for non-landed private residential properties made up only about 4 per cent of demand so far this year.

But Professor Sing Tien Foo, director of the Institute of Real Estate and Urban Studies at the National University of Singapore (NUS), said that the heftier 30 per cent ABSD rate may help dampen the strong inflow of foreign capital into the higher-end private housing market.

The strong take-up in the CanningHill Piers project at a median price of $2,887 per sq ft (psf) likely came from wealthy local and foreign investors, he noted. "The 30 per cent ABSD increases transaction costs, and could weed out speculators who expect short-term returns," he said.

Indeed, condo purchases by Singaporean PRs have grown at a faster clip than that by Singaporeans, said Ms Christine Sun, senior vice-president of research and analytics at OrangeTee & Tie.

Singaporean PRs snapped up 4,375 condominiums so far this year, up 55.3 per cent from 2,818 units in 2020. This compared with a 50.7 per cent increase for Singaporeans in the same period, she said.

CBRE's head of research (South-east Asia) Tricia Song said the measures were a surprise as the anticipated full year home price gain of 6 per cent to 7 per cent is in line with GDP growth of 6 per cent to 7 per cent this year.

"However, looking at the total take-up, and in view of rising interest rates, the timing of the measures may make sense, as the Government is 'pre-emptive' of too much buoyancy going into 2022," she said.


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