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Did the Singapore Government Intervene too soon in the local Property Market?

Garry Wong

July 25, 2018
Current Affairs insurance Investment property buyer stamp duty additional buyer stamp duty Singapore Property

Been having this conversation with clients, colleagues and friends over the past 2 weeks since the additional property market cooling measures where set in place.

https://www.channelnewsasia.com/news/commentary/government-intervene-singapore-private-housing-cooling-measure-10546854

No it wasn’t too early for the intervention, it was just about right instead. After a decline in the ppty market for multiple quarters, we suddenly have a huge growth in a single quarter.

This isn’t supported by strong Fundamentals (Strong Fundamentals = High Occupancy Rate, Low Vacant/ Unsold Units, Good Rental Yield Income of 4 to 5%.

**So what happened? **

Government probably felt that the prices of new launches are too high, they are worried of individuals who over-leverage in the shadow of rising Interest Rates and Low Market Occupancy, there will be a chance of default on mortgages. However, they didn’t take action because they thought that the Free Market should take course. But it didn’t. Many who sold off their property in the last 2 years for Enblocs, are taking the sums to re-purchase a new property. This made normal buyers think that the market has recovered, further hyped up by recent statements made by some ‘experts from the property companies’ that the Property Market has recovered.

Optimism in Property Market

https://www.todayonline.com/business/looking-ahead-2018-property-market-poised-roar-back-life

https://www.straitstimes.com/business/property/property-market-finally-on-the-upturn-outlook-2018

**The Signs of Irrationality **

Buyers are paying $1.6K psf for Garden Residences (at Serangoon North) and Affinity (Also at Serangoon North), when there is an earlier Forest Woods at an equivalent psf (Near Nex) Mention this to any Property Agent, and they will tell you that there will be more Projects launching this year, and they would cost more. (plus the price that you are paying for now is a ‘future’ price–> They must have some crystal ball)

Just have a look around at some resale Condos, and you will find that the location and psf might be better then some, if not most of the new launches.

Govt getting Nervous

https://www.todayonline.com/singapore/property-cooling-measures-cannot-be-discounted-dbs-ceo

**Who got affected? **

Hence the government unleashed the ‘Kraken’

First time buyers got their Loan Quantum reduced from 80% to 75% of the Property Valuation.

Second Time Buyers got slapped with a fatter ABSD {Additional Buyer’s Stamp Duty), paying 5% cash upfront more for 2nd or 3rd property, in addition to a reduced loan quantum of 5% at each tier (60% -> 55%, 40$ -> 35%)

Foreigners and Corporate Entities pay 5% and 10% more respectively.

Developers

They dish out sudden 1 time bonuses, hoping to entice buyers to make the purchase. Some brought forward their launch dates, others close off showrooms in anticipation of reduced crowds, and not wanting to be ‘malu’

**So what now? **

If you are a first time buyer, feel free to visit show rooms for new launches for a feel. Do give a consideration to resale, as I believe there are many attractive projects out there still. Do not over-leverage, maintain a healthy cash flow.

If you are a 2nd Property Buyer, chances are you are buying for Investment. Do give consideration to other asset classes, such as Industrial Property, a ‘Cash’ Property and other Financial Instruments (There are many instruments out there that delivers reasonable returns with reasonable risk levels) It doesn’t pay to go against the government.

Managing your risks

1.) Use a Mortgage of 4% for computation (Worst Case Scenario)

2.) Ensure that your monthly mortgage do not exceed 40% of your Monthly Income

3.) Look for Fixed Interest Rates for next 2 - 3 years.

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Garry Wong

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