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Residential Market: New Cooling Measures, December 2021

Xian Yang Wong • 17/12/2021
The government announced new property curbs to cool its housing market amid rising concern of “prices running ahead of economic fundamentals and increasing risk of a future destabilising correction”.

The government announced new property curbs to cool its housing market amid rising concern of “prices running ahead of economic fundamentals and increasing risk of a future destabilising correction”.

A Potent Blend of Cooling Measures

The government has announced new property curbs to cool the housing market. As of Q3 2021, private residential prices reached historical highs after running up for six consecutive months, gaining about 9% since Q2 2020.

The cooling measures introduced are one of the most aggressive yet. Notably, Additional Buyer Stamp Duties (ABSD) for non-entities have been increased by about 5% to 15% for certain buyer types (see figure 1). This is higher as compared to previous rounds, where the increases ranged from only 5% to 10%.

Additionally, the Total Debt Servicing Ratio (TDSR) has been tightened further from 60% to 55% as well as Loan-to- value ratios (LTV) for HDB loans have been reduced from 90% to 85%.

Broad-based Impact

The new cooling measures impacts all segments of buyers with tighter loan curbs or/and higher upfront costs due to a tightening of TDSR and increase in ABSD. Singaporeans and PR buyers make up the bulk of demand with about 80% and 16% of total non-landed private residential transactions for 2021YTD.

First-time Singaporean and Permanent Resident (PR) private residential buyers were the least affected with ABSD rates remaining unchanged. However, the tightening of TDSR lowers buyers’ affordability by about 10% (for first property purchase) based on our assumptions1.

The impact would be more keenly felt for property investors. Singaporean property buyers now face higher ABSD of 17% and 25% for their 2nd and 3rd property purchase, respectively as compared to 12% and 15% previously. For PRs, they now have to pay 25% and 30% ABSD for their 2nd and 3rd private residential purchase from 15% previously. Coupled with TDSR tightening, investor demand is expected to cool significantly, due to potential higher upfront costs and tighter financing conditions.

Foreign Demand to Slow

ABSD for foreigners was increased by 10% points to reach 30%. This was a significant increase, as compared to 5% points increase each time in the last two rounds of revisions. In our opinion, the increase in ABSD for foreigners seems a bit too punitive, given their limited impact as foreign purchases for non-landed private residential properties made up only 4% of demand for 2021YTD.

The Core Central Region (CCR) would see the bulk of the impact due to a higher proportion of foreign demand as compared to other regions. The percentage of foreign private non-landed purchases in CCR (high-end market) was 9% in 2021YTD, followed by 4% in Rest of Central Region (mid-tier market) and 2% in Outside Central Region (mass-market market).

The increase in ABSD would taper foreign buying demand, especially when borders’ measures are gradually relaxed, leading to the return of overseas buyers. Foreigners’ interest may be diverted to alternative asset classes such as shophouses or strata offices that do not face or have limited cooling measure risk.

Heightened Development Risks 

Developers now face significantly higher development risks given the increase in ABSD for entities, from 30% (25% remissible + 5% non-remissible) to 40% (35% remissible + 5% non-remissible). The higher ABSD rates coupled with ongoing construction uncertainties, and uncertain demand due to the new cooling measures, have increased development risks, especially for large-scale projects.

We could still see demand for well-located smaller sites at prime districts, where buyers’ profiles tend to be very high net worth and hence may not be too impacted by higher ABSD. As developers need to ensure feasible profit margins, land prices are expected to moderate after factoring in higher costs and risks associated.

Given the increased risks for private residential development, some developers and investor demand could be diverted towards the commercial and industrial markets.

Interest in the CBD incentive scheme would also cool, given current challenges and risks in the hospitality and private residential markets.

However, amidst very low levels of unsold inventory, we expect developers to continue sourcing for land in both public and private platforms, albeit with a more cautious bidding behavior. En bloc activities are expected to slow, as developers become more selective and wait to see the impact on demand. Additionally, the supply of land from the Government Land Sales Programme has been increased and would compete with the en bloc market.

Developers are not expected to cut prices for existing launches as unsold inventory remains very limited.

Price Growth Tapers Off

The latest slew of cooling measures is expected to have a calming effect on the market. Buyers and developers are expected to adopt a wait-and-see attitude to digest the new measures. Furthermore, Singapore’s economic growth is expected to slow to around 3 to 5% in 2022 from around 7% in 2021.

On the other hand, market fundamentals remain unchanged, supply remains tight and underlying demand for private residential properties remains strong. Market volumes is expected to slow over the short term as demand accumulates on the sidelines due to lower affordability and higher upfront costs amid the new measures and strong underlying demand. 
As such, we do not expect a sharp correction in prices. However, we lower our private residential price forecast for 2022 from 4%-6% to about 0-2%. Total sales (all sales) volumes could fall back to around 20,000 units in 2022 amidst a limited launch supply and cautious demand due to the latest slew of cooling measures.


Figure 1: Summary of New Cooling Measure Adjustments

  1. Higher Additional Buyers’ Stamp Duty (ABSD) Rates

    Figure 1 Summary of New Cooling Measure Adjustments
  2. Tightened Total Debt Servicing Ratio (TDSR) threshold from 60% to 55%

a. Borrowers’ total monthly loan repayment cannot exceed 55% of monthly income.

b. TDSR threshold for refinancing existing property loans granted before 16 December 2021 remains at 60%. 

    3. Tightening of Loan-to-Value (LTV) limit for HDB-granted loans from 90% to 85%

  a. The maximum amount potential homebuyers can borrow from HDB is reduced.

b. LTV limit for loans obtained from financial institutions to purchase HDB flats remains at 75%.

Source: IRAS, MAS, MND, Cushman & Wakefield


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