Are new cooling measures coming to Singapore’s housing market?

Observers say the recent sizzling sales momentum at Normanton Park and The Reef at King’s Dock could be a catalyst for intervention. PHOTO: KEPPEL LAND

TALK is rife that policy tweaks could be on the horizon to cool Singapore’s buoyant residential segment, as the government keeps an eye on the real estate market.

Home prices gained pace last year, even as the economy slipped into recession. A further acceleration in price trends in 2021 “may put the property market in frothy territory”, said DBS Group Research.

A steady 2-3 per cent annual increase in the property price index, in line with household income growth, is supported by fundamentals. But an acceleration to over 5 per cent growth will tip the market into “bubble territory” and further pressure household affordability ratios, the DBS analysts wrote.

Observers have speculated that the recent sizzling sales momentum at Normanton Park and The Reef at King’s Dock could be a catalyst for intervention. That, coupled with the 2.1 per cent quarterly price jump in the residential index in Q4, “certainly increased the possibility of authorities stepping in”, said RHB analyst Vijay Natarajan. He reckons measures could come around mid-February, near Budget 2021.

According to Lee Nai Jia, deputy director of the Institute of Real Estate and Urban Studies (IREUS) at the National University of Singapore, there will be a high probability of policy changes if the uptrend in private home prices picks up pace in the next few months while the economy still posts negative growth.

Suggestions from consultants, analysts and agencies varied widely, but a common theme was the expectation that additional measures will target investors rather than first-time homebuyers and upgraders. That follows Deputy Prime Minister Heng Swee Keat’s comments in January, when he said the property market must remain stable so young Singaporeans can own their homes.

Among the ideas are higher stamp duties and tighter loan limits for subsequent properties and foreigners.

One idea floated is to either set a minimum size for each unit or again increase the average minimum size for new developments. The intended effect is to bump up home sizes for occupiers, while building fewer shoebox apartments that typically appeal to investors due to the lower quantums.

Currently, condos in most locations outside the Central Area must meet an average minimum unit size of 85 square metres (sq m), which determines the project’s maximum number of units based on the allowable gross floor area. Developers still have the flexibility to build a range of unit sizes, including those below 85 sq m. More shoebox units have thus mushroomed, capitalising on investors’ zeal and the chase for low quantums in absolute dollar terms.

The first time the average size was increased, it raised quantums (absolute prices) for smaller units as many buyers are happy to forgo some space for an upgraded lifestyle, said Huttons Asia research director Lee Sze Teck.

As for imposing a minimum size for each unit, ERA Realty key executive officer Eugene Lim noted that developers may not necessarily lower the per square foot (psf) price due to the high construction and land costs. Savills Singapore executive director of research and consultancy Alan Cheong believes such a measure will suppress demand only till buyers save up enough to afford larger units.

Some observers do not expect cooling measures – at least not till the second half of this year. The 2.2 per cent increase in private home prices last year “was mild and doesn’t warrant intervention”, said JLL Singapore’s senior director of research and consultancy Ong Teck Hui. Still, he noted the acceleration in the quarterly price uptrend, from 0.3 per cent in Q2 to 2.1 per cent in Q4.

The performance of the different segments of the property market was not uniform either. For instance, though the rental market is showing initial signs of bottoming out, it is still not yet out of the woods, said Huttons’ Mr Lee.

Colliers International senior director of investment services, Steven Tan, noted that the recent strong take-up rates were mainly for new launches; the secondary market had a less stellar showing. Based on median prices of non-landed private homes in the Outside Central Region, new sales commanded a 47 per cent premium over resales last year, noted Colliers’ research head Tricia Song.

Observers say the recent sizzling sales momentum at Normanton Park and The Reef at King’s Dock could be a catalyst for intervention.