Property Cooling Measures

On 16 September 2015, the Real Estate Developers’ Association of Singapore called for the government to reduce property cooling measures to prevent a collapse of the housing market. While the Democratic Progressive Party agrees that a market collapse is not desirable for anyone, we would also point out that it is in REDAS’ interest to keep housing prices high—but not necessarily for the rest of Singapore.

The DPP recognises that property developers are under enormous pressure. They need to sell off their remaining properties before they are charged huge taxes, fines and interest rates. At current market rate, some developers are already losing $100 to $200 psf sold. Such a loss margin is unsustainable for the industry, and one way for developers to recoup their losses is to ensure prices remain high by lifting cooling measures.

The property market in Singapore is complicated by the fact that Singapore’s property index has not reached its maturity or actual price. Singapore’s property prices are still behind those of Tokyo, Korea and Hong Kong. Should the status quo remain, developers stand to lose so much money that the smaller ones might be forced to close.

However, the DPP argues that such a broad-strokes approach would instead further distort the market and make things worse for Singapore. A more nuanced approach is required. We argue that Singapore should retain the Additional Buyer’s Stamp Duty (ABSD) to prevent property speculation and demand inflation. Lifting the ABSD wholesale would deprive people who need to stay in those properties, especially people whose income exceeds the income cap for a HDB flat.

The government could instead consider imposing the ABSD on Singaporean citizens only if they buy a third home. This would help Singaporeans buy up some of the excess supply on the property market. This would stimulate the economy and provide jobs in the sector and related industries, without unnecessarily depriving lower-income Singaporeans of housing.

As for permanent residents and foreigners , the government should retain the existing ABSD of 7% and 10% respectively. If possible, the government should also study exempting ABSD for permanent residents who have stayed in Singapore for a lengthy period of time,

Instead, Singapore should lift the seller stamp duty. This would allow homeowners who have overcommitted or have multiple properties to sell their properties earlier, even at a lower price. This would increase the affordability of housing in Singapore, and give property owners and developers an exit strategy should interest rates increase in the future.

Developers could also take additional measures to protect themselves. They could build smaller units. Such a move would reduce their cost, while making housing more affordable to Singaporeans, as the smaller size would reduce the maximum loan quantum and the resultant debt burden. This could enable people to actually afford a second home, increasing property demand. Alternatively, developers could change the manner of holding from freehold to 99 years and make their properties cheaper. This would present the market with a choice between a HDB flat and a condominium slightly smaller than the average condo, but also only slightly more than a flat. This would encourage people to buy more condos, easing the burden on the market for HDB flats and increasing demand for private property.

The government’s profits from land sales are channeled into the reserves or investments, and the DPP recognises that this is a prudent policy. However, with land so scarce in Singapore, the govenrment should also consider increasing the price of land to prevent reckless property speculation and ensure sufficient space for Singapore’s needs. The DPP also argues that a higher percentage of Singapore’s returns on these investments should go into providing grants and enabling low interest rates for the first homes of our citizens. While the government has previously increased Singapore’s housing grants, they are unable to compensate for the increased prices of BTO flats. We argue instead that the grants and prices of BTO flats should be pegged together. This would enable the sandwich class, in particular those with too high an income for HDB flats but too low an income to afford bona fide private property, to afford homes.

The formula for stamp duty should also be revised. Currently, the stamp duty uses a tiered system, with the first tier set at $100,000 and the second tier for the next $100,000, We note that there are very few properties today that can be purchased for under $200,000, rendering the formula obsolete.

Going a step further, the government should strive to decouple the public housing market from the private housing market. The government should take charge of the former to meet the housing needs of the average Singapore, while the latter should be governed by market forces. Currently, the HDB market enables an artificial hedge for investors in the private property market, as they can live in a condominium while renting out a HDB flat. This inflates the prices of the public housing market. The DPP calls for the HDB to revert to the earlier rule of requiring property owners to live in the HDB flat if they own both a flat and a condo, or else sell one of the properties. This would enable bottom-up correction of the housing market, normalizing the prices of the public housing.

Instead of outright abolishing property cooling measures, the DPP calls for more nuanced policies to correct the market. This would ensure that Singaporeans can continue to afford homes, that there would be increased choices in the market, and that property developers can continue to prosper.