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When, how will the measures be unwound?
By Cecilia Chow / The Edge Property | January 20, 2016 10:00 AM MYT
Tags: Cooling Measures

The year 2015 is projected to end with a total of 7,300 to 7,500 new homes sold, which is similar to the number of units sold in 2014. But next year could see transaction volume shrink a further 10%, which would see new home sales falling to 6,000 to 6,500 units, says Desmond Sim, head of research for Singapore and Southeast Asia at CBRE.

While the government has repeatedly said that it is engineering a soft landing and not a property market crash, developers feel like they have been dealt a blow as transactions have fallen so steeply — halving from 14,948 units in 2013 to just 7,316 last year.

The precipitous drop in house sales came after the government introduced its seventh round of property cooling measures, which saw a hike in additional buyer’s stamp duty (ABSD) and a further reduction in loan-to-value ratios for property investors in January 2013. This was followed just five months later by the total debt servicing ratio (TDSR) loan framework in June that dried up transactions across all sectors. “In a sense, it’s a self- inflicted wound as the market correction has been brought on by the cooling measures,” says Sim.

The Monetary Authority of Singapore has repeatedly said this year that it is too early for measures to be removed or even tweaked as prices have not corrected enough, compared with the more than 60% increase from the trough in 2Q2009 to the peak in 2Q2013.



Is it time yet?
So, the guessing game of “When will the measures be removed?” has persisted. Top executives of leading property firms are in agreement with Kwek Leng Beng, executive chairman of Singapore’s leading property developer City Developments Ltd, who said “the property cooling measures need to be reviewed as soon as possible” in the release of the company’s 3QFY2015 results on Nov 12. “Timing is the most important factor to achieve a healthy and sustainable property market.”

If house prices were to correct by 12% to 15% from the peak, some of the cooling measures could be lifted in 2H2016, “which should see interest returning to this sector”, says RHB Research in a Dec 2 report. A 15% fall in the private property price index is the threshold that the government is looking at, say property consultants. “If prices were to fall by more than 15%, and mortgage rates rise further next year, there is a high chance many homeowners will sink into negative equity,” says CBRE’s Sim.

However, the government looks at several other market indicators apart from the property price index, says Nicholas Mak, executive director and head of research and consultancy at SLP International Property Consultants. Other considerations are economic health and unemployment rate. This year’s GDP growth is 2% and next year’s is projected to be equally lacklustre, at 1% to 3%. Preliminary estimates showed that in 3Q2015, the unemployment rate for residents rose to 3% from 2.8% in 2Q2015, while the jobless rate for citizens nudged up to 3.1% from the previous quarter’s 2.9%.

“Whether the measures will be eased is speculative,” says Mak. “However, people are getting used to them. Yes, demand has been restricted, but there’s nothing causing prices to slump or fall further than what has [happened] this year, unless we enter a recession.”

A recession could lead to a rise in unemployment, and that would have a more alarming effect than just weak GDP growth. “If unemployment rate rises, people will be afraid to commit to a home purchase because of the loss of job security. Even banks will pull back from their mortgage lending,” says CBRE’s Sim. “So, a weak job market is more detrimental.”

From the government’s point of view, it is hard to tweak or unwind any of the measures now because it took so long and so many rounds of cooling measures to curb the rise in the private property price index. “What they fear most is a knee-jerk reaction,” says Sim. “All the measures implemented over the years will go to waste if the property market rebounds sharply after the measures are lifted.”

In general, the ideal time to relax or remove the property cooling measures is when the market is already “over-cooled or chilling” as in the case of a market downturn or economic recession, says Mak. “When the property market curbs are removed during a downturn, the risk of prices and demand surging again is minimised.”



ABSD — developers’ bitter pill


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