The impact of cooling measures: How HDB resale prices have changed in every Singapore town

21 May 2023

SINGAPORE: Singapore has imposed three sets of property cooling measures in less than 18 months – all aimed at bringing prices down in a red-hot market.

But while the quarterly number of Housing Board (HDB) resale transactions has fallen since its peak in 2021, prices have continued to rise, albeit slower than before.

In the first quarter of 2023, the HDB resale price index grew 1 per cent from the preceding quarter – slower than the 2.3 per cent growth in the fourth quarter of 2022. However, it was also the 12th consecutive quarter that the resale price index has increased.

Cooling measures were implemented in December 2021, September 2022 and April 2023. While the latest tranche this year was firmly aimed at the private housing market by raising additional buyer’s stamp duty (ABSD), measures in the previous two sets targeted the public housing market.

“We think the HDB resale market is finding its footing and likely stabilising after the introduction of new cooling measures in September 2022,” said Ms Wong Siew Ying, head of research and content at PropNex.

While the two rounds of cooling measures in 2021 and 2022 suppressed market activity, they failed to effectively dampen prices in the public resale housing market, said Professor Qian Wenlan from the Institute of Real Estate and Urban Studies at the National University of Singapore.

“In the wake of the pandemic, residents need more space to work from home. Young couples living with their parents also like to move out and have their own space,” she said.

“Due to Singapore's reputation as a safe haven, both local and foreign investors are interested in investing in residential properties in Singapore. Rising prices in the private housing market will also push up the prices of resale HDB flats to some extent.”

HAVE COOLING MEASURES WORKED?

The government said in April that the property cooling measures in 2021 and 2022 have had a "moderating effect".

Analysing sales volume and prices in the two quarters before and after cooling measures were imposed, Prof Qian found that HDB quarterly resale transactions fell by 6.3 per cent after the cooling measures in 2021, but prices rose by 2.6 per cent over the same period.

After cooling measures in September 2022, the average quarterly resale volume of HDB flats fell by 3.6 per cent, but prices rose by 1.6 per cent.

Prof Qian said those two rounds of cooling measures in December 2021 and September 2022 have reduced market transaction volume and slowed the growth of prices in the private and HDB resale market, although price levels continue to rise.

Analysts also pointed out that there were other factors affecting the HDB resale market, including the rise in loan interest rates and increasing supply.

During the COVID-19 pandemic, interest rates stayed low. Floating interest rates – most of which are pegged to the Singapore Overnight Rate Average – mostly stayed below 1 per cent.

But as the economy reopened, interest rates shot up, with floating rates in recent months above 4 per cent.

Construction delays during the COVID-19 pandemic also saw some people turning from Build-to-Order (BTO) flats to resale flats, pushing up demand.

Prices may start to moderate as supply catches up. The government is "committed to launch" about 23,000 BTO flats in 2023.

Analysts also pointed to an increase in CPF Housing Grant amounts for eligible resale flat buyers as potentially pushing up demand. Ms Christine Sun of OrangeTee & Tie called this a “confounding factor”.

The increase in housing grants for first-timers may have spurred demand and price growth for some types of flats, said Ms Sun, the senior vice president of research and analytics.

“Such a policy change done within six months of property curb may mask the true effectiveness of the cooling measures,” she added.

RESALE PRICE RISES AND WAGES

Prof Qian said: “Property prices have risen faster than wages over the past three years, raising concerns about reducing housing affordability and the ability of residents to repay loans.”

She added that the median price-to-income ratio multiple in 2022 was 5.0 for a four-room HDB resale flat.

The house price-to-income ratio measures the affordability of homes by comparing median property prices with median household income. It is expressed as a multiple, so a ratio of 15 would mean that a home costs 15 times the annual household income of the buyers.

The annual Demographics International Housing Affordability Survey – published by the Urban Reform Institute and the Frontier Center for Public Policy – ranks Singapore 47th for housing affordability, out of 94 surveyed market areas.

Analysts expect a one-digit hike in HDB resale prices in 2023, with forecasts ranging from 2 per cent to 8 per cent, unlike 2022, which saw a 10.4 per cent rise. HDB resale prices grew by 12.7 per cent in 2021.

Huttons Asia’s senior director of research Lee Sze Teck said the cooling measures in 2021 and 2022 that were targeted at the HDB resale market encouraged “financial prudence” and reduced demand.

“The tighter loan-to-value and higher stress test interest rate ensured that buyers factor in a bigger safety net and that has made the property market more sustainable,” he said, adding that price gains of HDB resale flats have moderated in 2022.

RAISING ABSD AND THE INDIRECT EFFECT ON HDB PRICES

The government raised ABSD last month. While the increase was the greatest for foreign buyers, Singaporeans buying their second property also face a 3 percentage point increase, from 17 per cent to 20 per cent. The rate went up from 25 per cent to 30 per cent for third and subsequent properties.

Permanent residents now have to pay 30 per cent ABSD for a second property and 35 per cent for third and subsequent properties.

The latest cooling measures in April may have an indirect effect on HDB resale prices, said Prof Qian.

These measures raise the overall transaction cost for Singaporeans or permanent residents who are thinking of buying private properties, making them less attractive compared with public housing, she added. As a result, part of the demand may potentially shift to HDB resale flats.



Ms Sun said that the latest cooling measures affect HDB homeowners looking to upgrade to private housing.

Some buyers may hold back their upgrading plans for the moment, she added.

"For those who choose to pay the ABSD upfront and later apply for remission when they sell their flats later, some may find difficulty raising funds now as the ABSD has been increased," she explained.

"For instance, an HDB upgrader buying a S$2 million (US$1.49 million) condominium (unit) needs to pay S$400,000 ABSD upfront (20 per cent for a second property) now and some may find this sum to be hefty."

It might mean more flat owners may sell their flats first before buying a new unit, and rent in the interim, said the analyst.

If more people hold back and stay put in their flats, then there will be fewer flats put up for sale. But if people decide to sell and rent in the meantime, this may lead to a greater flat supply in the market but may increase demand in the rental market.

“The net effect will then depend on which is the bigger affected group,” said Ms Sun.

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