The Singapore government closed the year with another tranquiliser for the residential property market. After a series of soft policy measures introduced as early as 2009, the government finished 2011 with its most punitive move so far – an additional buyers’ stamp duty (ABSD) to be paid by all buyers, including foreigners with, of course, varying degrees of incidence.
In my opinion, this policy has been introduced to provide a financial firewall around the property investment market. The idea would be that such a measure would discourage the flow of hot money into Singapore from Europe and the US, where further quantitative easing measures could be introduced should the Eurozone conditions worsen. This policy is particularly timely in light of Singapore slipping by one place after Hong Kong, US, and UK, in the Financial Development Report 2011, released by the World Economic Forum.
The initial impact of the ABSD on the demand for new residential units was felt equally in all sub-markets (prime and mass) on a month on month comparison. As a whole, new sales demand nationwide dropped by 63.0% in December to 632 units compared to 1702 units in November. New sales in the sub-markets i.e. Outside Central Region (OCR), where the mass market projects are largely located, and Rest of Central Region (RCR), also declined at 63.0%, the national average, while contrary to market expectations, Core Central Region (CCR), which contains prime market projects, declined a little less at 57.0% m-o-m. This lower rate than the national average can be attributed to the fact that activity in this sub-market was already weak before the latest policy was introduced. The impact on the high end market was therefore felt less.
However, taking away the seasonal factor, the CCR recorded the largest decline at 92.0% y-o-y, almost double the national average of 53.0% y-o-y. In contrast, OCR registered a better showing with a decline of only 19.0% y-o-y, suggesting that the depth and strength of this underlying Singaporean demand is likely to continue working its way through this market.
The initial effect of this new policy has been a 20-60% lowering of market demand for new homes. The first response to this policy is the most severe of all the policies I have seen since 2009, when the removal of the interest absorption scheme, and the interest loans only scheme, on 15 September 2009 caused market demand to fall by 25.0%. With the new policy in place, and coupled with the anticipated economic slowdown in Singapore in 2012, I expect demand to continue to moderate with an expected full year sales volume of 7,500-10,000 units, if the current pace of demand is sustained. Buying volume in the next 60 days, in my opinion, will remain in check with Singaporean buyers emerging across all submarkets after the Spring Festival to bargain hunt and provide support to market activity. Overall property prices island wide could see a potential softening of between 0-8.0% in 2012.
About the author
Dr. Chua Yang Liang is the Head of Research for Jones Lang LaSalle in South East Asia and Singapore.