(Bloomberg) -- Singapore’s renewed clampdown on speculative property demand sent real estate stocks reeling on Friday, as analysts predicted the end of a nascent home price rebound and the deflation of a buoyant market for collective sales.
The tightened rules, rolled out a day after the central bank noted “euphoria” in the property market, sharply increase buyers’ stamp duties for entities such as developers. Singapore’s benchmark Straits Times Index dropped 2 percent Friday as property developers and banks led declines, with City Developments Ltd. and UOL Group Ltd. sliding more than 13 percent each.
As major property markets from New York to Sydney show signs of cooling, Singapore and Hong Kong prices are on a tear, causing unease among local policy makers. In Singapore, a sudden rebound in speculative demand, stoked by record land bids and redevelopment deals, threatened to undo years of carefully implemented curbs that had given the city-state an edge over Hong Kong in quality of living.
“This is a preemptive move by the government to cool down the market before it gets too hot,” Irvin Seah, an economist at DBS Group Holdings Ltd., said in an interview.
The en-bloc market, where a group of owners band together to sell a collection of apartments, surged in recent months thanks to demand from developers. Officials had repeatedly warned that such exuberance was unsustainable, and Ravi Menon, managing director of the Monetary Authority of Singapore, sounded a cautious note on en-bloc developments on Wednesday.
With the latest curbs, the en-bloc market is “potentially grinding to a halt,” DBS analysts led by Derek Tan wrote in a report.
Individuals taking up their first housing loan will face tighter borrowing limits under the new rules, meaning they have to put up more cash to buy property. For foreign purchases of residential property, the additional buyer’s stamp duty increases to 20 percent from 15 percent, while for Singapore citizens the extra charges apply only from their second home purchase, the MAS, Ministry of National Development, and Ministry of Finance said in a joint statement Thursday.
For entities buying any residential properties for development, the additional buyer’s stamp duty rises by 10 percentage points to 25 percent, with a further five percentage points imposed for developers.
Adjustments to ABSD Rates for Residential Property
|As of July 5||From July 6|
|Singaporeans buying 1st residential property||0%||0%|
|Singaporeans buying second residential property||7%||12%|
|Singaporeans buying third and subsequent residential property||10%||15%|
|Permanent residents buying first residential property||5%||5%|
|Permanent residents buying second and subsequent residential property||10%||15%|
|Foreigners buying any residential property||15%||20%|
|Entities buying any residential property||15%||25% (plus additional 5% for developers)|
“Given the extent of the new cooling measures, we expect the home loans demand to be subdued,” said Koh Ching Ching, head of group corporate communications for Oversea-Chinese Banking Corp.
An index tracking property stocks excluding real estate investment trusts dropped 6.4 percent in Singapore Friday. Oxley Holdings Ltd. plunged 16 percent, and stocks including CapitaLand Ltd., Keppel Land owner Keppel Corp. and Wing Tai Holdings Ltd. also declined. Many of these are among developers that have added significantly to their Singapore residential landbanks, according to KGI Securities (Singapore) Pte.
DBS, Southeast Asia’s biggest lender, fell 2.6 percent. Oversea-Chinese Banking Corp. slid 2.3 percent and United Overseas Bank Ltd. dropped 3.1 percent.
“The policy measures are far-reaching rather than surgical in nature,” Citigroup Inc. analyst Si Xian Goh wrote in a note. “That first-time home buyers were included in the policy dragnet, however, does suggest that the regulators are concerned that some first-time buyers are buying out of a fear of missing out and contributing to the overall spate of exuberance.”
An index tracking private residential prices jumped 3.4 percent in the three months ended June 30, according to a flash estimate from the Urban Redevelopment Authority this week. That builds on a 3.9 percent gain in the first quarter, which was the biggest since 2010.
The rebound in home prices has prompted aggressive land bids from developers. The government in February raised taxes on home purchases exceeding S$1 million ($730,000) as collective apartment sales rose. Singapore home sales jumped to the highest in nine months in May as developers sold 1,121 units.
©2018 Bloomberg L.P.