The MAS Macroeconomic Review, released at noon on April 26, painted a rather bleak picture of the global and local economy. It was followed less than 12 hours later by the announcement of a new set of cooling measures targeted at the persistently hot property sector.
With immediate effect, Singapore citizens buying their second residential property are to pay an additional buyer’s stamp duty (ABSD) of 20%, up from 17% previously. For those buying their third and subsequent properties, the applicable ABSD will now be 30%, from 25%. Foreigners will be the hardest hit: Their applicable ABSD has been doubled to 60% from 30%.
Desmond Lee, Minister for National Development, says the government is taking “calibrated steps” for a property market that remains “resilient” even with “significant” economic uncertainty and high interest rates. “If we don’t take early pre-emptive measures, we may see investment numbers, both by locals and by foreigners grow, and that will add stress to Singaporeans who are looking to buy residential property, principally for owner-occupation,” says Lee, speaking to reporters on April 27.
"It is quite different from after the Global Financial Crisis, when you had a V-shaped economic recovery and a very bullish property market where interest rates were at historic lows. I think we’re dealing with a different situation,” he adds.
In a joint statement on April 26, the government warned that if left unchecked, prices could run ahead of economic fundamentals, with the risk of a sustained increase in prices relative to incomes.
DBS Group Research in its April 27 note points out that the latest round of measures is being introduced just as the property price index appears to have re-accelerated to 3.2% in 1Q2023 — after moderating in the second half of 2022, which were presumably a result of the December 2021 and September 2022 cooling measures.
DBS believes that the latest measures could be effective in “applying the brakes” on the property market, as prospective buyers, especially investors, will “most likely” hold back their purchasing decisions. “This will likely result in a transaction volume drop for upcoming launches. The anticipated wave of foreigner purchases, of which we noted an uptick in recent months, will most likely cool.”
For now, DBS anticipates delays in the launch of new projects, but maintains its full-year sales projection of between 8,000 and 8,500 units, with demand now coming more from new households being formed.
The latest round of measures is the “final nail in the coffin” for the residential segment, says CLSA analyst Wong Yew Kiang. “The government is clearly concerned about a potential wave of big foreign buying that could continue to gain traction and support prices.” Wong expects prices to drop by 5% this year and another 3% in 2024. His earlier forecast was for a drop of 5% this year and remain unchanged for 2024.
OCBC’s Carmen Lee figures that the measures were “quite harsh”, especially towards the foreign buyers. “While regional property markets have been adjusting to the rising interest rate environment, Singapore property prices have just been running up. This cannot go on.”
CGS-CIMB, meanwhile, has cut its sales projection to just 5,000– 5,500 units, from 7,000–8,000 previously. CGS-CIMB was expecting home prices this year to grow by as much as 3%; it now expects prices to grow by at most 2%, or even drop by 2%. Its current “overweight” sector view on developers is now under review, even though CGS-CIMB acknowledges that developers are already trading at a 45% discount to their RNAV.
DBS has similarly pointed out that the developers are already trading at attractive valuations of near a 10-year low. “Any drop is unlikely to be sustained, in our view.”
As expected, the share prices of several major developers dropped on April 27. City Developments, which is getting ready to launch Newport Residences, closed 5.6% lower at $6.91, while UOL Group was down 4.73% to close at $6.85. CapitaLand Investments was down just 0.26% to close at $3.88, as investors recognise that it has a broader earnings profile that is not as closely tied to the Singapore residential market.— The Edge Singapore
