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Why the Housing Market is Now Better for Singaporean Home Buyers

Ryan Ong

Ryan Ong

Last updated 12 September, 2017

Signs point to an inflection point in the Singapore housing market, but how does this benefit home owners?

In general, people who buy property fall into two groups. The first are home owners, while the second are investors.

Home owners didn’t have an easy time during the property boom of 2009 to 2013 - prices skyrocketed, as affluent investors kept buying to speculate. However, that situation has now turned around.

HDB flat interior clean

Singapore’s Property Market is Reaching an Inflection Point

In the seven months leading up to 31 July this year, 10,565 new and resale private properties were sold. This was up from 6,785 in the same period last year - a 56 per cent increase. These are numbers we haven’t seen since the property peak of 2013.

In spite of this, property prices haven’t changed much. They are still down 12 per cent from the peak in 2013, and have been on a generally downward trend for the last 15 quarters.

This is a common sign of an inflection point. In other words, the number of sales are rising rapidly, but the price has yet to increase - this sort of situation normally corresponds to a rebound in property prices. It means that homes are now “priced right”, as many buyers are able and willing to accept the costs.

What’s most important, however, is that the current market favours true home owners - Singaporeans who are buying to house their family, not just to make money. Here’s why it’s in their favour:

  • The ABSD has effectively deterred speculators
  • There’s less competition from foreign buyers
  • QC and ABSD for developers are helping to hold down private property costs
  • Rising home loan rates have had less impact than previously believed

The ABSD Has Effectively Deterred Speculators

The Additional Buyers Stamp Duty (ABSD) imposes added taxes on property. However, they are mainly a deterrent to speculators and investors, with little impact on home buyers.

For Singapore citizens, the ABSD of seven per cent (of the property price) only applies to the second house, and rises to 10 per cent for the third and subsequent home. This is a rather hefty tax - a typical S$1.2 million condominium, if it’s the second purchase, would incur an added cost of S$84,000.

This has the effect of deterring investors, and leaving more properties available to home owners (and often at a lower price too, if the seller is eager to offload).

hdb flat interior

There’s Less Competition From Foreign Buyers

Singaporeans are driving the new sales, and the proportion of foreign buyers has fallen.

Malaysians comprised 26 per cent of foreign buyers, during the last peak in 2013; but they comprised just 21 per cent of foreign buyers in the first half of this year. The number of Indonesian buyers fell most significantly, from 17 per cent in 2013, to a mere six per cent. Only buyers from China and the United States maintained their interest.

This is also partly due to the ABSD (see above). There is an added tax of 15 per cent of the property price, for all foreigners.

At any rate, fewer foreign buyers also means fewer speculators. This is because most foreigners don’t buy a property to reside in, but rather to rent it out (and also to use as a store of wealth; they may be taxed in their home country if they keep too much cash).

QC and ABSD Are Holding Down Property Costs

The Qualifying Certificate (QC) gives foreign developers five years to complete a project, and two more years to sell all their units. Failure to do so means the developer pays a hefty tax, based on the purchase price of the land.

The Additional Buyers Stamp Duty (ABSD) for developers gives them five years to complete and sell out a project, or else they’re faced with a tax based on the land purchase price.

These moves might encourage large discounts, if a developer just has three or four units remaining, and would rather slash prices than end up paying the extra tax.

HDB estate skyline

Rising Home Loans Have Had Less Impact Than Believed

A major worry in 2016 was that the home loans rates would rise, hitting unsustainable levels. This especially worried home owners, who already derive no income from their property (most home owners don’t like to rent out their house, for obvious reasons).

However, banks such as OUB and DBS/POSB have responded, with packages like the Fixed Deposit Home Rate (FHR). The interest rates on these packages are pegged to the bank’s fixed deposit rate - they are not as volatile as Singapore Interbank Offered Rates (SIBOR), to which many loans were previously pegged.

In addition, we have already experienced two rate hikes - once in 2016, and once in 2017. Both proved to be gradual enough to sustain, and for many home owners the fear has faded.

Read This Next:

Why Do HDB Home Loans Have Higher Interest Rates Than Bank Loans?

6 Money Saving Tips Homeowners in Singapore Should Know

Ryan has been writing about finance for the last 10 years. He also has his fingers in a lot of other pies, having written for publications such as Men’s Health, Her World, Esquire, and Yahoo! Finance.


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