Investor demand to fall further
For locals and PRs, investment demand will likely fall further as the ABSD has been increased across the board for all buyers of second and subsequent homes.
Although the ABSD for those buying through trusts have also increased substantially, the impact on the market may be insignificant as few deals are done through trust arrangement.
Why the cooling measures seem more punitive this time round
1. The global economy has been worsening, and there have been more layoffs by many MNCs worldwide. Singapore being an open economy, would be exposed to growing macroeconomic uncertainties. Unemployment rates may pick up if the economy deteriorates quickly, and mortgage defaults may increase. Therefore, locals should remain prudent in their investments and avoid being overly leveraged.
2. The cooling measures will probably dampen demand over the next six months. This may allow time for more homes to be completed and supply to catch up in the coming months. When there is better market equilibrium, prices are likely to stabilise. This will benefit first-timers and HDB upgraders buying their first private homes.
3. There could be more liquidity flowing from family offices as there have been some headline deals made by foreign buyers. Further, with the reopening of China’s borders, we expect more buying interest from Mainland Chinese. Therefore, these measures may be pre-emptive to slow down purchases from these buyers who may push property prices higher.
Drawbacks and positives
The drawback is that our competitiveness as an investment hub could be affected. Some foreign investors and super-rich may divert their wealth to other countries, especially since our currency is already very strong.
Moreover, the increase in ABSD will reduce investment demand. In the long run, the number of homes bought for rental income may reduce, further impacting the private rental market.
However, other asset classes may benefit as investors may divert their money to non-residential investments.
When volume is low and purchase sentiment declines, it may lead to lesser supply in the market, as sellers and developers may choose to withhold their sales and wait for a better opportunity to sell. Therefore, prices of homes may still not drop significantly as supply remains low in the market and sellers have holding power.