ANALYSIS: Why Singapore’s property cycles are less volatile compared to other major cities

By Elizabeth Choong

/ EdgeProp Singapore |

July 5, 2023 3:27 PM SGT

Cooling measures and regulations introduced over the years has kept prices for the Singapore residential property market relatively stable. (Picture: Samuel Isacc Chua/EdgeProp Singapore)

SINGAPORE (EDGEPROP) – Based on EdgeProp’s research, Singapore's private property market stands out for its stability and lower volatility when compared to other major cities such as Hong Kong, New York, Sydney, and London.

For this study, we analysed the absolute annual price difference (the magnitude of change in property price indices, regardless whether it is positive or negative) for these key markets over the last 20 years. We separated these into two different decades, 2003 to 2012 and 2013 to 2022.

From 2013 to 2022, Singapore consistently demonstrates the lowest average annual price difference on an absolute basis (i.e. the annual changes in Singapore’s average property prices are lower over the last decade compared to other cities). This highlights the market's stability and reliability, where property prices have exhibited a relatively limited degree of fluctuation over the years.

In contrast, Hong Kong emerges as the most volatile market among the cities examined. With an annual price difference exceeding 8%, positive or negative, Hong Kong experienced significant fluctuations in property prices on a year-to-year basis. This is particularly true if compared to the previous decade, where HK’s property market changed 14.4% on average, on an annual basis.

The trend is even more obvious if the changes are plotted on a graph (see Chart 1 below). The annual volatility seen in other markets such as Hong Kong and London are not obvious in Singapore. The run-up to each peak in Singapore tends to take place over several years, resulting in a gradual price difference for each year. In contrast, the changes in residential property prices for the other cities tend to happen over a shorter period, which results in greater volatility. The only exception is New York, where residential prices were increasing at a stable pace until 2020 when prices started to increase sharply.

Cooling measures played a key role in preventing boom/bust cycles in Singapore but are seen in other markets

Active intervention through the implementation of cooling measures plays a pivotal role in contributing to the decreased volatility observed in Singapore's property market. The introduction of the first cooling measure in 2009 (refer to Table 3 below) marked the initiation of a series of subsequent measures and policies implemented over the following decade. By examining the peaks and troughs of Singapore's property market before and after the implementation of these cooling measures, notable distinctions emerge, thus underscoring the measure’s significant impact on market dynamics.

For example, the average price during the peak in 2013 was 71.6% higher than the average price of $750 psf during the trough in 2008. The difference is much higher than the difference of 14.7% when comparing the previous trough and peak in 2014 and 2019, respectively.

As seen in Table 1 above, the period before the cooling measure (2003 to 2012) was more volatile compared to the decade after.

The history of cooling measures in Singapore

To recap, Table 3 summarises the measures affecting private properties over the years in reverse chronological order.

Table 3: Summary of major cooling measures that impact condos (2009 to 2023)
Date	Measure
Apr 2023	Increase ABSD for the following: -Singaporeans: second property (from 17% to 20%) and third or more properties (from 25% to 30%). -PRs: second property (from 25% to 30%) and third or more properties (from 30% to 35%). -Foreigners: any properties (from 30% to 60%) -Entities: any properties (from 35% to 65%)
Feb 2023	Increased BSD for higher value properties -Properties of $1.5 to $3 million = 5% -Properties above $3 million = 6%
Sep 2022	Increase medium-term interest rate when calculating TDSR for loan eligibility from financial institutions from 3.5% to 4%. A wait period of 15 months for private property owners before they can buy a non-subsidised HDB flat. Exception made for seniors, aged 55 years and above, who purchase a four-room or smaller HDB flat.
Dec 2021	Increase ABSD for the following: -Singaporeans: second property (from 12% to 17%) and third or more properties (from 15% to 25%). -PRs: second property (from 15% to 25%) and third or more properties (from 15% to 30%). -Foreigners: any properties (from 20% to 30%) -Entities: any properties (from 25% to 35%) -Developers: 35% remittable ABSD. Non-remittable portion of ABSD for developers to remain at 5%. Reduce TDSR from 60% to 55%.
Jul 2018	Increase ABSD for the following: -Singaporeans: second property (from 7% to 12%) and third or more properties (from 12% to 15%). -PRs: second or more properties (from 10% to 15%) -Foreigners: any properties (from 15% to 20%) -Entities: any properties (from 15% to 25%) -Developers: additional 5% non-remittable ABSD on top of the 25% imposed on all entities. LTV tightened by 5% for all housing loans granted by financial institutions.
Mar 2017	Reduce holding period for SSD from four to three years. -12% for first year -8% for second year -4% for third year
Dec 2013	Cancellation fees for executive condos reduced from 20% to 5%. Resale levy for second-time applicants for executive condos. MSR to be applied to executive condo buyers.
Jun 2013	Introduction of TDSR which is capped at 60%.
Jan 2013	Increase ABSD. -Singaporeans: 7% for second property and 10% for third or more properties. -PRs: 5% for first property and 10% for second or more properties. -Foreigners: 15% from first property. Lower LTV to 50% for second mortgage loan and 40% for third or more mortgage loan.
Oct 2012	Mortgage tenures capped at 35 years. Tighter LTV for loans with tenures of more than 30 years. -LTV of 60% for first mortgage loan. -LTV of 40% for second and subsequent mortgage loans.
Dec 2011	ABSD introduced. -Singaporeans buying third or more property: 3% -PRs buying second or more property: 3% -Foreigners: 10%
Jan 2011	SSD holding period increased from three years to four years. SSD rates increased to 16% for 1st year, 12% for 2nd year, 8% for 3rd year and 4% for 4th year. LTV lowered from 70% to 60% for second properties. LTV capped at 50% if buyer is not an individual or a household.
Aug 2010	Increased holding period for SSD from one year to three years. Increased minimum cash payment from 5% to 10% for buyers with at least one outstanding housing loan. LTV lowered from 80% to 70% for second properties.
Feb 2010	SSD for residential property and land sold within one year of purchase. Lowered LTV lowered from 90% to 80% on all housing loans except HDB loans.
Sep 2009	No deferment of instalments until TOP. No interest-only housing loans (interest payment only until TOP) .
Source: IRAS, MND, MAS, URA and HDB

BSD and ABSD moderates price growth

BSD and ABSD are stamp duties imposed on buyers of residential properties, which add to the cost of purchasing a residential property in Singapore. The government has been adjusting the rate of ABSD upwards, which increases the cost of purchasing residential properties and, as a result, moderates demand.

The most recent round of cooling measures was announced in April, which saw the ABSD rate for foreign buyers increased to an unprecedented 60%. Singaporeans buying their first property do not have to pay any ABSD, while permanent residents (PRs) continue to pay ABSD of 5%. The rate was increased for Singaporeans and PRs buying their second or more properties.

SSD introduced to hinder speculation

SSD was first imposed in 2010 to curb the surge in speculative buying and selling. Sub-sales of condos reached a high of 4,854 units in 2007 but declined to 3,317 units in 2010. Since then, sub-sale volume has remained consistently below 3,000 units. In 2022, only 695 condo units were sold via sub-sale. The government is keen to clamp down on speculation because such sales tend to drive up prices to unsustainable levels, which could lead to price bubbles.

TDSR and LTV ratio encourage financial prudency

TDSR and LTV put a cap on the amount of loan that is available to homebuyers, and hence place an upper limit to their housing budget. The government has also progressively decreased LTV for buyers, especially those with two or more housing loans. These measures help prevent buyers from overstretching themselves financially.

The most recent adjustment to TDSR was in September 2022 when the medium-term interest rate that is used to calculate TDSR for loan eligibility from financial institutions was increased from 3.5% to 4%. This followed a measure introduced in December 2021 that decreased TDSR from 60% to 55%.

HDB and CPF: Making housing affordable for the masses

Singapore has one of the highest home ownership rates in the world (see Chart 3), largely thanks to our excellent public housing program. Homebuyers in Singapore can utilize their Central Provident Fund (CPF) to make their downpayment and monthly mortgage payments, which makes home ownership more affordable for the masses. This could explain the high home ownership rate of 89.3% in Singapore. In contrast, the home ownership rates for Sydney and Hong Kong are 62.1% and 51.2%, respectively. High home ownership, via HDB and the utilisation of CPF, helps buffer the volatility experienced in the private property market.

According to HDB's annual report for FY2021/22, 74% of the population in Singapore live in and own their HDB flat. As HDB controls the number of Build-to-Order (BTO) flats made available for application, this means that HDB has control over the supply of new flats for the majority of the population. Additionally, prices for BTO flats are determined by HDB.

The government also exercises some control over the resale prices of HDB flats through various cooling measures and regulations related to eligibility for purchasing a HDB flat.

Stable price trend for HDB flats

The various cooling measures and HDB's comprehensive control over the supply and prices of BTO flats have resulted in stable resale prices for HDB flats. In the last 20 years, HDB resale prices reached a peak of $469 psf in 2013 before declining to $441 psf in 2014. Since then, HDB resale prices have remained relatively stable until the appreciation in recent years.

In 2021, there was a significant surge of 13.2% y-o-y in the average price for resale HDB flats, driven by construction delays and limited supply of new flats. The average price for resale HDB flats surpassed the $500 psf mark last year and currently stands at $557 psf.

Why is less volatility good?

The housing sector and its related industries play a crucial role in the economy, and this is particularly true in Singapore. With an extremely high home ownership rate, housing serves as a significant component of the economy and is also considered a store of wealth for many individuals. Consequently, a boom and bust cycle in the housing market can have detrimental effects on the overall economy.

A prime example of the negative ramifications of a housing market crash is the 2007 US subprime financial crisis. The crisis was triggered by a significant run-up in housing prices fuelled by speculative practices and cheap credits, which eventually led to the collapse of the housing market. The far-reaching repercussions of this crisis continue to impact economies globally to this day.

By avoiding extreme fluctuations in housing prices, Singapore safeguards its economy from the detrimental effects associated with boom and bust cycles. A more controlled and balanced housing market environment contributes to sustained economic growth and mitigates the risks of financial crises. Singapore's emphasis on maintaining a less volatile housing cycle aligns with the country's high home ownership rates and the understanding of housing as a crucial pillar of the economy.

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