IMF recommends adjustment to property cooling measures, eliminating ABSD eventually

Cecilia Chow

After expanding 3.7% in 2017, Singapore’s economic growth tapered to 3.1% in 2018 and the International Monetary Fund (IMF) has projected that it will slow to 2% in 2019. Growth had already decelerated to 1.1% in 1Q2019 and 0.1% in 2Q2019.



Growth had already decelerated to 1.1% in 1Q2019 and 0.1% in 2Q2019 (Credit: Albert Chua/EdgeProp Singapore)


“Over the medium term, growth should stabilize around 2½ percent, increasingly driven by modern services alongside other trade-related sectors,” says IMF in a release on July 15, following the conclusion of its Article IV consultation with Singapore. “Risks to the outlook are tilted to the downside and mainly stem from external sources, including a tightening of global financial conditions, escalation of sustained trade tensions, and deceleration of global growth.”

In its report, IMF said it welcomed the Singapore authorities’ proactive use of macroprudential and other property-related measures. However, it recommended “the continued monitoring of conditions in property markets and appropriate adjustment of macroprudential measures”. The IMF suggested “eliminating residency-based differentiation for the Additional Buyer’s Stamp Duty, and then phasing out the measure once systemic risks dissipate”.

IMF published a report on Singapore’s macroprudential policy (completed on June 24) in July, as part of Financial System Stability Assessment on Singapore. In the report, IMF noted that macroprudential policy in Singapore has centred on the property market, as “the stability of the latter is closely linked to that of the macroeconomy and the financial sector”.

Residential property represents nearly half of total household assets while housing loans make up about three quarters of total household liabilities. Property-related loans also account for a considerable share of bank’s lending (about 30%).

The Singapore government has therefore adopted a multi-pronged approach to mitigate systemic risk via both demand- and supply-side measures. These include caps on the loan-to-value ratio and total debt servicing ratio as well as additional buyer’s stamp duty (ABSD) and seller’s stamp duty (SSD).

“Empirical analysis suggests that the effects of macroprudential measures on residential prices take time to materialize but become sizeable after one year following implementation,” according to the IMF report in July. Macroprudential measures start reducing prices from the second quarter following implementation, with a peak effect of 5% for each measure, reached six quarters after implementation, it says.

While the implementation of macroprudential measures was followed by a decline in house prices since end-2013, the contribution of these measures to the cooling of the market remains uncertain. “Fundamental factors, rather than macroprudential policies, could also have contributed to lower house prices," according to the report. "In particular, population growth has been half as much during 2013-18 as over 2007-12, while the supply of private properties in the pipeline increased, and rents declined.”

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Some of IMF’s findings were that purchases by foreigners had a significant effect on residential property prices, and historically accounted for “more than one-fourth” of the changes in the quarterly growth rate of residential prices.

Stamp duties have had "a larger and more persistent impact on residential prices of the Core Central Region (CCR)", according to IMF. The CCR was the area that showed the largest proportion of speculative activity (proxied by short-term resales), foreigners’ and corporate purchases, before the implementation of the stamp duties.

The implementation of LTV limit and TDSR has contained the volume of mortgages and house price growth, as well as improved the risk profile of borrowers. The share of new loans granted to borrowers with multiple housing loans halved from 30% in 2011 to 15% in 2018. The share of new mortgage loans with LTVs above 70% has fallen from a peak of 73% in 3Q2010 to 55% in 4Q2018. The implementation of TDSR has also translated into “less risky loans at origination”.

“Overall, property market-related measures increase the resilience of households and financial institutions against shocks by moderating the pro-cyclicality of credit and residential price developments,” said the report. “Stamp duties help to limit excessive property price increases by curbing speculators’ and foreigners’ demands, which are found to be significant drivers of residential prices.”

The IMF appears to agree that some limited controls by the state is justifiable "to prevent  cyclical property bubbles causing economic pain or feeding sharp inflation", observes Roman Scott, economist and chairman of Calamander Group.

Nevertheless, IMF has recommended the eventual elimination of ABSD and the phasing out of the measure once systemic risks dissipate. "What the IMF is saying is that these controls, via ABSD, should not discriminate based on nationality, which distorts an international free market in real estate that Singaporeans take advantage of," Scott elaborates. "Singaporeans are major buyers of international real estate in markets such as Australia, UK and the US, with no discrimination.“

However, the Singapore government would not be relaxing the cooling measures “in the near future”, said Ravi Menon, managing director of the Monetary Authority of Singapore’s (MAS) at its annual report briefing on June 27. It has only been a year since the July 2018 measures were implemented, he pointed out. “It takes time to allow them to work their way through.”

The government will continue to monitor the property market closely and stands ready to help ensure a healthy and sustainable market, said Menon.


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