SINGAPORE – Singapore’s surprise crackdown to drive out speculative investments from the property market will probably hit collective sales that had become popular with developers of late, sending stocks reeling.
The tightened rules, rolled out a day after the central bank noted “euphoria” in the property market, sharply increase buyers’ stamp duties for entities such as developers.
Singapore’s benchmark Straits Times Index dropped as much as 2.5 percent Friday as property developers and banks led declines, with City Developments Ltd. and UOL Group Ltd. sliding more than 15 percent each.
While regulators have been vigilant about reining in the property market in the city-state since 2009, home prices snapped a multi-year run of declines last year as developers stoked optimism with a string of record land bids and redevelopment deals.
Officials had repeatedly warned that such exuberance was unsustainable, and Ravi Menon, managing director of the Monetary Authority of Singapore, sounded a cautious note on en-bloc developments on Wednesday.
“The move by the Singapore authorities to tighten macro-prudential measures on the property market is a clear sign that they believe that the current recovery is overextended, and we expect these policies to dampen speculative investment demand and weigh on prices over the coming months,” Chua Han Teng, Head of Asia Country Risk at BMI Research said in an email.
Individuals taking up their first housing loan will face tighter borrowing limits under the new rules, meaning they have to put up more cash to buy property.
For foreign purchases of residential property, the additional buyers stamp duty increases to 20 percent from 15 percent, while for Singapore citizens the rate increases apply only from their second purchase, the MAS, Ministry of National Development, and Ministry of Finance said in a joint statement Thursday.
For entities buying any residential properties for development, the additional buyers stamp duty rises by 10 percentage points to 25 percent, with a further five percentage points imposed for developers.
Adjustments to ABSD rates for residential property
“It’s definitely a signal by the government that they are serious about managing the property market,” said Joel Ng, an analyst at KGI Securities (Singapore) Pte.
The moves will effectively bring the market for en-bloc sales to a halt, as developers re-calibrate their strategies to clear unsold stock at high prices, DBS Bank Ltd analysts led by Derek Tan wrote in a report.
An index tracking property stocks excluding real estate investment trusts dropped 6 percent as of 10:51 a.m. in Singapore Friday. Oxley Holdings Ltd. plunged 16 percent, and stocks including CapitaLand Ltd., SingHaiyi Group Ltd., Keppel Land owner Keppel Corp. and Wing Tai Holdings Ltd. also declined. Many of these are among developers that have added significantly to their Singapore residential landbank, according to KGI.
DBS Group Holdings Ltd., Southeast Asia’s biggest lender, fell almost 3 percent. Oversea-Chinese Banking Corp. slid 2.5 percent and United Overseas Bank Ltd. dropped 3 percent.
“The policy measures are far-reaching rather than surgical in nature,” Citigroup analyst Si Xian Goh wrote in a note.
“That first-time home buyers were included in the policy dragnet, however, does suggest that the regulators are concerned that some first-time buyers are buying out of a fear of missing out and contributing to the overall spate of exuberance.”
An index tracking private residential prices jumped 3.4 percent in the three months ended June 30, according to a flash estimate from the Urban Redevelopment Authority this week. That builds on a 3.9 percent gain in the first quarter, which was the biggest since the second quarter of 2010.
The rebound in home prices has prompted aggressive land bids from developers. The government in February raised taxes on home purchases exceeding S$1 million as collective apartment sales reached levels the central bank described as exuberant.
The so-called en-bloc sales are where a group of owners band together to sell entire apartment buildings. Singapore home sales jumped to the highest in nine months in May as developers sold 1,121 units.