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Nikkei Markets

New curbs flatten outlook for Singapore's property market

Higher duties to hit developers' appetite for land

Developers who intend to buy sites for redevelopment will be hard hit by the latest measures.   © Reuters

SINGAPORE (Nikkei Markets) -- The recovery in Singapore's private home market is barely a year old but the outlook is already darkening after the government announced new curbs in a bid to check prices.

The measures, announced late Thursday, caused a scramble for apartments as buyers rushed to beat the deadline before they took effect on Friday, while real-estate and bank stocks tumbled when the markets opened.

The new rules include higher additional stamp duty for Singapore residents buying a second home and for foreigners investing in the housing market. The government also lowered the maximum loan quantum for property purchases and levied new duties on developers buying existing sites for redevelopment.

With the latest increase, Singaporeans buying a second home must pay an extra 12% of the property value in stamp duty, up from 7% previously, while foreigners without residency status must cough up 20%, instead of 15%.

Among the property stocks, City Developments plunged 16% while UOL Group fell 13% in late trading. CapitaLand, which is less exposed to Singapore's private residential market, fell 5%.

Banks were also hit on fears of slowing loan growth. DBS Group Holdings lost 3.1%, United Overseas Bank declined 3.3%, and Oversea-Chinese Banking Corp. fell 2.6%.

Property-related loans account for between 22% and 27% of the three Singapore banks' total lending.

OCBC Investment Research described the latest restrictions as a "sledgehammer to kill a fly", and warned that sentiment could stay bearish for years, while several analysts, including those from DBS Group Research, said the volume of collective, or en-bloc, sales in Singapore could grind to a halt after rising sharply in recent months.

Developers have snapped up more than 30 billion Singapore dollars ($22 billion) worth of residential sites in the past two years, according to DBS estimates, and now have some 37,000 housing units that are yet to be launched for sale.

A large proportion of the land acquisition involved collective sales, whereby owners jointly sell their homes, and the land on which the building rests, to a developer for a higher price than what they would get if they sold the units individually.

The buyer subsequently redevelops the site, taking advantage of increased height limits and plot ratios to build more apartments.

"The medium-term risk, if sell-through rates remain weak or falter, will be potential write-offs to land values on developers' balance sheets," DBS said.

Singapore developers sold around 10,700 private homes in 2017, which was an increase of about 34% from 2016. Private homes comprise about 20% of Singapore's housing stock, with government apartments accounting for the remainder.

"We expect total volumes to fall to 9,000-10,000 units in 2018, and potentially even further if these curbs remain," DBS said in a report on Friday.

Private home prices in Singapore have increased 9.1% since hitting a trough in the second quarter of 2017, helped by stronger economic growth and the collective sales, which generate new demand since many sellers will have to look for new homes.

The market had been the doldrums previously, hurt by government cooling measures that included tougher lending limits and additional stamp duties on foreigners investing in Singapore housing.

"The sharp increase in prices, if left unchecked, could run ahead of economic fundamentals and raise the risk of a destabilising correction later, especially with rising interest rates and the strong pipeline of housing supply," the Ministry of Finance, Ministry of National Development and Monetary Authority of Singapore said in a joint statement on Thursday.

The government's actions followed a warning by the central bank about the "euphoria" in the housing market.

Many major Asian cities face the challenge of curbing speculative demand for property while protecting the interests of genuine home buyers. Last month, Hong Kong announced plans to impose a vacancy tax on newly built flats that remain unsold for six months as well as lower the price of subsidised government homes. The former British colony had previously introduced higher stamp duties for people buying second homes.

Desmond Sim, head of research for Singapore and Southeast Asia at CBRE, said the severity of the new measures reflected official concerns about a bubble brewing in the property market.

Developers who intend to buy sites for redevelopment will be hard hit by the latest measures, he said, noting they must now pay a 25% duty based on the land cost, instead of the previous 15%.

While the duty is refundable if certain conditions are met, the increase will add to upfront costs.

Developers will also be subject to a 5% additional buyer's stamp duty tax that is not refundable.

Christine Li, senior director of research at Cushman and Wakefield Singapore, was more upbeat about prospects, noting the rush to buy homes at showrooms across Singapore on Thursday night.

"Though this round of cooling measures is quite heavy-handed, the (impact) on buying demand remains uncertain, given the firm economic outlook, recovering labor market and strong latent demand for property investment," she said.

--Kevin Lim

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