Did Singapore Government cooling measures cooled the property market?

2009 and 2010 were buoyant years for Singapore property market with demand fueled by low interest rates and foreigner influx exceeding the supply and pushing the property prices up to new heights. These were also the years Singapore government introduced rounds of property market cooling measures. 4 rounds of measures are introduced since September 2009, the last one in January 2011. Since free market forces were highly distorted by FED with artificially low interest rates (how can you call the current global market "free" when a group of bureaucrats in FED, not the supply and demand, decides the value of money?), Singapore government had to step in to counter balance dangerous, bubble forming forces. Now buyers and sellers are watching the market about the effects of these cooling measures. Yes, none of these cooling measures resulted in a property price decline (yet) but their aim was not to decrease the prices in the first place. They were implemented to prevent speculation and a bubble which would burst painfully.

Where the property Singapore cooling measures effective? National Development Minister Mah Bow Tan says they are. This week he gave an update on the impact of the four rounds of measures to cool the property market since 2009:

National Development Minister Mah Bow Tan revealed that resale price growth and transaction volumes have moderated in recent weeks as he fielded questions during his ministry's Committee of Supply debate. 

Quarter-on-Quarter growth in resale prices slowed from four per cent in the second and third quarters of 2010, to 2.5 per cent in the last quarter. 

For 2011, on a month-on-month basis, resale price growth slowed even further to 0.6 per cent in January and 0.7 per cent in February. Mr Mah said the resale volumes have also fallen.

Source: Property Measures kick in

There were 4 rounds of property cooling measures: September 14th 2009, Feb 19th 2010, August 30th 2010 and January 14th 2011. Mr. Tan presented that prior to the first measure quarter-on-quarter price rise of private properties was above 15% and steadily declined to 2-3% by early 2011.

Property Price Index and Cooling measures -
Source: Ministery of National Development

Mr. Mah also told that speculation is falling. Sub-sales are used to measure the speculative action. Their ratio to total transactions dived to 6-7% from 15% by the measures. A Sub-sale is a home sale where a property is bought and then sold even before it is built. Although some properties can be sold in this fashion due to a sudden cash requirement of the owner, most are speculative.

Sub-sales / Total Transactions -
Source: Ministery of National Development

For HDB resale flats first and second measures did not slow down the price rise which was between 3-4% quarter-on-quarter. But August 2010 property cooling measures were effective. These measures were:

• extension of minimum occupation period to 5 years,
  
• private property owners (including overseas properties!) who buy an HDB should sell their private property within 6 months
  
• loan quantum for existing loan servers increased to 70%
  
• speeding up new HDB completions

These are measures force the price rise rate to below 1% by early 2011. You can also see the trend is down in resale transactions per month, they were near 4000 units per monh before Sep 2009 measures and are now around 1700 per month.

Here is a link from The Straits Times presenting 4 charts from Mr. Mah's speech (the link is to a pdf file).

You can read his speech here "Speech by Minister for National Development, Mr Mah Bow Tan, at the Committee of Supply Debate on "Stability - Responding to extraordinary growth".

The measures will definitely have effect on easing property prices but there are supply/demand issues which will be more effective than the property prices:

1.  A record supply of property is about to be released in 2013 (17,111) and 2014 (17,421) which would cause prices and rents drop. This numbers are considerably more than the record numbers of 1998 (14,000).
   
   
2. Economy will grow moderately in 2011, the estimated figure is 4%. This means less jobs created compared to 2010 and less foreigner influx.
   
   
3. Private property prices went significantly up and since current interest rate levels still enables many to serve their loans a prudent and long term mortgage calculations with realistic interest rates show that private house prices are rising above the purchasing power of many Singaporeans. Dennis Ng from HousingLoanSG.com states this problem in The Business Times Property 2011 issue:
   
   "..interest rates for housing loans remain low for the next six to 12 months. ... As most housing loans span 10 to 30 years, it is prudent to use a higher interest rate - rather than the current low rates - when estimating monthly loan installments.
   
   During good times, loan rates have gone up to 4 percent or higher so this is a prudent estimate. To ensure that you do not over borrow, you might also want to cap your housing loan installments to no more than 35 per cent of your gross income ... If you want to buy a 1 million dollar property (which is a quite common mass market condo price nowadays) your household income must be over 12,000 SGD (assuming 80% borrowing). Using this price as a benchmark should the prices of mass condos go up any further, they might be beyond the affortability of most people in Singapore.
   
   Source: The Business Times Property 2011
        
4. Cooling measures left short term investors with their properties and these people will have to rent out these properties because selling now is too expensive. Combine with with the number of completed units this year onwards it is not hard to see that there will be a bumper rental supply which will probably reduce both rents and rental yields. This would make property investment less attractive in normal times. But these are not normal times. Asian rich may find property investment the only safe method to protect their wealth and create a demand fuelled by inflation.
   
   
5. Singapore dollar is appreciating against major currencies and Singapore government can chose to let it appreciate more to combat inflation. This would make the Singapore property more expensive for foreigners and can wipe a significant portion of them out of the market.  

Disclaimer

This blog article is to provide general information only and should not be treated as an invitation to buy or sell any property or as sales material.  Users of this report should consider this report as a one of the many factors in making their investment decision. Users should make reference to other sources of information and specific investment advice to obtain a more objective view of the property market. Asia Singapore shall not be responsible for losses suffered.