How to Cool a Red-Hot Property Market Singapore-Style

(Bloomberg) -- Faced with surging home prices in the early 2010s, Singapore introduced a slew of cooling measures that succeeded in taming the housing market. But residential property prices started to rise again, rapidly so, prompting the authorities to impose their most stringent rules yet in July 2018.

1. Why did the government act?

Home prices jumped by 3.9 percent and 3.4 percent in the first two quarters of 2018, the biggest leaps since 2010. Singapore’s central bank chief warned about “euphoria” in the housing market. The aim of the measures. announced July 5, was to avoid a “severe correction later” as the supply of residential homes increases and interest rates rise.

2. What’s happened since?

Residential price increases cooled, gaining 0.5 percent in the three months ended Sept. 30. That adds to a 9.1 percent gain in the year through June. Prices in parts of the city-state are already falling. In Sentosa Cove, a residential enclave nestled on an island off the coast, average prices are down almost 30 percent from their 2011 highs, a far more severe slump even than in prime central London areas reeling from Brexit.

3. What’s the backdrop to the latest crackdown?

After a record 15 consecutive quarters of declines, home prices began to rise in the second half of 2017. There was a marked change in sentiment, spurring aggressive land bids from developers who’d been waiting on the sidelines for years. That resulted in an explosion of collective apartment sales, known as en-bloc, where a group of owners band together to sell entire apartment buildings. The central bank described the flurry as “exuberant.”

4. What were the July 5 measures?

Higher stamp duty rates and tougher loan-to-value limits for buyers. To address the surge in en-bloc sales -- which will unleash a wave of new supply on the market as new developments are completed -- the government raised its additional buyer’s stamp duty, or ABSD, to 30 percent for developers, or 25 percent for other entities, from 15 percent.

ABSD Changes

As of July 5From July 6
Singaporeans buying first residential property0%0%
Singaporeans buying second residential property7%12%
Singaporeans buying third and subsequent residential property10%15%
Permanent residents buying first residential property5%5%
Permanent residents buying second and subsequent residential property10%15%
Foreigners buying any residential property15%20%
Entities buying any residential property15%25% (plus additional 5% for developers)

5. How harsh were the changes?

For a residential market that’s barely in its first year of recovery, the policies were “heavy handed,” Nicholas Mak, executive director of ZACD Group, said at the time. He said they were like a move to "strangle the baby in the cradle." It was a signal that the government is “serious about managing the property market,” said Joel Ng, an analyst at KGI Securities. According to DBS, the measures marked the end of the “current en-bloc cycle." Bloomberg Opinion columnist Andy Mukherjee described the measures as timely, arguing that the property market can’t be allowed to slip out of reach of the younger Singaporeans who will drive a more innovation-led economy.

6. Why is property such a popular investment in Singapore?

The tiny city-state has one of the world’s highest rates of home ownership at 90 percent. It’s also a popular investment destination for the wealthy from neighboring Indonesia and Malaysia, not to mention nations further afield including China. 

7. How long was the previous boom?

From mid-2009 to the 2013 peak, home prices jumped more than 60 percent. The government began imposing restrictions as speculative buying surged, from home and abroad, backed by the availability of cheap money as a result of global central bank monetary easing. The toughest policies -- "macro-prudential" in economist speak -- included an extra 10 percent stamp duty for foreign buyers in 2011, raised to 15 percent in 2013 -- and lifted to 20 percent in the latest round of tightening. There were a few minor tweaks to soften aspects of the cooling measures in 2017 that helped stoke the bullish shift in market sentiment. Even then, the government was keen to emphasize there was no need to reverse course with its policies to keep the market in check.

How to Cool a Red-Hot Property Market Singapore-Style

8. What’s happened to Singapore’s property stocks?

They had their best run in five years in 2017, with one index of real estate stocks gaining 34 percent. That same index has fallen 8 percent this year.

9. Doesn’t this tune sound familiar?

Vancouver, Sydney and Hong Kong are among real-estate markets that have also taken measures to control tearaway prices.

The Reference Shelf

  • Bloomberg reports on diverging property strategies in Hong Kong and Singapore.
  • Statement on the 2018 property measures.
  • QuickTakes on soaring property markets in Australia and Canada.
  • Bloomberg Opinion’s Andy Mukherjee says the property curbs were more of a tap than a hammer blow.

©2018 Bloomberg L.P.