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Real Estate Markets To Invest In 2021 – Singapore is known as a “free market” in the world, but on the other hand others may not feel the same about its real estate market.
With the additional costs and restrictions that real estate investors may need to work through to purchase a piece of Singapore property, you might think that Singapore real estate may not be the best option for investors.
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While traditionally, low taxes attract much-needed foreign direct investment in other sectors of Singapore. It is the presence of this regulation – and its net positive impact on Singapore real estate – that has ultimately created and maintained the Singapore property market’s reputation for stability.
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Furthermore, we know that the Singapore property market is not just about attracting investor dollars. The government has actively enforced real estate regulations not only to protect the interests of investors but also to ensure that its residents can afford new homes. The last thing Singapore wants is a repeat of the Vancouver issue where foreign money dominated the real estate market.
1960: The Housing and Development Board (HDB) was established to manage public housing for Singaporeans to address many housing issues (including but not limited to overcrowding, homelessness and lack of sanitation).
1961: The Bukit Ho Soi fire breaks out, prompting HDB to move quickly to build low-cost flats. As mentioned in our article “A History of Growth in Singapore’s Real Estate Market” – the Bukit Ho Soi fire was now a major fire in the Tiong Bahru housing estate that left around 2,833 families homeless.
1968: Singaporeans were allowed to participate in the public housing market as HDB flats became more affordable, and were allowed to be purchased by one’s Central Provident Fund (CPF), a social security savings scheme that Funded by individuals and their employers.
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1970s: In this decade, a third of Singaporeans lived in HDB flats. This meant that successful public market laws and regulations were an important part of real estate regulation 10 years after independence.
HDB blocks along Bukit Ho Soi in the early 1960s. These flats mostly consisted of cheap one-room flats.
1971: The public housing resale market was allowed to operate, but resellers were required to complete a minimum occupancy period (MOP) of 5 years before selling their HDB units.
1996: The first loan-to-value (LTV) limits are introduced. While not a cooling measure, these regulations were originally put in place to ensure good banking practices in the property market.
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2005: LTV limits will increase from 80% to 90%. Giving banks more room to assess risk, therefore at their discretion, offers buyers a wider range of financing options when purchasing real estate.
2010: In February 2010, the government introduced a vendor stamp duty. The purpose of these regulations is to reduce the heat through short-term speculation in the property market in Singapore.
2011: Additional Buyers Stamp Duty (ABSD) will be introduced on 8 December 2011 as an additional cooling measure to manage the growing demand in the property market.
Initially, Singapore citizens will only pay 3% in ABSD on their third property. In comparison, permanent residents (PRs) were required to pay 3 per cent of their ABSD on their second property, and foreigners and agencies were entitled to pay only 10 per cent ABSD on each property. Feeling tired yet?
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2021: The third round of cooling measures will be introduced to the property market, as ABSD prices will rise by 5 to 10% across the board. LTV limits will be reduced from 90 to 85% for HDB loans and 75% for bank loans.
2023: Another round of cooling measures sees ABSD rates increase by 3 to 5% for Singaporeans and PRs buying their second and subsequent residential properties. ABSD rates for foreigners buying any residential property double 60%, and 65% for agencies and trusts.
Let’s be clear. Singapore is surprisingly small. And we mean incredibly small. We are, after all, a little red dot on the little red dot printers we use to indicate our location on the world map. So when we say that land is scarce in Singapore, it would be an understatement.
As such, building the Singapore real estate market in a place of stability is an ongoing challenge. To do this, most of Singapore’s real estate regulations are proactive rather than reactive.
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Due to such regulations, the impact of possible issues including but not limited to property valuation and profitability.
Not only does the government maintain a good standard of living for its residents (9 out of 10 resident households are owner-occupied in 2020), but it has also maintained the reputation of Singapore’s real estate market as a stable growth location for foreign investment. as
Let’s examine two regulations made by the Singapore government and their impact on the country’s real estate market: ABSD and LTV limits.
As mentioned earlier, ABSD was first introduced in 2011 as a cooling measure to manage possible warming during the rapid recovery from the 2009 global financial crisis. Similar measures were implemented in 2018, and more recently, in 2021 for the same purposes – managing a market that risks turning complacent.
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Yet when we look at ABSD rates themselves, we see that these rates are not flat. They differ in terms of a) housing situation and b) number of houses purchased. Why might that be?
Foreign investment is pouring into Singapore and no doubt the real estate market has shared a part of this booming end. However, learning from past mistakes during the 2007-2008 financial crisis, the risks of property speculation are very clear to a small market like Singapore.
This unique measure of cooling insulates the Singapore property market from international competition and/or demand (prevents global speculation), keeping our property price index at a constant level. It can also be seen as a conservation effort, helping Singapore build capital in the form of physical real estate.
As we examine the impact of ABSD on its introduction in 2011 and its first review in 2018, consider two phrases: ‘economic fundamentals’, and ‘financial prudence’. In other words, a) is growth, especially in the Singapore real estate market, sustainable, and b) are home buyers taking the risk they are prepared to stomach.
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A faster recovery from the global financial crisis means more potential home buyers: in fact, Singapore’s residential property price index rose 38.2% between Q2 2009 and Q2 2010.
Let’s look at the non-land sales market, for example. Take the Singapore Real Estate Exchange Property Index (SPI) for reference, which is displayed on a single line.
Did the market freeze when ABSD was introduced in 2011? This for some time – specifically, between December 2011 and January 2012. However, in March 2012, the price picked up speed again.
After the review in 2013, the ABSD’s desired cooling of the Singapore real estate market began in earnest. From 2009 to 2013, the SPI experienced an upward trend. However, after January 2013, the SPI went sideways, even experiencing a gradual correction (from around 180 to 160) that lasted until Q3 2016 – nothing dangerous enough to scare off investors. .
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We fully understand that no adjustment period lasts forever. From September 2016 to July 2018, the SPI experienced its next high-speed period, rising from 164.4 points to 190.9.
While not as dire as the 2009-2010 period, the government was wise to introduce a third round of ABSD cooling measures.
Our theory? It wouldn’t because the third stage of ABSD “wasn’t painful enough”. Perhaps the market was not right then because the government was more proactive in ending a potential warming issue before it started. Such performance will be evident as SPI growth from the 2018 to 2020 period has been slow and manageable.
If the government had not regulated the Singapore real estate market so much in 2018, we would have been in a situation where more drastic measures would have been implemented to cool the market. The truth is that buyers should expect regular cooling measures, because it is in the interest of all governments to never allow a property bubble like the United States witnessed in the 2007-2008 financial crisis.
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1) That ABSD lowers property prices to better represent the economic fundamentals of the real estate market, particularly with reference to the 2013 and 2018 periods;
2) Of course, we may reasonably conclude that no amount of cooling is perfect. However, as shown between the periods of 2011, 2013 and 2018, the Singapore government has become more active in managing the real estate market.
And when we talk about regulations, we’re not just talking about real estate regulations. Financial governance regulations have also played a role in keeping our real estate market strong and healthy.
As a review, LTV limits are maximum limits placed on the LTV ratio of mortgage loans. For example, if the LTV limit for a mortgage is 40%, you are expected to pay 60% upfront.