Friday, August 3, 2012

Will there be more property cooling measures in Singapore?

It has been 7+ months since the last property cooling measure in Singapore is introduced to tame the runaway prices. An additional 10 per cent Buyers Stamp Duty is introduced on the top of 3 per cent for foreign property buyers in Singapore. This definitely effected foreign buyers as home purchases by foreigners plummeted 78 per cent in the first quarter 2012.[1] But it did very little to stop low interest rate fed property buying party in Singapore. In fact the quarter year after the last property cooling measure saw record number of property sales which saw more than 6,600 units sold.[2]

At the end, demand for Singapore private property is still strong despite several rounds of cooling measures that were introduced by the government. As it happened anywhere else, as long as the market is significantly distorted by artificially low interest rates for a long time, nothing else can prevent the asset bubble. The cooling measures are at best slowing down the bubble but still creating unintended damages. For example the  maximum 60% loan-to-value rule of a cooling measure for second home loans pushing many investors to shoe-box units which are not a significant part of property sales and facing danger of oversupply.

So after all these cooling measures (which did not work if you are hoping for a price fall and worked more than enough if you are hoping for higher prices to profit), will there be another cooling measure? Colin Tan from Chesterton Suntec international believes so. He thinks it is inevitable that there will be another round of cooling measures because the effects of the latest cooling measure have already faded away.

Colin Tan also has a warning for investors who thinks this time is different and low interest rate fueled party will last forever:

Finally, as a caveat to all would-be investors, I would like to say I cannot see the robust buying continuing indefinitely. It may be prolonged by changes in the local market and in the global environment, as in our current situation. 
Increasingly, more of the buying rests on low interest rates and less on fundamentals. What happens when there is a sharp hike in rates? Seven years of feasting may be followed by seven years of famine. It is best that we build our defences early, even as we play the game or are forced to play the game.[3]

On the back of endless stream of printed money, million dollar condominiums are declared as "mass-market" now and their prices are still rising while "Singapore property prices will never fall" mentality is its strongest age. And as if low interest rate created artificial affordability is not enough, half a decade loans are introduced. Singapore looks like pre-housing bubble burst years of Japan and USA.

[1] - Home sales to foreigners dive 78 per cent
[2] - Q1 net home sales hit record high
[3] - Cooling measures inevitable

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