A Look At Singapore Property Market From An Economic Perspective
Take a quick look at the property market in the recent history of Hong Kong and China and you will find that both the previous British colonial government and the central government of China have failed to effectively curb the rising property prices. The potential risk of an inevitable burst of property bubble will affect the lives of many, and hinder the economic growth of the country. Compared to Hong Kong and China, Singapore has been very successful in stopping the property from ballooning. Below is a study of Singapore government’s success in curbing the property price.
Students have learned in economics tuition that the price of a good is determined by its demand and supply. Same as other goods, the price of property is also determined by its demand and supply. Singapore government’s success can be attributed to its measures to control both the demand and supply, as well as to restrict the speculative activities in the market.
Measures To Control Demand
Additional Buyer’s Stamp Duty
Additional Buyer’s Stamp Duty (ABSD) was first introduced in December 2011 and later revised up in January 2013. On top of the existing BSD, Buyer’s Stamp Duty, which imposes 1% on the first S$18000, 2% on the next S$18000 and 3% on the remaining amount, ABSD charges an additional 7% on the total property price from Singaporean buyers for their second property and 10% for the third and subsequent properties. For Permanent Residents in Singapore and foreigners, the rates are even higher at 10% and 15% respectively. The introduction of ABSD has contributed to a significant jump in buyer’s cost. This will result in a decrease in demand for the property. You may consult your economics tutor in your economics tuition class.
Total Debt Servicing Ratio
Total Debt Servicing Ratio (TDSR) has been implemented since June 2013 to set limits on the amount that a buyer can borrow. Their monthly loan repayment must not exceed 60% of their monthly income. Students have learned in economics tuition about the various factors impacting demand. Among them is the available credit. Through TDSR, the government tightens the control of available credit of buyers and hence their demand.
Loan to Value
Loan to Value (LTV) is the size of loan over the value of the property. LTV needs to be viewed together with TDSR. It also depends on the buyer’s age, whether it is their first, second or subsequent property and the loan tenure. The effect of LTV is similar to that of TDSR, where the government controls the demand through the available credit of buyers.
Measures To Control Supply
In 2011, the government introduced a penalty on property developers with foreign ownership. They are charged a hefty 8% for unsold units 2 years after the development has obtained its TOP. The penalty doubles to 16% with the first year of extension, and triples to 24% with the second year of extension. This measure is aimed at property developers to prevent them from landbanking, that is to deliberately hold on to the property to push up the price. Instead, they are forced to sell all units within 2 years of TOP to avoid the high penalty. As students are taught in economics tuition, property price is reined in through the control of supply. For more detailed explanation on this, please approach your economics tutor.
Measures To Prevent Speculative Activities
SSD, Seller’s Stamp Duty, applies to property owners who sell their properties within the specified holding period. For properties bought on or after 11 March 2017, the specified holding period is 3 years and for those before, it is 4 years. Property owners who do not fulfil the specified holding period attract to tiered rates of SSD based on the number of years they have held onto the property. The longer period of time, the lower the rate. It is evident that the purpose of SSD to prevent speculative activities in the property market. You may want to discuss with your economics tutor in your economics tuition class the positive correlation between speculative activities and the price level.
As students are taught by their economics tuition teachers, it is useful to cite a few examples in Singapore’s context when answering the essay questions. The above is an interesting example. For more such analysis, please approach your economics tutor for assistance.
Linda Geng
Economics Tuition Singapore @ Economics Cafe
Principal Economics Tutor: Mr. Edmund Quek