Property Blog

Why the average Singaporean may not find the recent property measures effective

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By Getty Goh

In early Feb 2013, iProperty.com came out with a Consumer Sentiment Survey. In the survey, one of the questions asked was whether the Singapore government should take more active steps to cool the property market. Out of the 2,000 plus respondents, about 67% felt that the government should do more in the year ahead (see Figure 1).

Figure 1: Should the government take more active steps to cool Singapore’s property market in 2013

Figure A

Source: iProperty.com

Since 2007, there were more than seven rounds of direct and indirect measures to control the property market. Even the Singapore Budget 2013 saw the government introduce yet another measure to douse interest in the property market by raising property tax to as much as 20% for properties that have high assessed value (AV). It is interesting to note that even after so many rounds of measures, the URA Property Price Index (URA PPPI) is still at an all time high and many feel that more could be done. Naturally this begs the question, are the recent measures adequately addressing issues plaguing the Singapore property market?

Why some owners of multiple properties are not selling despite the cooling measures

As I currently run a property research consultancy, we come across many potential homebuyers, home upgraders and property owners. At present, there is no available data on the number of properties each household in Singapore owns. However, from my interaction with individuals who own more than one property, I realised that, contrary to conventional thinking, the cooling measures do not encourage some property owners to sell their units at lower prices. Why is this so?

Owners who buy more than one property are typically prepared to hold for the long run. Unless there are adverse economic conditions that force them to sell at losses, most owners would be prepared to hold onto their units. As a result, the cooling measures are not effective in influencing multi-property owners to sell their units as they know that it is going to be very difficult for them to purchase other residential units as a result of the measures. Even if these owners want to cash out, they would want exceptionally high profits to compensate for their opportunity cost – inability to easily buy a sequent unit.

Moreover, with the projected population target of 6.9million and the need for 700,000 more housing units by 2030, many owners are of the view that it would simply be a matter of time for their property value to go up. Hence, it does not come as a surprise that despite so many rounds of cooling measures, Singaporeans are still keen to buy residential properties and property prices continue to remain stubbornly high.

Victims of circumstance – home upgraders?

Looking at all the measures that were recently introduced, there is little doubt that the government is doing their best to provide affordable housing for first time buyers and new families. For example, new families now have priority in applying for new HDB flats under the new Parenthood Priority Scheme. Apart from that, first time buyers who opt for private properties could also get their properties at very attractive financing arrangements (such as getting 80% loan and having to cough up 5% cash).

However, if you put things into perspective, Singapore’s resident homeownership rates for 2012 is 90.1%. In other words, these measures for first time buyers are only applicable to a specific group of Singaporeans (i.e. 9.9% of the family units who have not purchased a home yet). The cooling measures are designed to make it very difficult to own more than one residential property. The question then is, what about those who already own their first property but wish to upgrade?

Before all these cooling measures were introduced, upgraders could simply buy a second (and potentially bigger) unit, while having the flexibility to sell their first property as and when the price was right. However, with all the controls currently in place, buying a second property has become an extremely pricey undertaking. Even if property prices were to drop by 10%, upgraders would have to fork up significant sums of cash to pay the 7% ABSD as well as to make up for the lower loan-to-value (LTV) financing they can get from banks.

Of course, families could choose to sell their homes to cash out before upgrading. However they have concerns that they would not be able to find something suitable after they sell their units. As a result, many opt to stay put as they feel it is simply too risky to sell their primary residence without having another one that is already waiting for them. Hence, some potential upgraders are frustrated that they are not able to upgrade to bigger flats, executive condominiums or even private properties as property prices across the board have continued to creep up. From this perspective, it does not come as a surprise when the public reacts strongly to news of million dollar HDB resale flats as well as $2million Executive Condominiums.

At this point, I must qualify that all these are anecdotal feedback and they may not necessarily reflect what the majority of Singaporeans feel. However, the fact remains that property prices continue to remain stubbornly high and the pushback we saw during the recent population white paper debate indicates that there are definitely still some areas that the government can consider looking into.

Nonetheless, given our government’s track record of taking pre-emptive actions (especially when it involves the Singapore property market), I would not be surprised that the government has already identified the issues I have highlighted above. Who knows, maybe more measures will be rolled out in the coming months to address these issues instead.

Getty Goh has a Masters in Real Estate and a Bachelors in Building from the National University of Singapore. He conducts frequent talks on the topic of property investing. To sign up for his next sharing, please visit www.BuyByeProperty.com. For those who wish to know more about what are some of the factors that would impact the profitability of a development, please drop him an email to find out more.