Property cooling measures — examining the case for a ‘sledgehammer’

The latest round of property cooling measures may have caught the market by surprise with its speed and severity, with an analyst describing it as “a sledgehammer to kill a fly”.

However, the warning signs were there: High land prices, a jump in the number of new housing loans, and a wage growth lagging behind economic expansion were some of the red flags which prompted the authorities to take preemptive action, several experts said.

Add to these the increasing external risks which dampened the economic outlook, and there was an urgency to curb “euphoria” in the property market, as Monetary Authority of Singapore (MAS) chief Ravi Menon put it.

“Economic growth is healthy in 2017, and also in the first quarter of 2018, but there are potential macroeconomic and external risks that are not to be ignored. The rising interest rates, the low inflation rate, political instability and the trade war,” said Associate Professor Sing Tien Foo, who is the Director of the Institute of Real Estate Studies at the National University of Singapore (NUS).


According to the experts, there are several indicators that guides the Government’s decision making on the property market: Gross domestic product (GDP), wage and income levels, banks loan growth, property price index, volume of transactions as well as land prices.

Over the past year, land prices have gone up by 15 to 20 per cent, said CBRE head of research for Singapore and Southeast Asia Desmond Sim. The surge was fuelled by the en bloc frenzy and record-breaking bids in the Government land sales programme.

A Colliers report in April estimates that the total value of collective sales transactions last year to be at S$8.13 billion – the best showing since 2007 – with S$5.83 billion already raked in for the first quarter of this year from 17 successful residential en bloc sales.

Meanwhile, record-high bids for Government land sales sites were received, including a Cuscaden Road site which sold for S$2,377 per square foot per plot ratio. If the cooling measures were not introduced, the pace of increase in land prices could go unabated and this would likely lead to upward pressure on property prices, said Mr Sim.

The exterior facade of Pine Grove Condominum, which is aiming for an en bloc sale. Photo: Chng Shao Kai / TODAY

Ms Christine Li, senior director of research at Cushman & Wakefield, reiterated that rising land prices would mean developers have to launch new projects at higher prices. This would, in turn, lift the resale prices of other properties in the vicinity, and possibly lead to an unsustainable pace of price increases, she added.

Earlier this month, just two days before the cooling measures were announced, MAS said at a briefing on its annual report that new housing loans over the last 12 months had risen by 34 per cent year-on-year.

Calling the jump “worrisome,” Professor Sumit Agarwal from NUS Business School said that these rates of bank lending “mimic” the situation in the United States before the subprime mortgage crisis struck. At the time, housing loans grew 50 per cent between 2004 and 2006, before the housing market crashed in 2007 and spiralled into a global financial crisis.

The dramatic rise in lending could “destabilise the banking system and the economy in whole”, Professor Sumit said.

The situation is compounded in a rising interest rate environment, with expectations for further rate increases as the market forecasts the United States’ Federal Reserve to increase its rates two more times this year.

However, Mr Alan Cheong, senior director of research at Savills, noted that the 34 per cent spike was a cumulative increase over 12 months. “Housing loans growth over time have come down… It’s not a good reason to use loan growth as one of the reasons to curb the market,” Mr Cheong said.

While private property prices currently have not matched previous peak levels in 2013 and 2014, Professor Ong Seow Eng from NUS’ real estate department said that back then, the environment of higher interest rates was absent.

As a result, the Government’s fear that home buyers would find it increasingly tough to repay their loans might have gone up a few notches, the experts said.

“The interest rate may also expose the vulnerabilities of the banking system, if the concentration of loans in real estate in the bank portfolio is too high. Real estate market and the banking and finance market are highly interrelated,” said Assoc Prof Sing.

Apartment buildings in Pine Grove Condominium, which is also aiming for an en bloc sale. Photo: Chng Shao Kai / TODAY

Nevertheless, the cooling measures were pre-emptive, as data from MAS and the banks showed that the banks’ exposure to property-related loans are well within safety limits.

Based on MAS statistics, housing and bridging loans in May stood at S$203.1 billion, accounting for slightly more than 30 per cent of total loans. This is in line with MAS regulation which limits the banks’ property-related exposure at 35 per cent of their total eligible assets.

Responding to TODAY’s queries, DBS head of secured lending Tok Geok Peng said home loans “form a large part of” the bank’s consumer loans. DBS’ latest financial report showed that housing loans make up 22 per cent of its total loan portfolio across all the markets it operates in.

OCBC’s total exposure to housing loans across all its markets is 26 per cent, while UOB’s is slightly higher at 27.6 per cent. All three banks did not provide data specific to the Singapore market.

Nevertheless, MAS data showed that the loan-to-deposit ratio (LDR) has remained stable from January to May, hovering between 86 and 87 per cent. LDR is used to measure banks’ liquidity, where a 100 per cent ratio means that the bank loans out a dollar to a customer for a dollar of deposits it receives. Market convention generally dictates that an ideal LDR is usually between 80 and 90 per cent.

Turning to housing loan growth, MAS statistics showed that this grew by 4.8 per cent in May year-on-year.

Mr Paul Chew, who heads research at Phillip Securities, noted that the current level of housing loan growth is conservative. “It is not irrational lending on (the part of) bankers,” he added.

Mr Sim also noted that the strong growth in transaction volume would automatically lead to a rise in new housing loans.

While the indicators in the banking system may not have set off alarm bells on their own, they could be of some concern when one looks at the bigger picture.

Singapore’s economic growth has generally hovered above 3 per cent over the last few quarters, with latest flash estimates for second quarter GDP growth coming in at 3.8 per cent.

While economic growth has been generally healthy, it is “not as bullish as private property prices”, noted Mr Sim.

Assoc Prof Sing also pointed out that wage growth has not kept pace with GDP growth, and this may widen the housing price to income ratio.

Based on latest available statistics, real median monthly household income from work grew 1.5 per cent last year, the lowest growth rate since 2009 when the Republic was hit by a global financial crisis

Economists had attributed the lower growth in median household income from work to higher inflation in 2017. In contrast, the Republic experienced deflation in 2015 and 2016. MAS expects inflation this year to be similar to last year’s level.

At the same time, the Urban Redevelopment Authority’s (URA) price index showed that private property prices went up 9.1 per cent since its trough in in the second quarter of last year. In comparison, private property prices declined 11.6 per cent over a period of four years from mid-2013 to mid-2017.

Mr Sim said that the concern lies not so much in the magnitude of the price increase, but its pace.

“The 11.6 per cent decline took four years. This (9.1 per cent jump) took four quarters,” he said, adding that prices would jump more if the Government did not act.

The experts, however, were split over whether the momentum was too fast. Some noted that if left unchecked, the run-up in prices could be faster than the previous boom cycle from mid-2009 to mid-2013. Others pointed out that what the market has seen over the last year pales in comparison to the start of the previous cycle, where quarterly price increase reached as high as almost 16 per cent.

Likewise, the 25 per cent jump in the number of property transactions over the last 12 months divided opinions as to whether it was a cause for concern. This could imply that demand have been coming mainly from investors, he said.

Others felt the spike could be a result of a low-base effect from the previous year, and not necessarily an indicator of an overheating market. Ms Li said the increase was significantly lower than the 98 per cent increase in volumes between 2008 and 2010. Then, the number of private residential units sold hit 40,000 over a year, compared with the current 25,000.

In raising the Additional Buyer’s Stamp Duty (ABSD) rates and tightening the Loan-to-Value (LTV) limits, the Government said these were done to “cool the property market and keep prices in line with economic fundamentals”.

It added: “The sharp increase in prices, if left unchecked, could run ahead of economic fundamentals and raise the risk of a destabilising correction later, especially with rising interest rates and the strong pipeline of housing supply.”


This latest round of cooling measures — the ninth in nine years — comes on the back of several others that have been rolled out progressively since 2009 when private property prices started skyrocketing.

Apart from increasing the ABSD rates by 5 per cent for individuals and 10 per cent for entities, the LTV limit has been tightened by 5 percentage points.

This is not the first time the Government has tightened the LTV limit. It was reduced from 90 to 80 per cent in 2010. That was also when the Seller’s Stamp Duty (SSD) was introduced for properties that were sold within one year of purchase, in a move aimed at deterring speculative activity.

Between 2010 and 2011, some of the measures were tightened to curb the persistent rise in prices. .

The ABSD was first introduced in end-2011. More rounds of Government intervention ensued, which saw loan tenures cut and ABSD rates raised as prices continued ticking upwards.

In 2013, the Total Debt Servicing Ratio (TDSR) framework was introduced, requiring banks to ensure that the monthly debt obligations of home buyers cannot exceed 60 per cent of their household monthly income. Prices peaked in the third quarter of 2013, and went on to decline gradually for 16 straight quarters.

In the first quarter of last year, the Government eased some measures in the first quarter of 2017. Under the changes then, the Seller’s Stamp Duties will be payable if a homeowner sells his property within three years of purchase, down from four years previously.


Despite several rounds of property curbs, Singapore’s property market has proved to be resilient, as prices rose quickly over the past year.

On the day the latest cooling measures were announced, thousands of prospective homebuyers flocked to the showrooms, after property developers brought forward the launches to beat the midnight deadline.

About 1,000 units across all three projects – Riverfront Residence at Hougang, Park Colonial at Woodleigh and Stirling Residences at Queenstown – were sold under five hours.

“What happened that Thursday night was the fear of missing out,” said Mr Sim, as he attributed the frenzy to the familiar Singaporean “kiasu” trait.

The swimming pool of Kensington Park condominium. Photo: Koh Mui Fong/TODAY

In land-scarce Singapore where people are increasingly affluent, it is no surprise that demand for properties has been relatively strong, except during economic downturns.

The Asian Financial Crisis in the late 1990s sent property prices on a free fall, dropping by 35 per cent in 1998. Prices climbed back up but remained relatively subdued until 2005, due to a series of events such as the dot-com bubble burst and the severe acute respiratory syndrome crisis, which kept demand at bay.

Prices started rising faster after 2005 but in 2008 and 2009, the property market was hit by the onset of the global financial crisis, with prices falling 24.9 per cent. But the down cycle was short-lived, lasting only two years before the market started recovering.

Notwithstanding a period of slow decline in prices from 2013 to 2017 as a result of Government intervention, the market has generally been holding up well as the Singapore economy grew steadily.

“It’s a sign that the Singapore economy … and the job market is working. Economy is doing well, so people have the ability to buy,” said Mr Cheong on the resilience of the property market.

He added that affordability has increased for certain segments of the population. Income levels of the top 30 percentile of Singapore residents went up between 13 and 18 per cent during the recent four-year period when private property prices were declining.

The experts also pointed out that there has been an abundance of liquidity post-global financial crisis. Until last year, the US government had been increasing money supply through quantitative easing and keeping interest rates low.

Part of the money is starting to flow back from overseas buyers into the Singapore property market after they had focused their attention elsewhere as a result of earlier cooling measures, some experts said.

With places such as Hong Kong, China and Australia implementing their own cooling measures to tame their residential property markets, and a clampdown on corruption in China and India, “their money has to be parked somewhere”, said Prof Sumit.

Domestically, Singaporeans tend to have greater faith putting their money in real estate than in other asset classes like equities or bonds, Mr Cheong noted.

“The market is sending this message… It’s ingrained,” he said.

The idea of having a tangible asset that can be bequeathed to the next generation is also etched into the Singaporean psyche.

ZACD Group executive director Nicholas Mak added: “Quite a few generations of Singaporeans have been conditioned to think that it’s good to own your own home… If it’s good to own your own home, it’s good to own another home because of capital appreciation,” Mr Mak said.

To many Singaporeans, property is a “sure-win” investment. There is the general perception that the value of properties would go up in the future, said Mr Ku Swee Yong, chief executive of International Property Advisor.

He noted that the strong overall demand has kept prices resilient in the Singapore property market, and this is aided by banks giving out loans based on the valuation set by the valuer appointed by the developers. He believed that the market would be less exuberant if banks rely on independent valuation.


As part of the latest cooling measures, the authorities also imposed a non-remittable 5 per cent ABSD on developers buying residential properties for housing development, effectively putting all collective sales projects on the line as the cost for developers has gone up significantly.

It has already claimed at least one casualty. JLL regional director of investments Tan Hong Boon told TODAY that a collective sale committee has pulled the plug on an en bloc bid, after it felt that the gains may not be attractive. Mr Tan, however, declined to reveal more details.

At Waterloo Apartments, its collective sale committee has reverted to its original plan of getting the authorities’ approval for the site to be zoned for hotel developments.

Ms Christina Sim, who heads collective sales at Cushman & Wakefield, said the committee had wanted to launch the development for sale as a residential site, after seeing the higher prices fetched by en bloc residential projects.

Since the cooling measures were announced, en bloc bids across the island have been plunged into uncertainty.

“(Is it) game over?” That’s what many residents who are trying for an en bloc had on their minds,” said Mr Terence Lian, investment sales head of Huttons Asia.

The real estate company is the marketing agent for the collective sale of 15 sites. Last week, Mr Lian held separate meetings with the collective sales committees of Kensington Park and Pine Grove, to address any concerns which residents might have, and to discuss the way forward

Given the large size of the two sites, Mr Lian said they were more vulnerable to the impact of the property cooling measures, as developers might not be confident that they can sell all the units before the five-year deadline in order to apply for the remission of the 25 per cent ABSD.

Residents TODAY spoke to after their meeting with Huttons remained upbeat about their en bloc prospects, even though they acknowledged there are causes for concern.

“We were taken aback, didn’t expect the cooling measures to come out so fast,” said Mr Phua Thye Hin, chairperson of Kensington Park’s collective sale committee.

The secretary of the committee, Ms Tee Lee Lian, said they received feedback from residents that they were concerned how the cooling measures could hamper their en bloc prospects.

The 314-unit condominium at Serangoon Gardens has garnered 70 per cent of owners agreeing to the collective sale at a reserve price of S$1.05 billion, and they hope to get the required 80 per cent consent by the fourth quarter of this year.

The front gate of Kensington Park condo on Kensington Park Drive. Photo: Koh Mui Fong/TODAY

Over at Pine Grove, its collective sale committee chairperson Kogi Murthi said that some owners stopped asking for higher prices after the cooling measures were announced. The current asking price is S$1.72 billion.

Her team believes that Pine Grove still stand a strong chance given its location in the Holland-Bukit Timah area. So far, 77 per cent of owners at the 660-unit development have signed the collective sales agreement.

Mr Vincent Teo, who chairs the Mandarin Gardens collective sale committee, said they are “not giving up”, although there is still some way to go to achieving the requisite consent. Currently, 60 per cent of owners of the 1,006-unit development at East Coast have agreed to sell it at an asking price of S$2.48 billion.

For residents who are opposed to the en bloc attempts, they are hoping that the government intervention could put the brakes on.

Mr A J Leow, who is a resident at Ivory Heights, said he felt “a sense of relief” when the cooling measures were announced.

Cashew Heights resident Andy Goh was, however, sceptical about any lasting impact from the cooling measures. They would be “effective temporarily” only, and the momentum will come back few months down the road, he lamented.

Source: Today – 15 Jul 2018

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