Two major reasons behind move to rein in market 'euphoria'.
Analysts cited two major reasons for the Government imposing cooling measures on the private property market, a move that took many by surprise on Thursday night.
One is to curb the collective sale craze and the other is to stop buyers, developers and banks from overextending themselves.
They said the swiftness with which the authorities moved may have been driven by worry that they could lose control of the supply situation following the recent spate of collective sales.
In the first half of this year, there were 35 such transactions exceeding $10 billion, while for the whole of last year, there were 27 deals totalling $8.13 billion.
In addition, prices of private property have risen 9.1 per cent in the last four quarters.
Before that, prices had declined for 15 straight quarters, falling 11.6 per cent by the middle of last year.
To rein in the "euphoria" in the market, developers now have to pay a higher Additional Buyer's Stamp Duty (ABSD) of 25 per cent, up from 15 per cent, when they buy residential properties for housing development.
This tax is waived only if they meet several conditions, including completing and selling all their units within a prescribed period.
On top of the 25 per cent, they must pay an additional ABSD of 5 per cent, which will not be waived.
The two measures make the costs of acquiring new property in Singapore much higher than in many parts of the world, said Cushman & Wakefield senior director of research Christine Li.
Savills Singapore research and consultancy senior director Alan Cheong noted that from 2000 to last year, about 75 per cent to 80 per cent of new homes came from plots sold through the Government's land sales.
But for this year and next year, about 75 per cent of new homes are expected to be built on sites that had gone en bloc.
"Unlike land sales, a collective sale site is a function of yesterday's plot ratio, not future demographics," said Mr Cheong, adding that this could lead to an oversupply of homes.
The haste in introducing the new measures is also meant to ensure prudence and "nip things in the bud before the euphoria gets too entrenched and it becomes harder to fix it", said OCBC chief economist Selena Ling.
She added: "The Government might also be concerned that escalating prices for homes and land are undoing all the effects of the previous cooling measures in just one year, even before any of the measures have been eased."
As interest rates rise, the anxiety that more people will default on their loans has intensified too, and the situation could be exacerbated by global political and economic uncertainties.
For example, the three-month Sibor, or Singapore interbank offered rate, was 1.63 per cent yesterday, up from 0.92 per cent exactly a year ago, Ms Ling noted.
But critics of the latest measures worry that the intervention may choke off demand at a time when developers anticipate an appetite for their flats.
"Whether you like it or not, these developers have already planned for a certain number of units to be launched at a certain price this year. Depressing the demand will only ensure an oversupply," said executive director Nicholas Mak of property consultancy ZACD Group.
"As for the new ABSD - land is essential to any developer for their business, so this means the extra costs will be passed on to the consumer. How can you consider that a cooling measure?" he added.
Adapted from The Straits Times, 7 July 2018.