Newest property cooling measures 'unexpected': JLL

Analysts expected cooling measures to occur after much higher price increases.

Singapore’s Ministry of National Development recently announced several cooling measures for the property market. These include higher Additional Buyer’s Stamp Duty (ABSD) rates, lower Total Debt Servicing Ratio (TDSR), and tightened loan limits.

According to Ong Teck Hui, Senior Director of Research & Consultancy at JLL, “The cooling measures were quite unexpected because the Urban Redevelopment Authority (URA) residential price index rose only 1.1% in 3Q21 following a 0.8% rise in [the second quarter (Q2) of 2021]. The expectation was for much higher price increases to occur before cooling measures are imposed. In July 2018, the measures were imposed after the URA price index rose 3.9% in the first quarter of 2018 and 3.4% in Q2 2018.”

Here’s more from JLL: 

However, it is acknowledged that the divergence between prices and fundamentals already started in 2020 when the URA index rose 2.2% during a severe recession. The sharp increase in transaction volumes in 2021 would have caused concern that they will fuel stronger price increases going forward, as demand remains bullish and the sales inventory shrinks further.

The ABSD rate adjustments this round are harder hitting compared to the changes in July 2018 and there is additional tightening from the lowered TDSR. It is a 10% jump in ABSD rates for Singapore citizens buying their 3rd or subsequent residential property, Permanent Residents (PRs) buying their second residential property and foreigners buying any residential property. The increase in ABSD for PRs buying 3rd and subsequent property is even higher at 15%. Lowering of the TDSR is also an additional dampener in the latest measures.

After the July 2018 measures were imposed, prices declined slightly in 4Q18 and 1Q19 before rising gently in 2Q19. Total transaction volume in 4Q18 declined about 33% q-o-q. Following the latest measures, we also expect sales volume and price increases to be moderated. Demand from first-timers and owner-occupiers may be less affected by the measures but we may expect investors, including foreigners to be discouraged by the punitive ABSD rates.