Singapore Property Cooling Measures: who are the biggest losers?

The Singapore Government has announced a slew of measures to cool the private residential and HDB resale markets. In addition, the Government will increase public and private housing supply to cater to demand.

With effect from 16 December 2021, the changes are as follows:

1. Additional Buyer’s Stamp Duty (ABSD) rates will be raised (chart below)

The impact will be felt across the board by Citizens, PRs, Foreigners and Entities for second and subsequent residential properties with increases ranging from 5% to 10%.

As ABSD is calculated based on the property’s purchase price or market value, the additional cost for a property valued at $1 million is $50,000 to $100,000.

2. The Total Debt Servicing Ratio (TDSR) threshold will be tightened

The LTV limit for loans from HDB will decrease from 90% to 85% while there is no change to the limit of 75% for bank loans.

Why are cooling measures happening again?

The main reason additional cooling measures are being put in place is obvious, it is to ensure affordable housing for those that need them and is undertaken to promote a stable and sustainable property market.

Property prices have been increasing steadily over the past years

Based on the Urban Redevelopment Authority’s (URA) flash estimate for 3Q21 in Chart 1 and Chart 2 (below):

• private residential property price index made a new high in 3Q21 at 165.3 points,
• HDB resale price index clocked 142.2 points, just slightly below the all time high of 149.4 points recorded in 2Q13.

Based on Chart 3 below, it can be observed that the prices for private residential properties outside of the central region increased the most.

This is the segment with more home buyers as compared to rest of the central region and core central region which tends to see more investors.

As seen in from these price indices, buyers and investors hoping for private home prices to drop sharply due to the measures were disappointed.

This could be an indication on how prices would react this time.

One of the reasons could be that the Singapore developers all have strong balance sheets and are able to delay launches and wait for to recover.

So who are the biggest losers?

It was observed that the impact of the 2018 cooling measures was felt more keenly on the high-end property segment which had more investors and second and/or subsequent home buyers compared with mass-market projects.

1) Property agencies

The two property agencies listed on the Singapore Exchange are PropNex Ltd (SGX:OYY) and APAC Realty (SGX:CLN) which operates the ERA brand name. These two agencies have operations that are mainly focused in Singapore with a significant portion of revenue coming from residential properties market. Their stock prices fell by approximately 14% at the market open on 16^th December 2021.

As shown in Chart 4 & 5 below, transaction volumes plummeted significantly in 4Q2018 after the previous cooling measures announced in July 2018.

2) Property developers

There are many property developers in Singapore with well diversified portfolios both geographically and by segment, underpinned by strong recurring income from their investment properties. Many of these developers also have strong balance sheets and are able to delay sales and new launches until such time the environment becomes more favourable.

Two property developers with the largest Singapore residential exposures are City Development (SGX:C09) and Oxley (SGX:5UX) which declined by more than 3% at the bell. The stock market’s reaction has demonstrated that the property developers are clearly in a better position as compared to the property agencies.

As shown in Chart 6 below, the unsold inventory is at a low that is not seen since 2017. This means that the developers are looking to replenish their inventory via bidding of available land sites and en-blocs. This may benefit the developers with lower inventories as they may be able to acquire new sites at better prices.

Looking at the number of new sales being transacted, In 2019, approximately 9,912 private residentials sold were transacted. Despite the pandemic, 2020 saw 9,838 private residentials being transacted.

It is clear the Singapore government saw that 2021 is slated to exceed these numbers with 9,901 residentials already transacted in the first 9 months of the year and decided to enact further cooling measures. Similarly, resale numbers followed a similar trend and is expected to clock a high for 2021.

Chart 7 (below) further demonstrates the tightness of the property market with only 11,449 new private residential properties targeted to be completed. This has not taken into consideration any potential delays arising as a consequence of the pandemic causing labour restrictions.

3) Home owners looking for En Bloc Sale

While it is clear from Chart 6 (above) that the developers need to replenish their inventory, with the environment likely to be tepid, home owners looking to cash in on a collective sale may find themselves faced with lower prices, delays and potentially even have the sales fall through as developers will be more careful in their acquisition ventures.

4) Aspiring Singapore property investors

Property investors will have to work with the increased ABSD and also potentially higher interest rates as warned by the MAS.

Here’s more from Jeff Ong, property investor and trainer of our property investing masterclass:

The Biggest winner

First time home buyers are likely to be the biggest winner as the measures will at least reduce the speed at which property price increases.

Conclusion

Singapore has once again demonstrated its ability to take action promptly to promote continued housing affordability. The private residential measures are calibrated to dampen broad-based demand, especially from those purchasing property for investment rather than owner-occupation. Measures to tighten financing conditions for both public and private housing will encourage greater financial prudence.

As expected, there is a knee jerk reaction in the stock market. Stocks such as the property agencies that have a broader and immediate impact suffered larger double digit percentage dips while the property developers which are well diversified into various segments and geographical regions declined by low single digit percentages.

Past trends have also shown that transaction volumes and property prices subsequently recovered and this could be an indication to all stakeholders involved that it is a matter of time before the next buoyant phase and of course the next cooling measure.

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