During the middle of January, the Singapore Government put up another slew of property market cooling measures. I personally do not really like to dwell much into the property scene in Singapore, but when its the 4th time in 16 months, I thought that it would be wise to perhaps look into it.

But, some background information first. What exactly does this new cooling measures entail?
Holding period for imposition of Seller's Stamp Duty (SSD) increased from three to four years.

1. Holding period for imposition of Seller's Stamp Duty (SSD) increased from three to four years.
   
2. SSD rates raised to 16 per cent, 12 per cent, 8 per cent and 4 per cent for homes bought today and thereafter and which are sold in the first, second, third and fourth year, respectively.
   
3. Loan-To-Value (LTV) limit lowered to 50% on housing loans for property purchasers who are not individuals.
   
4. LTV limit lowered from 70 per cent to 60 per cent for individual property purchasers with one or more outstanding housing loans.

(Taken from Asia Singapore - New Singapore Property Market Cooling Measures, hope its ok.)

Basically, SSD is the duty that is payable if homes are sold within 3 to 4 years, and LTV is the percentage of the price of the house itself that can be loaned to the purchasers. The lower the percentage of LTV, it would mean that the purchaser would have to put more capital into the purchase.

Since the first round of property cooling measures, the aim of the government was obvious. They wished to avoid the issue of a property bubble [Yes, it already exists. Prices of new 5 room HDB flats rose by SG$158,700 from 2007 to 2010. That's a 50% increase.] exploding in Singapore. Especially after looking at lessons from the Japan in 1990, Shanghai in 2005 and US recently. The general method that was administered is to reduce the amount of bad loans that is given out by banks within the country. We must remember that a bubble only explodes when there is an onslaught of defaulted loans, leading to repossession of the houses, which are nothing but toxic assets to the banks when everyone are having their houses repossessed. This then leads to the prices of houses crashing down into the ground and subsequently someone in the white house going, "Shit."

Thus, the general method to stop an explosion is for the government to intervene to reduce the prices of real estate in the country. The fact is, if everyone could afford to pay for their loans, there would be a reduced number of defaults, and the confidence within the property market would still remain strong enough to ensure that these assets would not degrade to toxic assets.

The Singapore government has then decided to work more on the side of reducing demand rather than tackling the supply side, especially targeting the speculators and investors. This would logically decrease the price of housing within the country, hitting the goals of the government.

Then comes the part of walking on the tightrope above the Grand Canyon. Recall that the housing market in Singapore is an interesting one. The country provides a lot of Public Housing for the citizens. In fact, almost 85% of citizens in the country reside in flats from the Housing and Development Board (HDB). The government is committed to providing housing for everyone within the nation, and encourages ownership of their own flats if possible. We have to remember that whenever the government intervenes into the market, it would easily affect every party in the market indiscriminately despite actions being targeted at a specific group of people.

This is the challenge to the Singaporean Government today. How is it possible for them to cool the property market in the country, yet not affect the already arduous task for the needy or people who are authentically looking for flats to reside in?

We note that the SSD is a nice touch, for at least it allows for the curbing of 'flipping' within the country. That is, flats that are purchased then immediately sold for a profit. However, consider the possible problems. What if a flat was recently purchased, but has to be sold within the first year because of a need for money, say if a member of the family is hospitalized?

Also, the LTV might also lead to issues. For people that are interested in switching flats, say to stay closer to their grandparents and so. If they still had an existing loan, the increase in capital that is required for the purchase of the new flat might be too much for them to bear.

Of course, I'm not saying that these are bad initiatives. Instead, I'm questioning this point - Has there been a comprehensive net to catch all of such special cases to be dealt with swiftly? I should think that if such a net exist, it has not been publicized enough for relevant parties to look for help.

Coming back to the issue of a property bubble, perhaps the biggest question is: Will this measures finally work?

Personally, I do not think it is enough.

Remember that the main aim is to reduce the demand for real estate, mostly targeting investors and speculators. But like the past 3 cooling measures before it, why would this one be any different? Perhaps increasing the SSD would reduce profits from investing, but taking out the LTV surely would only affect a portion of the property investors in Singapore. The big boys, those with plenty of dough to spare would not even blink twice at it.

What I suggest that could be done is perhaps establishing a tax for individual purchasers to be paid whenever a property is sold. And let this tax be pegged against the annual income of the purchaser during the time when the property is sold. As such, there is clear differentiation between the rich, looking to invest their money, and the poor, who is looking to own their own house. Investors would then move out of the property market, into other fields of investment, and prices of real estate in Singapore would stabilize, much to the sighs of relief from the lower income groups and the government.

But is this really the end to the problems? Of course, an eye could be kept on all these interferences, and should be adjusted or removed accordingly, in case the market cools too much. What about the investments that is removed from the housing market then? An interesting article from Eng Yian here, elaborates more about problems on that side.

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After writing on the issue, one wonders if the Singapore government would have noticed this issue of the property bubble if not for the problems happening around the world. It is too easy to attribute the increase of real estate prices as an indicator of wealth rather than a disaster waiting to happen, isn't it?