Singapore government tries to limit spiralling property prices

The government of Singapore has introduced measures aimed at cooling rapidly escalating property prices for the seventh time, representatives have announced.

The attempt follows on from six previous deflationary initiatives over a three year period as concerns continue to grow over the rapid increase of property prices, foregoing what are thought to be critical signs of an imminent market collapse.

The Financial Times noted that even though the measures resulted in Singapore’s stock market prices falling, previous attempts had witnessed the same reaction and did not necessarily reflect the success of the initiative.

Singapore’s property market has followed a similar pattern of growth to that found in Hong Kong; fuelled by an insurgence of cheap money from overseas investment by currencies closely tied to the U.S. dollar.

In Singapore, property prices rose 1.8% per quarter throughout 2012, with developers land price bids a fifth higher on average than the previous year.

[caption id="attachment_3302" align="alignleft" width="544"] 1989-2011: Singapore Property Price Index (Red) and Population to Housing Stock Ratio (Green). Source: Singapore Property Cycle[/caption]

The market calming efforts are wide-ranging, and include lowering loan-value ratios while increasing cash size down-payments; now 15% for native Singaporean’s, up from 10%.

Stamp duty will also be introduced on second homes for the first time at 7%, with ABSD (additional buyer stamp duty) on first homes at 5% for permanent residents, and 15% for foreigners.

According to a survey by Credit Suisse, the global financial services company headquartered in Zurich, a third of respondent’s cited investment as the driving factor behind buying property in the capital.

City Development and CapitaLand, - prominent property developer’s operating within the area - saw 7% and 5% wiped off their share values respectively on Monday.

The market activity will not come as a shock to seasoned property investors and analysts who - as the Financial Times eloquently put - “have seen all this before. [Singapore hands]”

After ABSD was introduced in December 2011 as an additional market cooling measure, a similar knee-jerk reaction was seen in market prices, with developers’ share prices falling around a sixth before seeing recovery of two-thirds last year, outperforming the Straits Times index by two-fifths.

“Cheap money has produced a market with the attention span of a small child. Unless it does what it is told, the government has little choice but to consider more of the same. Investors have been warned.” said the Financial Times.