One conclusion that we can draw from the Cooling Measures is that placing limits on borrowing is more effective than levying stamp duty taxes at bringing Singapore property prices down.
According to the SRX Property Index for Private Resale Flats, the first Additional Buyers Stamp Duty (ABSD1) did little to impact both resale volume and prices.
While the foreign buyer surcharge of 10% discouraged some investment from overseas, diverting money originally destined for Singapore to other international property markets like London and New York, ABSD1 actually spurred the local investment market.
ABSD1 did local investors a favor because it removed some foreign competition for private properties while creating expectations for lower prices. Singaporeans thought that they could take advantage of the lower demand by foreigners to get a better price.
However, things didn’t go according to plan because of low interest rates. As a result of the low interest rate environment, property was a much more attractive asset class than cash and bonds. Furthermore, financing property investments was cheap.
As a result, enough Singaporeans, armed with inexpensive financing and less competition from overseas entered the market, to keep driving prices upward.
Recognizing ABSD1 did little to discourage local demand for private property, the government introduced ABSD2, levying a 15% tax on most foreigners and a 7% stamp duty on Singaporean purchasing a second property.
ABSD2 reduced the resale volume range from 781-1,439 units in 2012, excluding Chinese New Year, to 581-734 range during the first half of 2013, excluding Chinese New Years and January.
ABSD2 didn’t cause a meaningful decline in price because sellers, believing that Cooling Measures would not last forever, were willing to give a little on price but not that much.
Remember, transacting real estate requires a willing buyer and a willing seller. Sellers knew that the stamp duty taxes had not altered the fundamental value of their homes. As such, sellers could justify selling at the price plateau – since prices were high and were unlikely to go up. In enough instances, they resisted going below the price plateau by exiting the market and sitting on the sidelines.
The government clearly recognized the stamp duty taxes, even when applied to Singaporeans, were not doing the trick so it introduced the Total Debt Servicing Ratio (TDSR) in January 2013 in an effort to limit Singaporeans from over-extending themselves with debt.
TDSR worked.
It took a while but finally private, resale prices capitulated in July 2014 when private resale flat prices declined 5.6 % from their peak.
Since then, prices have reached a new plateau, bouncing around the 168.8 and 169.8 range of the SRX Price Index for four consecutive months. (As of October, SRX Property reports that prices have declined 5.2% on a slight increase of 0.4% since September.)
This new plateau suggests a new support level for prices in the private, non-landed market. In other words, prices seem to be stuck.
In addition, in looking at the SRX Property graph, since March 2014, resale volume seems to have achieved a new equilibrium around 400 units transacted per month.
This new equilibrium in resale volume, coupled with the price plateau, suggests that the TDSR might have run out of steam in terms of its effectiveness in reducing prices further.
Therefore, for prices to continue to decline, something must be introduced into the equation to alter the market’s dynamics.
So, the first question, is the government satisfied with a 5% decline?
If not, then what additional policy tools do they have available?
Given that the Cooling Measures have proven that price is a stubborn variable in the property market, if the government wants the price to drop further in the private resale market for non-landed properties, the only way to do this is to increase supply.
Demand, at its current level, is about as far down as Cooling Measures can push it.
