The new launch property market has been buzzing with activity recently – Clavon selling 70% of its units like hotcakes on its launch day; and one of the highly anticipated mega projects, Normanton Park, selling a third of its 1862 units on the first day. 

Despite the ongoing pandemic and the latest measures to restrict the re-issue of options to purchase (OTPs), market sentiments still remain confident in the Singapore property market as prices continue to rise. The Urban Redevelopment Authority (URA) released a flash estimation of the Private Residential Property Price index in Q4 2020 showing a 3.2 point increase from Q3 2020. This represents an increase of 2.1%, compared to the 0.8% increase in Q3 2020.

Prices of non-landed private residential properties also rose by 2.20%, compared to a 2.70% increase in 2019. Despite the increase being lower than in 2019, it is concerning as the market is undergoing a recession due to the pandemic and is not an accurate reflection of the unstable market in 2020. 

On top of all the market happenings, there has been speculation that the Singapore Government might be releasing more cooling measures to ensure the stability of the property market.

Concerns for Property Investors

A stable property market has a positive effect on the economy. Hence, if property prices keep rising and are left unchecked, it could possibly surpass economic fundamentals and run the risk of destabilising correction in the future. 

The current low-interest rate is one of the contributing factors for the good response towards newly launched projects. However, low-interest rates do not last for long. When the market returns to pre-covid days and interest rates rise, property buyers may have a harder time servicing their loans. 

If property prices continue rising at this current rate and without any intervention by the Government, in the long run, prices will eventually fall back down to meet the equilibrium of the market. To put it simply, prices will crash.  

Potential Cooling Measures and Its Impact on Homeowners & Investors

To prevent market prices from crashing, here are some of the potential cooling measures and scenarios the market might embrace to curb rising property prices:

1. Lowering Loan-To-Valuation (LTV) Ratio Requirements
   The lowering of LTV from 75% to 70% translates to a lower housing loan and results in lower monthly installments. Thus, has the possibility of increasing buyers’ prudency and lowering the chances of them defaulting payment.
   However, this move may impact all buyers, both homeowners and investors, and may result in homeowners unintentionally bearing the brunt of the negative impact behind this move.
   Hence, at best, a reduction in LTV may only curb buyers of 1 or 2 bedroom units, which will potentially largely affect property investors.
2. Lowering Total Debt Servicing Ratio (TDSR) Requirements
   The lowering of TDSR from 60% to 50% means buyers will only be able to use a smaller portion of their income to service their property purchase. Hence, if there are any unforeseen circumstances which may affect their monthly income (eg. salary cuts), they may still be able to service their mortgage. Hence, the chance of default may be decreased.
3. Lowering LTV and TDSR for Property Investors
   It is common for married couples to purchase properties under separate names in the Singapore market. This is so that they can utilise their CPF accounts to service their monthly installments. However, if a married couple chooses to purchase a property under one name each, the purpose of each property is usually for homestay and for investment. At the same time, they will not incur the additional buyer’s stamp duty (ABSD).
   Therefore, decreasing LTV and TDSR requirements for properties owned under one name between married buyers can potentially encourage prudence in investing.

Potential Impact on the Market

In the short term, if these potential cooling measures were to kick in, we can foresee a boom in 1 and 2 bedroom unit purchases before its effective date. Buyers who are on the line or barely hit the minimum requirements to afford their purchases might be left with no choice but to bite the bullet and proceed with their purchase to avoid the potential measures. 

In the long run, the intent of the measures is to stabilise the market and moderate price growth in line with market fundamentals. 

Conclusion

Ultimately, property prices will still go up due to the rate of inflation and the gradual increase in household income in the future. The key to purchasing property is to exercise prudence. The purpose of cooling measures kicking in when the property market is at an all-time-high is to safeguard the stability of the economy and avoid a market crash or bubble. Ensuring buyers and investors have a sufficient buffer and safety net before purchasing their properties. 

Disclaimer: The information in this article is our prediction on potential cooling measures. No regulations have been confirmed at the time this article was published but we will continue to monitor for any official announcements from the authorities.