Govt raises ABSD, tightens LTV limits to cool Singapore property market

The Business Times - 5 July
In a bid to cool the residential property market and prevent prices from running ahead of economic fundamentals, the Singapore government has decided to raise the additional buyer's stamp duty (ABSD) and tighten loan-to-value (LTV) limits on residential property purchases.

The current ABSD rates for Singapore citizens and Singapore permanent residents (SPR) purchasing their first residential property will remain at zero and 5 per cent respectively.

But the ABSD rates for all other individuals will be raised by five percentage points and 10 percentage points for entities.

An additional ABSD of 5 per cent that is non-remittable under the Remission Rules (payable on the purchase price or market value, whichever is applicable) will also be introduced for developers buying residential properties for housing development.

For LTV limits, they will be tightened by five percentage points for all housing loans granted by financial institutions. These revised LTV limits will apply to loans for residential property purchases where the option to purchase is granted on or after July 6. But they do not apply to loans granted by HDB. 

Tricia Song, Head of Research:
Colliers International believes the fresh measures – the ninth round of property cooling initiatives since 2009 - will put a drag on home sales this year as the higher ABSD could curtail investment demand from both locals and foreigners, and the larger cash outlay required for down payment on homes weighs on buying interest.

We expect new home sales to decline significantly in the initial few months as the market takes stock of the potential implications. The last two rounds of cooling measures announced in January 2013 and June 2013 saw new home sales fall 65% to 712 units in February 2013 and 73% to 482 units in July 2013 respectively

For the whole of 2018, Colliers projects that new private home sales (excluding executive condominiums) could come in at 8,500-9,000 units – 15-20% lower than the 10,566 units shifted in 2017. We expect developers to delay launches as they re-strategise after the new measures were implemented. From January to May 2018, developers have sold 3,434 new units based on caveats lodged.

Meanwhile, Colliers expect home prices to likely hold steady from this point, after rising by 7.4% in the first six months of this year. With the increased tax on investors and foreign buyers, the demand base will likely shift towards first-timers. Offerings may need to be recalibrated to match their needs. Inventory may take a longer time to sell, but developers are unlikely to reduce prices in the near term given the land costs they have already committed. Read our research report here.

En bloc fever set to be tamed, big sites at greatest risk: analysts

The Business Times - 7 July
Property consultants generally do not expect the latest property cooling measures to bring the current en bloc cycle to a complete halt, though things will slow down drastically.

The hike in residential land acquisition costs for developers will clip the prices they are willing to pay for land. Home buying demand will also take a beating due to higher additional buyer's stamp duty (ABSD) rates and lower loan-to-value (LTV) limits.

Demand for collective sale sites will also depend on their size and location, the profile of owners and above all, their price expectations. Developers will become even more selective in their land acquisition. Big sites are seen as being at greatest risk.

Tang Wei Leng, Managing Director:
The higher ABSD rate for entities buying residential property and the 5% non-remittable ABSD on purchases by developers will inject more caution into the collective sale market and moderate the already easing pace of transaction. 

The measures will raise the cost of land acquisition for developers, and this will surely have a bearing on prices of collective sale sites going forward. It will likely tame the euphoria among would-be en bloc sellers and help to rein in any unrealistic price expectation. Typically, owners receive a 50-60% premium from selling their property collectively. They may now have to accept a lower premium if they want to get the deal across the line.

Developers are expected to be more selective in land purchase – wary of the hefty 25% ABSD remission clawback if they fail to develop and sell all units with five years of acquiring the site - but Colliers believes redevelopment sites in mature estates or areas where there have been few new launches could still be appealing. Read our analysis here.

Trade tensions, rising interest rates 'likely triggered property tightening'

The Business Times - 07 July
In the face of rising external risks, Singapore policymakers may have chosen to introduce the latest round of property cooling measures sooner rather than later, say economists.

Thursday's announcement of higher additional buyer's stamp duty rates and stricter loan-to-value limits on residential property purchases came as a surprise to the industry.

It was, to an extent, foreshadowed by Monetary Authority of Singapore managing director Ravi Menon's remarks that "euphoria" in the property market called for caution, at Wednesday's media conference on the central bank's annual report.

Tricia Song, Head of Research:
The government is taking pre-emptive actions to avoid a boom-and-bust situation. Consider the following:
• The private home price index ran up 122% unabated over a short span of three years between Q1 1993-Q2 1996, and subsequently plunged 45% over 2.5 years from Q2 1996- Q4 1998 due to the anti-speculative measures and then the Asian Financial Crisis. 
• Private home prices ran up 45% over Q2 2006 – Q2 2008 during the global upcycle and enbloc boom, but corrected 25% within four quarters with the onset of the Global Financial Crisis. 
• Between Q2 2009 and Q2 2011, private home prices escalated 52%, from a low base as well as fueled by the Quantitative Easing initiatives in the US which led to persistent low interest rates. While the Singapore government acted early since September 2009 to stem speculation, it took eight rounds of measures over nearly four years to finally calm the market and brought about a soft landing. Home prices corrected 11.6% over 15 quarters. 

So while the timing and severity of this latest round of measures had been a surprise, it is probably a culmination of past experiences. In addition, Singapore is a small and open economy, highly dependent on trade. Hence, a sustained trade war is likely to dent its exports and economic growth. A double whammy of increasing interest rates at the same time would exacerbate any property correction, and cause hardship to over-leveraged individuals and financial institutions.