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Property curbs: Ahead of the curve but too much?

The government has deemed it fit to curb the steep rise in private home prices in recent quarters with a surprise tightening of cooling measures on Thursday.

THE government has deemed it fit to curb the steep rise in private home prices in recent quarters with a surprise tightening of cooling measures on Thursday. The tough measures shocked many and also raised the pertinent question - why use a sledgehammer on a market that may be showing signs of finding its own equilibrium?

With effect from July 6, the additional buyer's stamp duty (ABSD) will be raised by 5 percentage points for Singapore citizens and permanent residents buying a second, third or subsequent residential property, as well as foreigners buying any residential property.

The rate for entities buying any residential property will go up by 10 percentage points. Developers buying residential properties for development will also have to fork out another 5 per cent non-remittable ABSD on purchases from Friday onwards. At the same time, the loan-to-value (LTV) limits will be tightened by 5 percentage points for all housing loans granted by financial institutions, with effect from Friday.

The government explained that the sharp increase in prices, if left unchecked, could run ahead of economic fundamentals and raise the risk of a destabilising correction later, especially with rising interest rates and the strong pipeline of housing supply.

Perhaps, the writing was already on the wall when Monetary Authority of Singapore managing director Ravi Menon warned developers, buyers and banks of the "euphoria" in the property market just a day before the measures were announced.

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In Case You Missed It: 'Euphoria' in Singapore property market calls for caution: Ravi Menon

Probably from the government's perspective, it is better to prevent a big bubble burst or a disorderly market correction later on. But the timing and severity of the measures set many thinking whether they are indeed necessary.

There have been early signs that the market is finding its own equilibrium lately. Take-up rates in recent launches such as Affinity at Serangoon and The Garden Residences have moderated, from the near-70 per cent take-up rates seen in earlier launches.

The collective sales fever that gripped the Singapore market has also shown signs of cooling off, even as the list of collective sale hopefuls grows longer. After aggressively bidding for sites in the past two years, many developers have re-stocked their landbank substantially and are becoming more selective. The premiums that developers are paying for collective sale sites over the asking prices have also narrowed compared to last year; there were also a number of transactions where bidders paid just the asking price, and not a cent more.

More than 30 collective sale tenders have closed this year without finding a buyer, with some not even receiving a bid. The significant supply of project launches later this year and next year may also prevent developers from pricing themselves out of competition.

There are others who point to the 68 per cent growth in median household income in the last decade vis-a-vis the 17 per cent rise in private home prices to support their view that housing price growth is not completely out of sync with income growth. Moreover, mortgage loan growth year-on-year has hovered around 4 per cent in recent quarters, just slightly higher than the 10-year average of 3.7 per cent and much lower than the double-digit growth seen in boom periods.

On these counts, it would appear that the government could have allowed the market to find its own level first. But clearly, a government with foresight is looking beyond immediate circumstances.

"Tail risk" to growth has heightened. There could be dire consequences to the global economy if rising trade friction among economic powers escalates into a full-blown global trade war. In the near term, however, the market will be reeling from the impact of the latest cooling measures.

Even for a Singaporean first-timer who does not incur ABSD but can borrow 5 percentage points lower than before on the value of the property purchase, his equity outlay is 25 per cent more than before.

For developers, those who have already launched their projects will find it hard to adjust their pricing downwards without incurring the wrath of earlier buyers. Those who have bought their sites at high prices will find their margins further squeezed if they drop selling prices now to keep overall quantum palatable to buyers. Developers without deep pockets will clearly struggle.

Property owners who are attempting collective sales will have to factor in the additional costs that developers have to bear as a result of the new non-remittable ABSD on development sites when setting their reserve prices.

Analysts are also starting to retract their previous projection of a new peak in private home prices by this year.

If it was not already clear by now, policy makers have signalled emphatically that they will not let property prices run unbridled, and that they stand ready to intervene. For many property players, it's a jolting reality check.

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