Taming the Singapore Housing Market
But help is still at hand for first-timers
Issue: Oct 2010
Among others, new rules seek to curb private property owners from investing and profiting from HDB resale flats
Singapore’s strong and sustained economic recovery and notable 2010 GDP growth forecast of 13% is not the only news making headlines. Residential property prices have surged by 38.2% from its trough in 2Q 2009 making it the fastest growing real estate market in the region, according to Global Property Guide. Sales volumes have also experienced a strong upswing in demand with 10,000 units transacted in the past seven months, which is more than double the 4,300 units sold in 2008.
Chart 1: Strong Growth in Residential Prices
Source: URA & CapitaLand Research
Though positive real estate demand is desirable, the massive recovery in the property market coupled with the rapid inflation of property prices has ignited fears of a housing bubble. This has led the Singapore government to implement a number of cooling measures over the past year. However, despite two previous legislative attempts to manage property market sentiments in September 2009 and February 2010, property prices have continued to soar. As a result, the Singapore government has recently unveiled a much more extensive slew of new property measures.
These new measures include restrictions on concurrent home ownership, changes to seller’s stamp duty charges, and the tightening of rules on second home purchases. While these measures are meant to dampen investment demand and speculative buying behaviour, the government is also providing additional assistance to first-time buyers and releasing new land for private housing development. These new rulings which came into effect as of 30 August 2010 are expected to have a substantial impact on the property market in the immediate and short-term.
Chart 2: Summary of Singapore Property Cooling Measures (2009-2010)
14 Sep 2009
19 Feb 2010
30 Aug 2010
- Removal of Interest Absorption Scheme (IAS) and Interest-Only Housing Loans (IOL)
- New seller’s stamp duty on residential properties sold within one-year
- Lowering Loan-To-Value ratio (LTV) limit from 90% to 80%
- Restrictions on Concurrent HDB Ownership
- Increase of HDB Minimum Occupancy Period (MOP) to 5 years
- Extension of seller’s stamp duty to properties sold within 3 years
- Lowering of LTV limit to 70% for second home purchases
- Increase of minimum cash deposit from 5% to 10% on second home purchases
- Allowance of households with income between $8K-$10K to purchase HDB Design, Build and Sell Scheme (DBSS) subsidised housing
Source: URA, HDB
Concurrent HDB Ownership Restrictions
Of all the recent property measures introduced, the new restrictions on concurrent HDB ownership will have the greatest impact on the housing sector. Under new policies, ownership of both Housing Development Board (HDB) flats and private residential properties within a minimum occupation period (MOP) of five years has been disallowed. To add more severity, this measure does not only apply to concurrent ownership of local properties, but overseas properties as well. Previously, there was only a restriction of ownership on private residential property for those who purchased HDB flats under the subsidised scheme. With close to 40% of 1H 2010 private new sale residential transactions driven by buyers with a HDB address, these new measures could have a pronounced effect on housing demand in 2H 2010.
Another major development regarding concurrent HDB ownership concerns private property owners who are now effectively banned from buying HDB resale flats for investment purposes. HDB has implemented a new rule requiring private property owners who purchase a HDB flat to dispose of their private property within six months. Similarly, buyers of HDB flats who did not receive any subsidies may not purchase private property during the minimum occupation period (MOP), which has now been extended from three to five years. Aside from prolonging the “upgrading” cycle, these new restrictions will significantly impact investment demand, particularly in the private housing sector.
Extension of Holding Period on Seller’s Stamp Duty
The holding period of Seller’s Stamp Duty (SSD) on residential properties has now been extended to three years from one year, charged on a graduated scale. Under these new changes, sellers will only be fully exempted from paying stamp duty provided that they sell after more than three years of ownership. The imposition of this policy measure will reduce liquidity and increase costs for short-term investors/speculators.
Tightening of Rules on Second Home Purchases
Under the new measures, property buyers with more than one outstanding housing loan at the time of a new purchase are required to provide a minimum cash deposit of 10%, up from 5%. In addition, borrowers with more than one housing loan must also contend with lowered Loan-To-Value (LTV) limits, which have been reduced from 80% to 70%. These new measures are likely to affect the mass and mid-end market investors and speculators, since these new rulings will increase transaction costs for purchasers of housing units for investment purposes.
Help for First-Time Home Buyers
To ensure that housing continues to remain affordable for majority of Singaporeans, the government has provided additional assistance for first-time home buyers with monthly household incomes of between S$8,000 and S$10,000. As of 30 August 2010, this group of buyers is now permitted to buy subsidised HDB flats under the Design Build and Sell Scheme (DBSS), where previously they were restricted to Executive Condominiums.
In addition to widening the range of buyers qualified for subsidized housing, the government has committed to shortening the completion time of Build-To-Order (BTO) flats from 3 years to 2.5 years. Also, the government has announced that it will be increasing the supply of new HDB flats by close to 30% in 2011, adding 22,000 new units to the overall stock.
More Supply to Meet Demand
The government has also announced that it will release more land sites to ensure there continues to be an adequate supply of housing to meet demand. Through the GLS (Government Land Sales) programme, land sites which can yield around 13,900 private housing units have been made available with even more sites promised in 2011, should demand continue at high levels.
In summary, the government’s decision to introduce additional measures will have an impact on property market sentiments and investment demand in the short-term. However, since these measures are aimed at reducing speculative demand, first-time buyers and genuine home occupiers should not be adversely affected.
Article contributed by Dr Boaz Boon and Anna Chew of the Research Unit at CapitaLand