IMF recommends adjustment to property cooling measures, eliminating ABSD eventually

By
/ EdgeProp Singapore
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July 16, 2019 11:41 PM SGT
After expanding 3.7% in 2017, Singapore’s economic growth tapered to 3.1% in 2018 and the International Monetary Fund (IMF) has projected that it will slow to 2% in 2019. Growth had already decelerated to 1.1% in 1Q2019 and 0.1% in 2Q2019.
Growth had already decelerated to 1.1% in 1Q2019 and 0.1% in 2Q2019 (Credit: Albert Chua/EdgeProp Singapore)
“Over the medium term, growth should stabilize around 2½ percent, increasingly driven by modern services alongside other trade-related sectors,” says IMF in a release on July 15, following the conclusion of its Article IV consultation with Singapore. “Risks to the outlook are tilted to the downside and mainly stem from external sources, including a tightening of global financial conditions, escalation of sustained trade tensions, and deceleration of global growth.”
In its report, IMF said it welcomed the Singapore authorities’ proactive use of macroprudential and other property-related measures. However, it recommended “the continued monitoring of conditions in property markets and appropriate adjustment of macroprudential measures”. The IMF suggested “eliminating residency-based differentiation for the Additional Buyer’s Stamp Duty, and then phasing out the measure once systemic risks dissipate”.
IMF published a report on Singapore’s macroprudential policy (completed on June 24) in July, as part of Financial System Stability Assessment on Singapore. In the report, IMF noted that macroprudential policy in Singapore has centred on the property market, as “the stability of the latter is closely linked to that of the macroeconomy and the financial sector”.
Residential property represents nearly half of total household assets while housing loans make up about three quarters of total household liabilities. Property-related loans also account for a considerable share of bank’s lending (about 30%).
The Singapore government has therefore adopted a multi-pronged approach to mitigate systemic risk via both demand- and supply-side measures. These include caps on the loan-to-value ratio and total debt servicing ratio as well as additional buyer’s stamp duty (ABSD) and seller’s stamp duty (SSD).
“Empirical analysis suggests that the effects of macroprudential measures on residential prices take time to materialize but become sizeable after one year following implementation,” according to the IMF report in July. Macroprudential measures start reducing prices from the second quarter following implementation, with a peak effect of...