Have Singapore’s Property Cooling Measures Gone Too Far?

Headlines about the Singapore property market have been rather pessimistic over the past few months. The index tracking prices of Singapore’s private residential properties continues to slide for the second quarter since the last property cooling measure implemented by the government. Most industry participants do not seem to be optimistic as well.

Given such a backdrop, is there a rainbow over the clouds for the property market or is there a real thunder storm approaching?

Cooling measures: Which round are we at now?

Since September 2009, the Singapore government has implemented eight rounds of property cooling measures. Each cooling measure had the objective of slowing down the growth of property prices in Singapore in order to prevent an asset bubble.

However, for the first seven rounds of cooling measures, there were some who argued that the measures had done little to slowdown the growth in property prices.

The logic behind their argument goes like this: With each cooling measure that’s implemented, it becomes harder for sellers to make a profit from their property if they choose to sell. Therefore, the most logical way to ensure that they can make a profit is to increase the asking prices of their properties, resulting in an opposite effect from what the cooling measure were meant to do.

However, the latest cooling measures seemed to have really taken the wind out from the sails of the property market. With a tightened loan to value (LTV) framework and the introduction of the Total Debt Servicing Ratio (TDSR), speculators and investors no longer find it as attractive to just buy into any property for a quick profit. Thus, property prices and transaction volumes have started to slide.

How are property developers reacting to the softening market?

City Development (SGX: C09) recently appointed a new chief executive, Mr. Grant Kelley, to assist the company in its push toward more international projects and diversify its revenue stream to lessen its dependence on Singapore.

Meanwhile, developers like Ho Bee Land (SGX: H13) are also keen to lessen the contribution that Singapore’s property market has on their results. This has led the company to focus on developments in London and Australia in the near future.

City Development and Ho Bee Land’s pursuit of opportunities abroad is far from being isolated. In fact, the trend’s clear – developers in Singapore are increasingly looking toward foreign shores.

Foolish Summary

The Singapore property market has had a good run over the past few years and many investors have made a fortune as a result.

However, it is perhaps necessary for the government to slowdown this engine of growth a little to prevent the whole market from overheating. On the other hand, with both developers and investors taking a very negative view on the sector, how would we know that the engine of growth has not been completely killed off instead?

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.