Government cooling measures lead to Singapore housing market’s worst performance in 13 years

Singapore’s real estate market, considered to be one of the most dynamic in the world, has slowed down significantly in the past few years. According to Bloomberg, prices slid 3.7 percent last year, almost matching the 4 percent drop in 2014.¹ Also,  it’s predicted that prices will drop further as much as 8 percent in 2016, extending a similar decline since their peak in 2013. Since 2013, rental prices have been on a steady decline as well. They fell about 13 percent over 12 quarters.²

Situation in Singapore

The price decline has happened due to several restrictions imposed by the government on home buyers. For example, debt is capped at 60% of a borrower’s income. Real estate taxes have also been increased. The state recently raised the minimum cash down payment for individuals applying for a second housing loan to 25%, from the previous 10%. Moreover, the government increased the additional buyer’s stamp duty (ABSD) on private and public housing for foreign real estate investors from 10% to 15% in January 2013. Foreign buyers pay ABSD, introduced in December 2011, in addition to standard stamp duty rates. These rules are also applicable foreigners on long-term passes (called “permanent residents”), but they pay at a lower rate of 5%. Singapore residents have also been brought under ABSD’s ambit, having to pay 7% ABSD when buying their second home. The Singaporean authority also introduced a Seller’s Stamp Duty on industrial properties, to discourage speculative activity in the industrial market.³ According to Singapore Business Review magazine the real estate market will continue to deteriorate for at least the next couple of years, with occupancy and rents under pressure from slow economic growth, weak demand and high space supply.⁴

Conclusion

The volatile local market has forced Singaporeans to look around for safe investment overseas. In an uncertain market, the worst thing you can do is to “gamble” your life savings. Germany belongs to the safest investment destination in the world and therefore attracts a lot of attention from international buyers. The real estate market offers stability, reasonable capital appreciation and attractive yields.

Sources

1. Bloomberg, Pooja Thakur Mahrotri: Singapore Home-Price Drop in 2016 Might Promt Reversal of Curbs, 12 January 2016. Full article
2. PropertyGuru, Chang Hui Chew: Time to look at prime properties?, Issue No. 95, March 2016.
3. Global Property Guide: Government cooling measures lead to Singapore housing market’s worst performance in 13 years, 9 December 2015. Full article
4. Singapore Business Review: Property prices to slide for another two years: UBS, 1 April 2016. Full article