By Faris Mokhtar
(Bloomberg) — Singapore introduced residential property curbs for the first time since 2018 to cool a surge in home prices over the past year.
Shares of developers including City Developments Ltd. dropped Thursday after the government said it’s raising additional stamp duties for second-home buyers and foreigners purchasing private property. It’s also tightening loan limits for public housing apartments.
The government will also increase the supply of public and private housing, according to a joint statement by the Ministry of Finance, Ministry of National Development and Monetary Authority of Singapore late Wednesday.
Buyers have been capitalising on low interest rates and expectations that prices will climb further as the economy recovers. That’s led to rising property prices even as Singapore implemented stop-start coronavirus-related restrictions for several months, which limited viewings of new homes and deterred developers from launching developments.
City Developments led the declines in real estate firms, falling as much 4.1% in Singapore trading. UOL Group Ltd. slid as much as 3%, and Wing Tai Holdings Ltd. lost 2.7%.
The government has decided to act now to “reduce the risk of a self-reinforcing cycle of price increases” that will impact affordability in the private and public housing markets, National Development Minister Desmond Lee said at a briefing with local media as reported by the Straits Times
“Left unchecked, prices are likely to run ahead of economic fundamentals,” Lee was quoted as saying. “This will increase the risk of a destabilising correction later on, that will hurt many households.”
Borrowers will be vulnerable to the likely rise in interest rates in the next year and beyond given that major central banks are looking to tighten monetary policy, Lee said. It’s a similar warning issued by the central bank earlier this month, with the Monetary Authority of Singapore saying that household debt is higher than pre-pandemic levels, driven by property loans. As such, leverage risk has grown, the central bank said.
Private home prices have risen by about 9% since the first quarter of last year, the statement said. The secondary market for public housing is also recovering sharply after a six-year decline, rising about 15% over that period. There were S$32.9 billion in sales in the first half of 2021, double what was recorded in Manhattan, driven by demand from the ultra-rich flocking to the business hub.
Government officials have long cautioned that low rates can distort asset prices and the property market shouldn’t run ahead of economic fundamentals. Still, the latest announcement came as a surprise given that the Monetary Authority of Singapore previously said in June the market isn’t overheating.
The latest curbs are unlikely to have a long-term impact given that locals make up the majority of buyers and continued to purchase homes even after the last round of cooling measures in 2018, said Alan Cheong, executive director of research at Savills Plc.
“The measures are something akin to pointing the gun to the sea when the enemy comes from the back,” Cheong said. “Many of the buyers are first-time buyers, so raising the stamp duties are ineffective as it has been shown.”
For citizens: Additional stamp duties for purchasing their second home raised from 12% to 17%; for the third and subsequent property, duties raised from 15% to 25%
For permanent residents: The rate for buying their second home raised from 15% to 25% and for the third and subsequent property, their stamp duties have been raised from 15% to 30%
For foreigners: Stamp duties raised from 20% to 30%
For entities: Stamp duties increased from 25% to 35%
Developers also have to pay higher stamp duties of 35%, up from 25%, when they purchase residential projects. They can claw back this amount if they sell off all units in their new projects within five years of purchasing the site, but there’s an extra 5% that they have to pay which can’t be refunded under a requirement introduced in the last round of cooling measures in 2018.
The government will also tighten the total debt servicing ratio threshold to 55% from 60%, which takes effect from Dec. 16. This means that a person’s total monthly loan payments, including mortgages, cannot exceed 55% of the individual’s total gross income.
Borrowers with existing property loans granted before that date won’t be affected. The limit for loans to purchase public housing units will also be tightened to 85% from 90% on applications made after Dec. 16.
There will also be an increase in the supply of both public and private housing, with further details to be provided Thursday.
“The measures undertaken in this cooling package will help promote a stable and sustainable property market,” the statement said. “The government remains vigilant to the risk of a sustained increase in prices relative to income trends.”
© 2021 Bloomberg L.P.