Table of Contents
Overview
The new policy on cooling measures really shaken the real estate community but not actually good for nothing, some good side it brings. Although our economy and property market industry lines not vividly defined, rooms for worry and doubts can’t be prevented. Property market investors not so enthusiastic in our economy these recent days. Here are some of the external factors which somehow contributes to shaping the property market.
Interest rates planned to increase significantly
For over the decade, rates in the mortgage were low per record in Singapore. Even at present, you can hardly expect to pick a home loan as low as 2% or below per year or even lower. This is less costly over HDB Concessionary Loans, which marks at 2.6%.
However, in a situation where interest rates at this level is not a normal case. Low rates took place due to Global Financial Crisis way back in 2008. The crisis opted the Federal Reserve of US to pull down interest rates to the lowest level which is zero to aid speedy economic recovery. This gave a domino effect, interest rates plunge in Singapore yielding to unusual cheap home loans.
Nevertheless, the low-interest period comes to an end. The unemployment rate dived to as low as 3.9% in the US, so far the lowest ever since 2000. Though wage hike sluggish in United States, still a common view that the United States economy has managed to recover despite an uneven one.
Although Jerome Powell, the Fed’s chief is increasing the interest rates once more, having rate hike on June 13, 2018, in an interest rate of 0.25% from March 2018) to 2%. Expect two more hikes of similar intensity this 2018.
The mortgage rates of Singapore rise in sync with the Fed as it increases its rate hikes. This was the major reason why the government reduced the maximum LTV or Loan To Value limit down to 5% as early as July 2018, decreasing the number of real estate buyers can loan for the property that they wish to acquire. Honestly, the authority or government starts to respond to increasing rates way back 2014 via that TDSR or Total Debt Servicing Ratio. Thus the latest tweak is not something new, an action which is just a part of the governments’ program in preventing over – leveraging.
One point to stress: The fear of increasing interest rates resulted in setting aside home loans over Singaporean Interbank Offered Rate or SIBOR. While these rates progress, perhaps it will be more gradual compared to SIBOR rates. It’s a kind of transformation, 2013 heyday in the real estate market, during when loan packages of SIBOR were well regulated and a norm.
An assertive push of Chinese developers may disturb the property market, no choice but government’s intervention.
China’s tycoons on property markets were aggressive during GLS or Government Land Sales. Last previous May 2018, Cushman & Wakefield revealed real estated developers were paying as high as 29% or even more for the land area in contrast to the past five years. These alike developers initiated the en bloc fad that temporarily captured the country for over a year and a half and in which at present it mellowed down.
Chinese developers have been aggressive during Government Land Sales (GLS). By May last year, Cushman & Wakefield reported that developers were paying 29% more for land compared to five years ago. These same developers were the catalyst for the en-bloc fever that momentarily gripped the country in the past year and a half, but now seems finally cooled.
It looks like Chinese developers fancied Singaporean a lot! What could be the reason? Well, their pushy bids were due to the existing situation of China, where their own developers are trying to flee caused like the Yuan depreciation and the rising tapped out over the domestic property market.
Around 2018 of February, the government of Singapore was starting to create noise. Development fees for residential properties specifically the non-landed were pulled as high as 22.8% on an average, so far the highest increase of rates since 2007. However, authorities didn’t directly say that their targets were the developers but subtext indirectly manifested it.
The bulk of cash influx during en-bloc fever was vividly destroying the local real estate industry synonymous to Monopoly’s unhinged game. Sky high bids of the developers yield an increasing property market across the board, as such pricing out to the first time purchasers and allowing bubbles that will pave the way in destroying crash that will target the man-on-the-street and hit him the hardest.
So, the latest blow of cooling measures, Singaporean authority came up with a plan to offer developers the so-called “crushing blow”, a 30%
ABDS or Additional Buyer’s Stamp Duty payable, where 5% is non -excusable. You can oppose that such move came late because en-bloc fever begun to cool long before the birth of recent cooling measures, and it’s quite easy to witness what inspires the latest ABSD less profitable for developers.
The intensifying trade war between US and China
China and US implemented tariffs with each other, and we can witness how the trade war develop as none of the two plans to back down. Specifically, United States President Donald Trump was elected under his protectionist attitude, which simply implies that it is impossible for him to stop war on trade without going against his promises.
Heng Swee Keat, the Finance Minister of Singapore has warned the public that war on trade never bodes well in terms of the global financial market. Singapore is indeed an active driven economy, so impossible not to be involved in such scenario when they took place.
Thus, government’s cooling policies are one process in curbing over -leveraging and property speculations to be ready for difficult future. More or less, we won’t be able to witness the easing of such remedies or measures in spite of the complaints from giant investors and credible developers.
Being in the unsure period it opted the foreign businessman find for the safest options. It’s possible that they will treat Singapore property perhaps a safe venue to put their money, hence the rise of ABSD outside the local community. By slowing investors from the international community who are interested to buy, the Singaporean government is controlling these group from pricing Singaporeans out of the market.
