Post-cooling measures, property prices 'closer to fundamentals'

Foreigners' purchases found to have largest impact on growth of home prices, with 'economically significant' effects

Fri, Nov 29, 2019

JAMIE LEE


EVEN amid the accommodative financial conditions today, price movements of properties have moderated in the quarters since July 2018 - when further cooling measures were put in place - and remained "modest" in Q2 and Q3 of this year, the Monetary Authority of Singapore (MAS) said in its annual Financial Stability Review (FSR) on Thursday.

In 2018, the Additional Buyer's Stamp Duty rates were adjusted. The regulator also tightened loan-to-value limits for residential property purchases. These have helped to bring property market prices "closer to fundamentals", MAS said.

Prices increased by 2.1 per cent year-on-year in Q3 2019, but this was lower than the 9.1 per cent increase in Q2 2018 compared to a year ago. (The cooling measures took effect in Q3 2018). Relatively healthy sales were registered just for "selected new projects", with others seeing "only a moderate response", MAS added.

This also comes as an IMF study - which was released within the FSR - said that Singapore's private residential prices appear to have decoupled from the global chase for yield and capital gains. Macroprudential measures by the Singapore regulators since 2013 have targeted foreign buyers and speculators - the pacemakers behind the asset chase on Singapore properties, said the IMF study.

Prices in the private residential property market increased by almost 16 per cent between 2010 and 2013, the report said. Speculative activity, as indicated by the large shares of short-term resales, as well as interest from foreigners, was high during this period. Notably, purchases by foreigners peaked at about 20 per cent of all transactions in 2011.

Today, activity by foreigners and corporates has remained stable over the past year in the private residential property market, the MAS Financial Stability Review showed.

The share of transactions by foreign buyers account for 5-6 per cent of total transactions over the past three quarters. For that of corporates, the share stood at 1-2 per cent.

The report showed that a boom in residential property prices could have whetted the appetite of foreigners and corporate investors for the domestic property market.

Meanwhile, short-term resales could be positively related to residential property prices as flippers were timing the market, selling their properties when prices were rising fast.

"In these cases, the growth of residential property prices would be positively correlated with transactions," the report showed.

Foreigners' purchases were found to have the largest impact on the growth of residential property prices, with the effects "economically significant".

And despite making up a small fraction of the residential property market, speculators had an outsized impact on property prices as well. Property flippers - making up about 5 per cent of total resale transactions between 2004 and 2012 - can influence property prices by inducing a positive feedback to owner-occupiers and rental investors.