The COVID-19 pandemic spurred demand, and coupled with a dwindling housing supply, Singapore property prices hit new highs throughout 2021.
According to the latest flash estimates from the Urban Redevelopment Authority (URA) and the Housing & Development Board (HDB), the private residential and HDB resale price indices for last year, 2021, both recorded their fastest pace of growth since 2010.
This led the government to introduce new measures to control the property market. Additional Buyer’s Stamp Duty (ABSD) rates were raised, and the Total Debt Servicing Ratio was tightened to curb demand.
Developers are likely to be more cautious in their land acquisitions, as they have to pay a higher ABSD for residential property purchases.
But how will the December 2021 property cooling measures affect you? (Note: a more recent round took effect on 27 April 2023, raising foreigner ABSD to 60% and trust/entity ABSD to 65%.)
Investors, Permanent Residents (PRs), and Foreigners Are Most Affected
The December 2021 measures affected many buyers. Investors with multiple properties, Permanent Residents, and foreigners bore the biggest brunt, facing the most significant ABSD hikes of that round.
For example, in the December 2021 round, Singapore citizens buying their third property and PRs acquiring their second saw a 10 percentage point increase in ABSD, steeper than the 5 percentage point hike in the previous round in 2018.
This move could be in response to a potential surge in demand, when more people are expected to return via the vaccinated travel lanes. As PRs snapped up condos faster than Singaporeans last year, stricter measures may have been implemented for them.
Compared to 2020, the number of condos bought by PRs grew by 55.3%, compared to 50.7% for Singaporeans.
For foreign buyers, ABSD rose to 60% from 27 April 2023 (it was 30% in the December 2021 round).
If we factor in the standard Buyer’s Stamp Duty, a S$2 million property transaction will incur a hefty tax of about S$1,270,000.
With the new measures, we expect a temporary pullback in demand in the luxury property market, as investors and foreigners form a large part of the buyers.
However, ultra-rich investors will likely continue to buy.
Given Singapore‘s safe-haven status and strong economic fundamentals, the benefits of parking their money here would outweigh the additional costs for them.
Owner-Occupiers and First-Time Homebuyers Will Benefit Most
The announcement of the cooling measures did not come as a surprise, as a market correction was inevitable.
The recent run-up in property prices was unsustainable, and rising housing costs could have exacerbated income inequality, affecting social stability.
If the affordability gap continues to widen, millennials and Gen Zers (those born between 1990 and 2009) could have found it hard to buy a home, and many might have ended up renting long-term.
Last year, the price gap deterred some HDB upgraders from buying private properties. With low housing stock, high prices, and intense competition, opportunities were few for this group of people.
The new measures have little impact on Singapore citizens buying their first private property, as they do not have to pay the Additional Buyer’s Stamp Duty.
With investors taking a temporary back seat, some HDB upgraders may now take the opportunity to enter the property market.
However, the window of opportunity could be fleeting. Although price growth is expected to slow down after the cooling measures, the supply lag in the suburbs will likely persist.
Lowered demand may still push prices higher in the medium term, especially as more upgraders will sell their HDB units after their Minimum Occupation Period ends.
This year, the supply of new suburban condos will be lower.
From 10 residential projects (including Executive Condominiums, ECs) outside the central region, fewer than 4,000 new private homes may be launched, about 33% lower than the 6,000 units launched annually in 2019 and 2020.
Although the authorities will increase supply in the upcoming Government Land Sales (GLS) programme, these projects will not be launched until next year or 2024.
Looking Ahead
There may be a knee-jerk reaction in the short term. As buyers adopt a wait-and-see attitude and sellers take time to gauge buyers’ interest before adjusting prices, sales volume may slow down moderately.
However, owner-occupiers, especially buyers with pressing housing needs and families unaffected by the measures, will continue to buy homes.
As our employment rate remains healthy and Gross Domestic Product (GDP) growth is robust, overall prices may stabilise this year and rise at a slower pace.
The supply of private homes and HDB flats will be increased.
The private housing supply will be increased to meet growing demand and address the dwindling supply of unsold homes from developers.
In the Government Land Sales programme for the first half of this year, the supply of private homes on the Confirmed List is about 40% higher than in the second half of last year.
Most of these private homes will be launched eight to 10 months after the land tenders close. Therefore, from next year onwards, when supply catches up with demand, price pressure may ease.
Official Sources & References
- IRAS — Additional Buyer’s Stamp Duty (ABSD) rates: ABSD official page
- IRAS — Buyer’s Stamp Duty (BSD): BSD official page
- IRAS — Remission of ABSD (Trust): ABSD (Trust) remission
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