Is the market overreacting to the new property cooling measures?

By
/ EdgeProp
|
July 12, 2018 2:30 PM SGT
The new property cooling measures announced on July 5 came as a surprise, arriving just as property developers have replenished their land banks over the past 18 months in anticipation of blockbuster sales this year.
The cooling measures, which include higher Additional Buyer’s Stamp Duty (ABSD) rates and tighter loan limits, affect housing affordability from investors to first-time homebuyers – primarily because the loan-to-value (LTV) limit has been slashed to 75% from 80%.
The surprise move sparked an immediate frenzy among developers and buyers, as the former rushed to bring forward their launches, while buyers under panic attack from fear-of-missing-out flocked to various showflats for last-minute shopping before the new measures took effect the next day.
Singapore developer and bank stocks also took a hit. They led declines on the benchmark stock index on July 6 (Friday) after the government unexpectedly rolled out new property curbs to cool a market the central bank described as euphoric. Stocks of local real estate agencies also fell following the announcement.
With the new measures, near term sales volume is expected to fall as buying demand takes a hit. The en bloc market is also expected to dampen as developers become wary of end-demand, which will have impact on their offer prices.
But while the new policies will inevitably curb the exuberance of the housing market, the long-term impact is likely to be minimal. Here’s why:
1) Majority of homebuyers are not subject to ABSD
With the latest round of cooling measures, Singaporeans buying a second residential property must pay an additional 12% on the property value in ABSD, up from the previous 7%. Permanent Residents (PRs) buying a second home will now pay 15% compared to the previous 10%. Meanwhile, foreign buyers without permanent residency status must fork out 20%, instead of 15%.
Based on the latest statistics from IRAS, over 60% of homebuyers between the years 2013 and 2016 were not subjected to ABSD, which suggests that first-time buyers who are Singaporeans or PRs have been the primary drivers of private home sales. These first-timers will not be affected by the...