District 9 frozen due to cooling measures

To see how impactful the government’s cooling measures have been, look no further than District 9. Data from the Singapore Real Estate Exchange (SRX) for last month showed that the median Transactions-Over-X Value (TOX) for District 9, which consists of Orchard, Cairnhill and River Valley, was negative S$130,000.

Each month, SRX algorithms compare the actual transacted value for each unit in a district with its X-Value. The X-Value is a computer-generated estimate of the market value for a home, and the difference between the median transacted price and the district’s X-Value is the TOX.

In District 9, more than half of the buyers paid below market value. In fact, 50 per cent paid at least S$130,000 below market value.

In contrast, the TOX in District 10, which covers Bukit Timah, Holland Road and Tanglin, was positive S$37,500 last month. This means more than half of the buyers paid above market value, with 50 per cent paying S$37,500 or more.

The TOX tells us that the sentiment in District 9 is very bearish, while that in District 10 is bullish. Why is there such a huge disparity between the two high-end neighbours?

The data suggests that District 10 is where Singaporeans buy homes to live in, whereas District 9 is where buyers — both local and foreigners — purchase homes for investment.

The cooling measures primarily target investors — both local and foreigners. The hefty additional buyer’s stamp duty (ABSD) applies to most foreigners, while the Total Debt Servicing Ratio (TDSR) limits Singaporeans’ ability to stretch their borrowings to purchase homes purely for investment.

Therefore, the cooling measures should significantly dampen sentiment in districts where investment activity outweighs purchasing homes to dwell in. The tale of the two affluent districts bears this point out.

Back in the first quarter of 2005, at the start of the private home market’s huge growth spurt, District 10 was the luxury heavyweight. It was about 13 per cent more expensive, on a median resale per-square-foot basis, than District 9. In addition, District 10 registered 18 per cent more transactions.

During the huge run-up in prices after the global financial crisis in 2009, District 9 overtook District 10. Today, even with the cooling measures, it is 12.4 per cent more expensive than District 10. Before the SRX Price Index made the turn during the first quarter of last year from positive to negative, District 9 was 16.6 per cent more expensive.

From the first quarter of last year to the first quarter of this year, a period that saw the ABSD regime made more severe as well as the introduction of the TDSR, median resale prices in District 10 have appreciated 0.4 per cent, while those in District 9 have seen a depreciation of 3.2 per cent. Meanwhile, District 10 posted nearly double the number of transactions during this period.

What this data suggests, at least in Districts 9 and 10, is that the cooling measures have been effective at cutting the investment market off at the knees, while allowing the owner-occupiers’ market to continue to grow, albeit at a slower pace.

At the risk of mixing my metaphors, the cooling measures have frozen the hot money.

By Sam Baker – co-founder of SRX, an information consortium formed by leading real estate agencies in Singapore to share proprietary sales and rental data and facilitate property transactions. For more details on the trends and figures discussed in this article, visit the research page of www.srx.com.sg.

Source : Today – 16 May 2014

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