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If, like me, you were home on Sunday night watching the National Day rally, you would have picked up on our Prime Minister's remarks on how he intentionally avoided elaborating on the changes to the Singapore property market as that would be the media's focus the following day. Hence, the irony was not lost on me when headlines the next day were precisely that. Evidently, the subject of property is something very close to all Singaporeans.
So what are some of the changes? To summarise, the latest round of anti-speculation measures for private properties are as follows:
Increase the holding period for imposition of Seller's Stamp Duty (SSD) from the current one year to three years.
Increase the minimum cash payment from 5 percent to 10 percent of the valuation limit and decrease the Loan-to-Value (LTV) limit for housing loans granted by financial institutions regulated by MAS to these buyers from the current 80 percent to 70 percent for property buyers who already have one or more outstanding housing loans at the time of the new housing purchase.
The changes for HDB flats are as follows:
Increase the Minimum Occupation Period (MOP) for non-subsidised flats to 5 years.
Disallow concurrent ownership of both HDB flats and private residential properties within the MOP.
I have only extracted the relevant portions, however if you are interested to read up on the complete list of changes, they can be found at www.mnd.gov.sg and www.hdb.gov.sg.
The Market IS Cyclical
The property market is cyclical by nature. While it is hard to predict the duration of each upswing or downturn, at some point the market will certainly change direction. To illustrate, Figure 1 shows the URA Private Property Price Index (PPPI) from the first quarter of 1975 to the second quarter of 2010 and the areas in red show phases of market contraction. Thus it is quite clear that growth will not carry on indefinitely and the question is not if prices will start to drop but when.
Figure 1: URA Private Property Price Index (PPPI) from Q1 1975 to Q2 2010
With the latest round of anti-speculation measures, we think the real estate market will start to drop. So what does this mean to property buyers? If I was thinking of buying an investment property, I would sit out until the dust settles. However, if I have ample cash to spare and am looking for a property for my own stay, the next few months may present an opportunity to look for good deals as owners attempt to comply with new monetary and ownership guidelines.
What about property sellers? If I was set on selling my property, I will not hold out for a higher offer and proceed with the sale when I get my asking price. Although all of us hope to milk our property for all its worth, it may not be realistic to expect significantly higher offer prices in the near term, given the tightened lending conditions and increased property supply.
When will we see the effects?
Presently, there is still some sense of cautious optimism. After all, the property market continued to grow rapidly despite the last two doses of anti-speculation measures. So will the market remain unscathed? I think not.
A good analogy to describe the property market would be an ocean-liner. Unlike a car that can start and stop almost instantaneously, an ocean liner responds much slower due to its massive size and momentum. To stop an ocean-liner, the propellers would have to go in the reverse direction to gradually bring the vessel to a stop. Similarly, the propellers of the property market are already in the reverse gear. Although the market's momentum could still carry property prices upwards for a while longer, the effects of the cooling measures will eventually kick in.
On the other hand, even if this round of measures are not able to break the proverbial camel's back, you can bet that the Singapore government has other straws to do the trick. Ultimately, we should not doubt the government's will to bring property price appreciation in line with "economic fundamentals". However, what the magic figure is (for economic fundamentals) is anybody's guess.
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