Property prices would have increased by up to 15% in 2018 without cooling measures: Lawrence Wong

If the Government had not stepped in with measures in July to cool the property market such that there are now signs of moderation, property prices would have surged ahead, possibly going up by 10 to 15 per cent, National Development Minister Lawrence Wong said.

Explaining the rationale behind the cooling measures on Thursday (Nov 15) at an industry anniversary dinner organised by the Real Estate Developers’ Association of Singapore (Redas), Mr Wong stressed that the Government cannot take its eyes off the property market.

“Let me be very clear. The Government cannot and will not take a hands-off attitude to the property cycle. So there should not be any surprise when we intervene in the market.”

While Mr Wong recognised that some developers might disagree, preferring a “complete laissez faire situation” of letting “the market run its own course”, he reminded the audience that the Government’s perspective is that intervention is necessary to prevent property bubbles from forming and to achieve a stable property market, in order to benefit the majority of Singaporeans in the long term.

Four months after the cooling measures were imposed, Mr Wong declared that there are already results. While prices has not come down, it has remained “flattish” or “increasing at a very gradual rate”.

Third-quarter figures from the Urban Redevelopment Authority released on Oct 26 showed that the price of private residential properties rose by 0.5 per cent, compared with the 3.4 per cent and 3.9 per cent in the second and first quarter respectively.

Land sales and overall transaction volumes have also moderated, he noted.

“(More) importantly, the measures have encouraged en-bloc sellers and developers to be more realistic in their price expectations,” he added.

In July this year, the Government shocked the market by introducing a fresh round of cooling measures. The Additional Buyers’ Stamp Duty (ABSD) was increased by 5 percentage points for individuals and 10 percentage points for entities. The loan-to-value limits were also tightened.

The measures came after property prices increased by more than 9 per cent within a one-year period between mid-2017 and mid-2018 — after declining by 12 per cent over a four-year period. It took eight rounds of cooling measures from 2009 to 2013 to achieve the 12 per cent drop, Mr Wong reminded his audience.

“And there was every indication that price increase will continue (after the recent jump). Because the developers’ bids in government land sales (sites) indicated quite bullish expectations of a continued rapid increase in prices,” Mr Wong revealed.


There was also a “very real risk” of property prices increasing faster than economic fundamentals, as the price increase between mid-2017 and mid-2018 was twice that of income growth in 2017, he added.

However, Mr Wong qualified that the Government’s aim “is not to bring prices down”, but to “steady the cycle and to stabilise the market”, so that prices can move broadly in line with income growth.

“Our own experience has shown that if corrective actions are not taken to prevent a bubble from forming, the costs will eventually be larger and more painful, and ultimately this will harm the vast majority of genuine home-buyers and owners.”

At the same event, Redas’ president Augustine Tan said that the property market has been in a “state of uncertainty” since the cooling measures, as the sales momentum of new private property launches continue to slow down.

Besides a “much slower” increase in prices, the supply of units in the market remains high.

Mr Tan estimated that there will be a total of 44,667 private residential units arising from unsold ones now as well as potential new supply from government land sales and collective sale sites.

“Barring tighter regulations, it will take up to five years for these units to be fully absorbed”, Mr Tan said, seeing that demand is expected to be subdued for the rest of the year due to the cooling measures.

Apart from the slowing sales of new private housing, resale transaction volumes have also been sluggish, with 2,672 units sold in the third quarter — a 43 per cent drop compared with the previous quarter.


Developers face challenges on two fronts.

First, there is the higher cost of development due to the new 5 per cent non-remissible (non-returnable) ABSD when they buy land for residential development.

The remissible ABSD, which used to be 15 per cent, has gone up to 25 per cent. If a developer fails to sell all its units at a new launch within five years of acquiring the site, it will have to pay up the 25 per cent ABSD with interest. The 5 per cent non-remissible duty is payable on top of this 25 per cent, even if the developer sells all units in five years.

Mr Tan said that this measure has dampened developers’ appetite for land, with the collective sales fever cooling noticeably.

Second, there are the revised guidelines increasing the minimum average size of units from 70sqm to 85sqm for non-landed projects outside the central area.

This may affect buyers who want smaller units but cannot afford the bigger ones that developers are now required to build, he said.

Mr Tan also talked about several external challenges that will negatively impact the demand for real estate in Singapore, such as the rising economic and political tensions in the world, as well as the ripple effects of interest-rate hikes and unemployment.


On the points raised by Mr Tan, Mr Wong said that while developers may think that the market is “very subdued” and there is room for prices to go higher, buyers are complaining that prices are too high and apartment sizes are too small.

He added: “Real estate and property is something that Singaporeans care deeply about. A residential property is a home and also an asset — probably the single largest asset that many people own. So, understandably, there will always be differing views when it comes to the property market… The Government is in the position of having to take the responsibility and weigh these different views carefully.

“And at the end of the day, our actions and decisions are guided not just by these diverse feedback and representations but also by data and facts.”

Mr Wong also said he recognised that developers have short-term commercial objectives, but he hopes they will understand that the Government’s action is the “more responsible approach”.

Source: Today – 15 Nov 2018

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