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The new cooling measures might create more questions than answers

Updated: Jun 12, 2023

The latest round of cooling measures is rather unexpected.

The earlier round of cooling measures just happened last September. Just slightly more than half a year later, we have another round of cooling measures. If we count the cooling measures which took place in Dec 2021, we now have three cooling measures implemented in less than 16 months. This is likely unprecedented and I can't remember when was the last time we had three rounds of cooling measures in such a short time frame.

Such rapid fire succession of cooling measures might have left some folks confused. Why are we having so many cooling measures implemented in such a short time? Is the property market so overheated? Why aren't all the cooling measures released in a single round? Are we being too reactive to the market conditions?

These are certainly questions that some of us might like to seek answers for.

Before we dwell further on the analysis, let's first refresh ourselves on the details of the latest cooling measures.

For Singapore Citizens, ABSD (Additional Buyer's Stamp Duty) is now increased from 17% to 20% for 2nd residential property, and 25% to 30% for 3rd & subsequent residential property. For Permanent Residents, ABSD is now increased from 25% to 30% for 2nd residential property, and 30% to 35% for 3rd & subsequent residential property. For foreigners, ABSD is now increased from 30% to 60% for any residential property. You may refer here for the full details.

The most glaring increase is the ABSD rate for foreigners. It just doubled itself overnight. This is where another question comes into my mind. Have foreigners been buying so many properties in Singapore that necessitates such a large jump in ABSD for foreigners?

Based on this report indicated in The Straits Times, 12.1% of private properties in central Singapore were bought by foreigners in 2022. 4.4 % of private properties are bought by foreigners in the city fringes and 1.7% in the suburbs in the same time period. While it's a measurable number, it certainly doesn't seem too significant to me.

I wrote in my review of the cooling measures implemented in September last year that the cooling measures back then are heavily targeted towards public housing. Hence, it does make a bit of sense that the latest round of cooling measures is targeted more towards private housing rather than public housing.

However, it does feel to me that the latest round of cooling measures is not going to make much of an impact on the market.

Firstly, foreigners are likely going to be the most affected group here and this will translate to an impact specifically in CCR (Core Central Region) sales. However, CCR grew the least compared to the other regions in the past 15 months. In the latest Q1 report, CCR condo prices grew by 0.8% while RCR (Rest of Central Region) condo prices grew by 4.4% and OCR (Outside Central Region) condo prices grew by 1.9%. In 2022, CCR condo prices grew by 4.6% while RCR condo prices grew by 9.2% and OCR condo prices grew by 9.3%. There is likely going to be very little impact to the RCR condo prices and CCR condo prices despite the fact that both regions grew much more than CCR condo prices in the past 15 months. Hence, it left me puzzled why we have such cooling measures implemented now.

Secondly, apart from sale transactions, high rental prices are obviously another significant issue right now. With foreigners less likely to purchase now, they might be much more inclined to rent. Will this then cause rental prices to then further increase as there might be a bigger pool of potential tenants now?

Thirdly, a good majority of residential transactions are attributed to Singapore Citizens buying their first residential property. These transactions are likely what contributed to the growth in condo prices in RCR and OCR. Most Singaporeans are still buying properties in these regions compared to CCR. The latest round of cooling measures has no impact on this group of buyers at all, and we will likely see prices for RCR and OCR regions continue to go up in the coming months.

Since the implementation of cooling measures, we still continue to see substantial growth in property prices (both public and private). More $1M HDB flats surfaced. Bukit Timah's Toh Yi Drive maisonette sold for $1.291M, earning the coveted title of the most expensive HDB executive flat. A 5-room Pinnacle@Duxton flat sold for record price of $1.4M. All these happen despite the cooling measures implemented last September. Like what you have read earlier, the condo prices in RCR and OCR continue to grow substantially in Q1 2023. New launches prices are hitting sky-high now with the "most affordable" new launch (The Botany at Dairy Farm) transacting above $2000 psf. We have now crossed over the mental barrier of $2000psf and you will likely never see any new launch condo with prices below $2000 psf moving forward.

If we take a step back and ask whether the latest round of cooling measures are going to make any difference/impact to these prices listed above, I am pretty sure the answer is likely going to be a "No". So here comes a question that we can finally answer. Will property prices continue to rise in the near future? Yes.

When I ran a recent poll in my Telegram group asking the members if they think the new cooling measures will help in moderating the property price growth, I got an overwhelming "No" for the initial answers.

I personally think that there is a good chance we are going to see another round of cooling measures in the near future. If that happens, some of us might be taken aback by the sheer number of cooling measures implemented and start to wonder what is going on.

Having said that, I think there must be some underlying data which we are not aware of that prompts such changes. I believe that there must be some good reasons for this round of cooling measures and I might not have covered all angles here. However, based on what I have right now, this round of cooling measures has certainly created more questions than answers.

I also do share additional content in my Telegram channel. Anonymous polls are also held in this channel to give you a perspective of what do the crowd thinks on certain financial/investment themes. Do join the channel if you are interested.

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