Bursting the bubble?

A recent article on housing supply painted a highly optimistic picture for all hopeful Singaporean home-owners. According to the author, property prices are set to dip in the coming years thanks to a rise in the number of available properties, a projection further corroborated by this chart from the Singapore Property Cycle:

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According to a URA forecast based on development status and expected year of completion, Singapore’s housing supply will indeed increase in the short term:

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So does that mean we’ll soon see flats at very reasonable prices? Yes and no.

Yes, because the increase in property prices has definitely slowed down thanks to the various cooling measures implemented these past few months. For instance, last year’s Additional Buyer’s Stamp Duty (ABSD) rate hike and tighter loan-to-value limits ensured a dip in transaction volume due to higher cash outlay requirements.

According to this analysis, this successfully discouraged short-term speculation and brought about a drop in the proportion of foreigner and company-purchased private residential property.

Regarding tax incentives, Budget 2013’s new property tax structure and withdrawal of the property tax refund concession for vacant properties managed to put a damper on the investment demand for prime properties. This particularly affects the purchase demand on larger apartments, but if trends are to be believed, buyers may start going for smaller apartments as they adjust their budgets downward.

Landed property prices have also plateaued, and its transaction volume has registered a drop of 10% year-on-year compared to non-landed property, which rose by 6%.

After all, it has been a while since a record-setting property transaction went through—given Wing Tai Holdings Chairman Cheng Wai Keung’s $300 million offer to sell his Nassim Road bungalow went unheeded earlier this year. Concerning HDB flats, however, record-setting transactions continue to go through, and this is what affects Singaporeans the most.

No, because the cooling measures failed to thoroughly curb demand; demand persists, conceivably buoyed by low interest rates and ramped up developer marketing strategies. These involve discounts and the giving away of goodie bags packed with things like furniture vouchers and “expensive toys”, which some speculate will evolve into cars!

According to this specialist, the effects of the cooling measures are starting to wear off and will most likely require a new round of measures to keep property prices from going up again. This will be particularly important for executive condo (EC) buyers.

Overall, the effectiveness of the cooling effect measures depends on which objective they were meant to fulfil; if they were designed to drop prices and keep them low as a short-term response to Singaporeans’ cries for help, then they will soon require further intervention as they have only temporarily made things more affordable.

If, however, one considers them as a longer-term approach to taper off the property market for a soft landing while the rest of the property market reconfigures itself, then they are right on spot. The question is, what if the stock market takes a huge dive or interest rates suddenly soar before such a structural reconfiguration takes place?

If The Economist’s global house-price index is to be believed, then prices will continue to rise despite targeted measures from the government.

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Najib A.

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