Yesterday (December 15) right before midnight, the government announced new property cooling measures, with higher ABSD (Additional Buyer’s Stamp Duties), lowered LTV (Loan-to-Value) and tightened TDSR (Total Debt Servicing Ratio).
The predictable pattern to impose new curbs
We had the last round of cooling measures just three years ago in July 2018. Let’s recall the events again.
– 2 July 2018 (Mon): URA 2018 Q2 private residential estimate and PropNex IPO
– 3 July 2018 (Tue): Government Land Sales of Hillview Rise site to Hong Leong
– 4 July 2018 (Wed): MAS warning of euphoria in the Singapore property market
– 5 July 2018 (Thu): DBS warning at luncheon and announcement of cooling measures
– 6 July 2018 (Fri): Developer stock prices fell and property agencies turned pessimistic
Did the pattern sound familiar? It has a logical flow with different players doing their part. So it is impossible not to ring a bell for the events unfolding this week.
1st Player: The MAS
On December 6, the Monetary Authority of Singapore advised borrowers and lenders to be vigilant and prudent ahead of hikes in interest rates and borrowing costs. Private home prices have climbed 8.7 percent since 1st quarter of 2020, above Singapore’s GDP growth of 5.3 percent during the same period. Also, household debt as a percentage of GDP has increased to 70 percent last quarter.
2nd Player: The Developers
Three days later on December 9, Macau casino conglomerate’s Shun Tak Holdings, amid heavy crackdown of the Macau gambling industry by China, announced the acquisition of the High Point en bloc project for S$556.7 million. This was after mid-November when the government sold two land parcels at Thiam Siew Avenue to Hoi Hup and Sunway at S$815 million – the biggest residential development site sold since the 2018 cooling measures.
3rd Player: The Media
On December 15, the Urban Redevelopment Authority released figures on “Prices of Private Residential Units Sold by Developers”. We are waiting for the local media to play along. As expected, The Straits Times immediately came up with the headline “New private home sales in November at 5-month high”. Buyers snapped up 1,547 units last month. Sales volume was up nearly 70 percent from October and highest in 10 years. These articles reassured developers that their advertising dollars were well spent. Of course, no property write-up would be complete without mentioning at the end upcoming new projects going to launch soon.
4th Player: The Agencies
Agency spokespersons joined forces to cheer for the encouraging sales that is a solid proof of healthy pent-up demand. Buyers are purchasing properties as an inflation hedge ahead of interest rate hikes … All these euphoric comments are exactly what the government expects to hear to justify for a new round of cooling measures.
To me, the whole thing is a no-brainer: October only had the launch of Jervois Mansion with just 75 units left to sell. In November, there were four bigger new projects launched. Together with strong advertising efforts from projects with leftover units, how could sales volumes not climb?
5th Player: The Government
The time was finally ripe to announce the new cooling measures late in the evening. The next day share prices of developers tumbled. Analysts who were so optimistic the day before suddenly became conservative about their forecasts for the private home market next year.
It was a well-coordinated show unknowingly participated by different industry stakeholders … The government was the director staging a grand show behind the scene, with enthusiastic participation from different volunteer players. It was difficult to tell whether all the players had fun playing the game. But at least it was a good show, and the game served its purpose.
– Vina Ip, Behind The Scenes of The Property Market
No last-minute Christmas shopping for properties
For the new series of property curbs specially shown in Singapore, one important group of players are missing in the show – Homebuyers don’t have a part to play this time.
When the government announced new cooling measures on the evening of 5 July 2018, developers were rushing to sell three not-so-ready-to-launch projects, namely the Riverfront Residences in Hougang, Park Colonial in Woodleigh and Stirling Residences in Queenstown. Under high anxiety, desperate buyers hurried down to the three projects’ sales galleries. They snapped up over 1,000 units in a few hours’ time.
– Vina Ip, Behind The Scenes of The Property Market
Unlike the last round in July 2018, the new cooling measures were announced much later in the evening at 11.40 p.m. It was probably not the result of WFH arrangement or the showcase of hardworking civil servants, but more to prevent last minute shopping of homebuyers.
The government predict that anxious buyers for fear of missing out will rush down to developers’ sales galleries in the evening. They will be desperately grabbing this one last chance to buy any available unit before the effective date of the new cooling measures kicks in after midnight.
These eager buyers are surely more concerned about not being able to buy than getting Covid-19. It is not a good idea to have them queuing in lines during a pandemic, especially when It is late at night when their immune systems are at their lowest.
Anyway, homebuyers won’t miss much if they have learned what happened to their counterparts who rushed to buy the three not-so-ready-to-launch projects on the evening of July 5, 2018.
For four months from July to October 2018, new projects that top the chart of number of returned units to developers are no other than Stirling Residences and Park Colonial. Stirling Residences and Park Colonial had the highest return rate of 24 percent and 20 percent respectively. Riverfront Residences also had a high return rate of 6 percent.
In October 2018 alone, the percentage of units returned for Stirling Residences, Park Colonial and Riverfront Residences are 48 percent, 38 percent and 27 percent respectively.
So what’s the point of queuing for hours in the evening, only to regret later, return the unit to the developer and forfeit the deposit?
Reflation well before inflation
After the onset of Covid-19, countries around the world tried their best to avoid falling into recession. Governments rolled out different relief measures to stimulate the weak economy and avoid high unemployment and bankruptcy in their countries. These generous support packages resulted in “reflation”.
Not much of the countries’ money went to GDP growth or those in need. Instead, the high liquidity from local banks found its way to the hands of the rich. This resulted in abnormal growth in the asset markets. Prices of stocks, properties and cryptocurrencies skyrocketed. Business owners realized that it makes more sense to use government rebates to invest in stocks and properties than to save or grow their business.
Governments notice asset bubbles are growing. But at least they benefit certain industries and people who own these assets. On the other hand, with an expected prolonged pandemic, they know that there is a limit to their relief measures. Their options are printing more money, keeping interest rates low and raising taxes. Money printing accelerates inflation. Low interest rates shoot up asset prices. Higher taxes help to replenish depleting reserves by taxing those who buy and own assets that have ballooned in value.
According to the Knight Frank Global Price Index Q3 2021, the annual increases in property prices for major countries are as follows:
– South Korea 26.4%
– New Zealand 21.9%
– Australia 18.9%
– United States 18.7%
– Canada 17.3%
– United Kingdom 11.8%
In comparison with the countries above, non-landed private home prices in Singapore only increased 7.5 percent over the same period. Under the economic uncertainty of Covid-19, how big is “the risk of a self-reinforcing cycle of price increases” in the private home and HDB resale markets that the Singapore government must burst the bubble now?
The winner and loser of the new cooling measures
Singaporeans are big fans of the property game. Many cannot wait to play it. But how well do we know the rules of the game? Are we aware of the unwritten rules? Is winning determined by strategy, experience or luck? How many of us are sophisticated players who can see the full picture and anticipate the moves of other players?
– Vina Ip, Behind The Scenes of The Property Market
The overall winner
In FY2020, IRAS collection of property taxes fell 34.3 percent to S$3.1 billion due to tax rebates. Stamp duty collection also dropped 7.2 percent to S$3.9 billion. Together, the two tax categories contributed 14 percent of IRAS total revenues which was down from 18 percent in FY2019.
Under the new cooling measures announced, the increase in ABSD was the harshest. Buyers of second and subsequent properties now have to pay 17 to 30 percent ABSD. Developer ABSD has been raised from 25 percent to a whopping 35 percent, on top of 5 percent non-remittable ABSD (which simply closes the door to all en bloc hopefuls).
No doubt the increase in collection of stamp duties in the near future can quickly cover the total of S$130 million spent on distribution of CDC (Community Development Councils) vouchers. As my daughter said, if more were to buy second “properties”, we could buy more “bubble tea” for free.
The biggest loser
For homebuyers who cannot afford to buy now (with TDSR reduced from 60 percent to 55 percent, or HDB LTV lowered from 90 percent to 85 percent), these are borderline buyers who can’t really afford the current high prices anyway. In contrast, those who are trapped now are the ones who thought they could afford and have taken the plunge.
The MAS warning has come too late. Private home prices have climbed 8.7 percent since first quarter of last year. It is higher than Singapore’s GDP growth of 5.3 percent over the same period. Desperate homebuyers under the pandemic have already signed up new mortgages, under the perception that interest rate is low. The worst part is: These buyers have bought at high prices and maximized their borrowing.
– “What]s happening in new projects and the private home market?“, PropertySoul.com
Once the music stops, those who bought at the peak of the market will suddenly realize that they have bought homes that they cannot afford. They have fallen into the trap of paying high debts with cheap money.
The banks’ mortgage relief or loan deferment scheme will end this month. From next year, loan restructuring will be considered on a case-by-case basis.
Food for thought
The property sellers have transferred all the risks to the homebuyers, including increased market uncertainties, borrowing costs and supply glut in the future.
With a total supply of 52,433 uncompleted private residential units in the pipeline, why do we need to increase private housing supply by 39 percent? With tens of thousands of new BTO flats for new sale and balance sale, why HDB need to launch 23,000 BTOs in the next two years? Can these measures solve our existing problems of labor shortage and delayed completion? With a shrinking population of 5.45 million, do we have enough buyers for resale flats after the pandemic?
For those of you who are lucky to have your investment properties risen in value, I hope you have cashed out in time and locked in your profit. Spokespersons in the media can quickly flip-flop from optimistic forecasts to gloomy outlook of at least 10 percent dive in property prices the next day. Unfortunately, I am no fortune teller and cannot tell how deep and how long the next market correction will be.
But I can see that the biggest challenge is not now or the near future, but after the end of this pandemic – when there is no more wage support, rental relief, tax rebate, priority to hire locals, and countless safe entry or social distancing vacancies filling the job market.
As Warren Buffett said, only when the tide goes out do you discover who’s been swimming naked.
If you need advice on property matters or residential properties in Singapore, you can check out my personal consultation service.
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1. This game and its unrolling looks very much like the Squid Game, with big government really the behind the scene organiser and decider, securing all the collections and getting the most benefits as perpetrator of scheme leaving scraps for sparse others while the majority were duly and unwittingly sacrificed except of course for the few ultimate winners ( gamblers and prize winner).
2. Since when does one become a medical expert as well besides being concerned with the state of the property market when it was stated or seemingly presented as fact that ‘late at night when their immune systems are at their lowest’? WouIdn’t it be more convincing to readers if there is any evidence or reference to back this up?
1. Well, willing buyers, willing sellers. They are all willing players of the game.
2. Hubby has at least one to a few positive cases in his clinic every day for the last outbreak. I am brainwashed by his talk to improve immunity and used to his nagging to eat well, sleep early, don’t go to crowded places …
Hi,
With regards to your table on Park Colonial, to be fair, there are people who queued and bought in July 2018 and they are sitting on paper profit now. No doubt there are people who returned the units, but there are people who also made money. So there’s always 2 sides to the coin.
I often see people who buy properties and stocks at high prices in a bull market. They are so happy when prices continue to climb after their purchase and they hold onto them. When market direction changes, they are the first to suffer losses. When they finally cut loss, they tell others the price of their property/stock used to be at a certain height during the good old days.
As I said before, paper profit is not a real profit, but paper loss is a real loss. A paper profit that hasn’t been realized and locked in is never money in your pocket. On the contrary, a paper loss that hasn’t been realized doesn’t mean it does not exist.
….. the onion need to be peeled in different way. My 2 cent is Spore (property) mkt need to be segregated between the high-end and mass-market. The high-end condo targets the well-heeled foreigner with different buying objectives whereas GCB-sphere also a different cattle of fish for different category of citizen eg newly minted millionaire/billionaire (or new citizens) from new-economy. This (high-end) segment demand will be inelastic regardless of changes in tax-regimes
The mass market is where the irony resides …… buyers or potential buyers (esp upgraders) harbours the dream that “history will repeat itself” and consciously or otherwise, ignore facts that the “wind have changed”. I am blunt to add clarity that “history” is the property price-rise trajectory journey of the Spore property mkt from 1980s to-now …… dreaming that it will follow same-path to defy gravity. Let’s ignore other (social) factors for a moment to get-real.
Can’t agree with you more. I also don’t quite understand Singapore’s property policies, restrictions and taxes in the high-end property segment. If you look at other countries, they welcome rich overseas buyers because the purpose of their ultra expensive high-end properties is to attract foreign direct investment aka foreign currencies.
Most mass market homebuyers just rely on conventional wisdom and unsolicited advice from the media and people around them. They don’t study property cycles of developed countries and macro/microeconomics before they buy.
Hi PS,
Your predictions came very true. You predicted a merry-go-round of new launches that boast smaller units, higher PSF, branded outfittings. If we just look at the latest victim, Perfect Ten in Bukit Timah, that was the last splashy new launch before MAS smacked the market down.
Do you think that more Singaporeans will have to buy in overseas markets? But Singaporeans are not very good at assessing the worth of overseas properties…
Hmmm I don’t do predictions as I am not a fortune teller. I just say what I see in the market.
When property agents don’t have much business in the local market, they have to survive by marketing overseas properties. But this time it’s harder to do so compared with 2013 and 2014 as many are still stuck with Iskandar properties they purchased from agents back then.