Buying frenzy at AMO Residence ups the ante on whether more property cooling measures are needed

Jul 26, 2022

Champagne may be flowing in the boardrooms of UOL Group and its consortium partners Singapore Land Group and Kheng Leong Group. The UOL-led consortium sold over 98 per cent of the 372 units of 99-year leasehold private residential development, AMO Residence, the year’s first major new launch in the Outside Central Region (OCR), by the first day of its launch on Jul 23. Based on market talk, pricing achieved was roughly around the S$2,100 per square foot level.

Home loan rates are rising, which makes financing for home purchases more costly. Economic growth at home and abroad may slow amid the prolonged conflict in Ukraine, supply chain disruptions and rising inflation.

Still, the private home market in Singapore looks to have shaken off the shock of property cooling measures introduced on Dec 16, 2021. Prices of private homes rose by 3.5 per cent quarter on quarter in Q2 2022, versus the 0.7 per cent quarterly increase in the first quarter, according to data by the Urban Redevelopment Authority (URA).

In 2021, private home prices in Singapore rose by 10.6 per cent year on year, compared with the 2.2 per cent increase in 2020. Prices in Q2 2022 are up by 4.2 per cent versus Q4 2021.

Meanwhile, the HDB resale price index rose by 12.7 per cent in 2021 compared to the year before, and the index is up by 5.3 per cent in Q2 2022 versus Q4 2021.

If private home prices rise by 2.8 per cent each quarter in Q3 and Q4, the yearly increase in prices for 2022 will cross 10 per cent.

AMO Residence’s success is due to reasons such as it being the first major private residential project in the mature housing estate of Ang Mo Kio in more than 8 years. The project is located close to Mayflower MRT station, Bishan-Ang Mo Kio Park and popular schools such as Ai Tong School and CHIJ St Nicholas Girls’ School. UOL is also an established developer with a good track record.

Still, the success of AMO Residence’s launch could boost resale prices at nearby developments such as The Panorama, as well as new sale and resale prices in the wider OCR. Upcoming launches such as Lentor Modern, which is near Lentor MRT Station, by another established developer, GuocoLand, may benefit from the positive momentum in OCR amid AMO Residence’s successful launch.

Housing affordability

Referencing AMO Residence, could the new pricing norm for a new 3-bedroom condominium unit of around 960 square feet, which is about the size of an HDB 4-room flat, be over S$2 million?

The cost of a S$2 million home is about 8.2 times and 9.9 times the annual household income of the second and third highest deciles of resident employed households respectively, based on annualising average monthly household income from work including employer CPF contributions for 2021.

In 2021, median monthly household income from work including employer CPF contributions among resident employed households rose 3.6 per cent from a year ago.

In December’s round of property cooling measures, Additional Buyer’s Stamp Duty (ABSD) rates were raised, and the Total Debt Servicing Ratio (TDSR) threshold was tightened. The government also lowered the loan-to-value (LTV) limit for loans from HDB from 90 per cent to 85 per cent. In addition, the government upped public and private housing supply to cater to demand.

In unveiling the cooling measures, the government said it was focused on promoting continued housing affordability and that it did not want home prices to run ahead of economic fundamentals, and raise the risk of a destabilising correction later on.

Potential for more cooling measures

If home prices run ahead of income growth, might more cooling measures be needed?

Cooling measures do have an immediate impact on the market. Growth in private home prices slowed, while new sale and resale volume of private homes fell in Q1 2022, right after the government’s announcement of measures in December.

Introducing more cooling measures can help take the wind out of the sails of the homes market. But should TDSR or LTV limits be tightened further, given that this may favour cash rich buyers over those who need to rely on home loan financing?

Possibly even more private and public housing units can be built, but building new homes takes time. URA’s private home rental index rose 6.7 per cent in Q2 2022 from the previous quarter, in the fastest quarterly rise since Q4 2007, and the index now stands at a record high. Over time, as more new homes are completed, rental rates may ease.

Raising transaction costs on homes via higher ABSD rates can steer capital allocation of owner occupiers and investors away from homes. Collection of such taxes also boosts the government’s tax coffers.

Perhaps, different types of cooling measures can be considered. Possibly, raise the quantum of upfront payment on the purchase of an uncompleted new home.

Maybe demand can be reduced by limiting who can buy private homes. Perhaps ban the use of trusts to buy homes in the name of minors. Possibly, prohibit foreigners who are not permanent residents from buying homes in OCR or homes that are below a certain pricing threshold.

Perhaps, cap the number of homes any Singapore citizen or permanent resident is allowed to own.

The housing aspirations of many young families in Singapore can be met through the provision of affordable and high quality public housing. Building new HDB flats in areas such as Rochor, the Greater Southern Waterfront and Mount Pleasant provides great housing options for young families.

Still, many young families may aspire to condominium living. Sure, not all such aspirations can be met. Nonetheless, having substantial numbers of young families being able to afford to buy a condominium unit, without overly stretching financial resources, is useful in anchoring citizens to Singapore.

The success of AMO Residence’s launch can cause some potential buyers to rush to buy a home for fear of missing out. Some agents may encourage their clients to quickly commit to buying a home as prices may rise further.

However, potential home buyers should be cognisant that home loans are getting more expensive and that potential deceleration in the economy may affect jobs and the homes market.

Around 7,195 private homes, including executive condominium (EC) units, will be completed in Q3 and Q4. Another 19,958 private homes, including EC units, are expected to be completed in 2023.

Whether the addition of more new homes, higher home loan rates and potential economic weakness combined with existing property cooling measures will temper the exuberance in the private homes market is a tricky call to make. Some market watchers have suggested that tighter financing limits may kick in if/when home loan rates rise further.

While developers will be buoyed by the success of major new homes launches, they may worry over whether more property cooling measures will be introduced soon and if so, what sort of measures.

Ultimately, Singapore’s safe haven status, earned on the back of social cohesion and political stability, makes the government’s job of keeping housing affordable challenging.

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