Property investment demand to suffer from 'harsh' cooling measures

As it is ~40% of overall demand.

According to UOB Kay Hian, the government on 11 Jan 13 announced stringent and the most comprehensive policy measures (7th round) on all residential properties. 

The measures include an overall increase in Additional Buyer’s Stamp Duty (ABSD) by 5-7ppt, increase in loan-to-value (LTV) limits and cash down payments (for second purchases onwards), tightening of debt service ratios for HDB flats, disallowing PRs from subletting entire HDB flats, requiring PRs who own an HDB flat to sell the flat within six months after buying a private residential property, and setting size restrictions on executive condominiums (EC).

Here's more from UOB Kay Hian:

While we had expected the government to tweak LTV ratios, cash down payment levels, ABSD parameters and EC size restrictions, the magnitude of adjustment is sharper than anticipated.

The introduction of additional ABSD categories (for first purchases by PRs, second purchases by Singaporeans), mortgage servicing ratio caps for public housing and further ownership restrictions on public housing was largely unexpected.

The implementation of all these measures in one go comes as a surprise. Overall, we believe the measures are pre-emptive in nature, brought about by a sharp pick-up in volumes (primary sales up over 40% yoy for 2012) and early signs of price increases in 4Q12 (primary: 1.8% qoq, secondary: 6% qoq, HDB: 2.5% qoq).

The harsher-than-expected measures will result in a sharp slowdown in home purchases, especially in the mass market segment, and will curb investment demand which accounts for roughly 40% of overall demand.

Over the next 2-3 quarters, the government is expected to monitor the market closely for the cumulative impact of the policy measures before further intervention.