Singapore Plans More Housing Curbs as Prices Rise to Record

Singapore will raise down payment requirements for second mortgages and extend the period homeowners must hold properties to avoid a sales tax as it steps up efforts to curb speculation after prices rose to a record.

Individuals with more than one mortgage can only borrow up to 60 percent of a property’s value, down from 70 percent, the government said in a statement yesterday. On loans to entities other than individuals it will be reduced to 50 percent from 60 percent. Sellers will now have to pay a stamp duty for all homes and land sold within four years of purchase, from three years.

Singapore private home prices climbed to a record as the nation’s fastest economic growth since independence in 1965 overwhelmed government measures to cool the market. The city- state has been attempting to rein in home prices since 2009 when the government barred interest-only loans for some housing projects and stopped allowing developers to cover interest payments for apartments still being built.

“The government is erring on the side of caution,” said Donald Han, Singapore-based managing director at Cushman & Wakefield, the world’s largest closely held real estate services company. “We need to monitor this because history has shown that some of these measures lasted only two to three months, and the market comes right back to full life again.”

Singapore’s Straits Times Real Estate Index fell as much as 1.4 percent, with 28 index members out of 38 falling as of 9:18 a.m. CapitaLand Ltd., Southeast Asia’s biggest developer, declined as much as 3.7 percent to S$3.70.

Buoyant Sentiments

While Singapore’s private home prices climbed 2.7 percent to a record in the fourth quarter from the previous three months, the increase was the smallest in six quarters, government data showed. Han said he expects the gain in home prices to cap at 5 percent this year with the latest curbs, from an earlier estimate of as much as 12 percent.

“Previous government measures have to some extent moderated the market, but sentiments remain buoyant,” according to the statement yesterday. “The government has decided to introduce additional targeted measures to cool the property market and encourage greater financial prudence.”

With the additional steps, Singapore joins markets across Asia that added measures to curb property speculation driven by low interest rates. Hong Kong imposed additional taxes and higher down payments in November after home prices climbed more than 50 percent since the beginning of 2009. China, battling at least 18 months of price increases, suspended third mortgages and raised interest rates for the first time in three years.

‘Strong Disincentive’

Singapore’s homeowners who sell a property within a year of purchase will have to pay a tax of 16 percent from 3 percent now. That drops to 12 percent in the second year, 8 percent in the third, and 4 percent in the final year. The government also said it will take further steps if necessary.

“The seller’s stamp duty rates will be increased sharply so as to provide a strong disincentive for investors looking to make short term gains,” the government said. “The impact of the seller’s stamp duty is especially significant as it is payable regardless whether the property is eventually sold at a gain or loss.”

Singapore in February last year said it will levy a seller’s stamp duty on all residential properties and land that are sold within one year from the date of purchase. That was increased to three years in August, when the government also raised down payments for second mortgages.

Caught by Surprise

“This new round of cooling measures will adversely affect sentiments in the property market in the coming months,” said Nicholas Mak, an executive director at SLP International Property Consultants in Singapore. “They could also catch many investors who had bought residential properties in the last two years by surprise. Some of the buyers could be investors who are banking on rising property prices to make a quick profit.”

Private residential sales in November rose the most in seven months. Property transactions reached an unprecedented level in the first 11 months of 2010 as developers sold 15,025 properties, according to preliminary data from the government. That exceeded the high of 14,811 homes in 2007.

“December sales would be as aggressive as the November numbers,” Han said. “The tide is coming onto the shores of places like Singapore, China and Hong Kong, and it’s hard to stop the tide with low interest rates. The only way is to pump in regular measures like what we’ve seen.”

Singapore’s three-month interbank rate fell to 0.43751 percent on Jan. 3, the lowest since Bloomberg began compiling the data in 1999. It was at 0.43779 percent yesterday.

‘Incremental’ Measures

CapitaLand said in November that government measures to curb property speculation had been “incremental” and will help the real estate market develop sustainably over the long term.

The Monetary Authority of Singapore in November said low borrowing costs and excess liquidity globally may push the island’s property prices higher again. There is a risk that financial institutions may ease lending standards and extend more loans to make up for narrowing interest margins, while buyers may also take on “excessive leverage” amid expectations of a sustained period of low rates, the central bank said.

“Low interest rates plus excessive liquidity in the financial system, both in Singapore and globally, could cause prices to rise beyond sustainable levels based on economic fundamentals,” according to yesterday’s statement. “The government’s objective is to ensure a stable and sustainable property market where prices move in line with economic fundamentals.”