ABSD hike: Pre-emptive but prudent

After repeated warnings of market exuberance, the Government finally announced a new set of property cooling measures which took effect on July 6. The measures included a hike of five percentage points in Additional Buyer’s Stamp Duty (ABSD) rates for individuals and 10 percentage points for entities; a new 5 per cent non-remittable ABSD on purchases by developers of residential properties for development, as well as a lowering of loan-to-valuation limits.

The measures seem to have surprised both property buyers as well as developers. This should not have been the case. The Monetary Authority of Singapore (MAS) has been expressing concern about rising land and property prices, as well as over the en-bloc fever, since late last year. In November, the MAS indicated it would continue to monitor market developments and “where necessary, take appropriate actions to maintain a stable and sustainable property market”. In its judgment, the time for such action has come.

Property developers disagree. The Real Estate Developers’ Association of Singapore suggested there was “no rationale” for the cooling measures, since the market is in the early stages of recovery, which is in line with economic fundamentals, and that transaction volumes are within market expectations. These concerns should be addressed. It is true that the recovery in the Singapore property market, which experienced a mild (11.6 per cent, cumulative) decline from 2003 to 2017, is recent. However, the pace of that recovery has been exceptionally robust: Private property prices have surged by 9.1 per cent in the 12 months to June 30. In other words, in one year, prices have almost made up the entire decline over the previous four years. Transaction volumes have also risen sharply, by about 25 per cent over the last 12 months – all this despite the existence of the previous ABSD and limits on debt servicing. On the supply side, the pipeline is well stocked. Last month, the National Development Ministry indicated that more than 30,000 private homes are still vacant, some 20,000 homes are expected to be built from government land sales and en-bloc redevelopments pending approval.

Global economic developments could also have a bearing on the Singapore property market. With the US Federal Reserve now in tightening mode, interest rates are headed up. Emerging market currencies are also facing stress, which could lead to capital inflows into stable-currency economies such as Singapore, including into the property market. Thus the market does face potential hazards ahead, on both the demand and supply sides.

To wait till these dangers come to pass before taking action would be too late. Better to err on the side of prudence by acting pre-emptively and targeting the more speculative segments of the property market.

Adapted from: The Straits Times, 12 July 2018