The real estate market is known for its volatility, with property prices often experiencing fluctuations that can impact both buyers and sellers. To address concerns about housing affordability and prevent speculative bubbles, governments often implement property cooling measures to curb demand and stabilise property prices.
Here, we explore the impact of property cooling measures on the property price index, focusing on Singapore’s market from 2018 to the present.
The provided graph displays cooling measures implemented in Singapore’s real estate market over the past few years.
How do property cooling measures affect the Singapore property market?
Examining the graph’s trendline, it is evident that cooling measures have a short-term impact on property prices. The initial implementation of such a measure often leads to either a decline or stabilisation in prices. This effect is attributed to the immediate market reaction, as potential buyers adjust their purchasing decisions in response to the newly imposed restrictions.
For instance, let’s consider July 2018 when Additional Buyer’s Stamp Duty (ABSD) rates were increased once more. Singaporeans were required to pay a higher ABSD rate of 12% for their second properties, which was a rise from the previous 7%. Additionally, the Loan to Value (LTV) limits were tightened, resulting in individuals being able to borrow only up to 75% of a house’s value in most cases. During this period, HDB prices began to decline, while prices of private properties remained stable until the end of 2018, experiencing a temporary dip before subsequently rising once more.
Long-term trends caused by property cooling measures
Despite the short-term impact, property prices tend to rebound and rise over time. Just take a look at 2021’s further increase in ABSD rates and how HDB prices were completely unfazed by this, continuing to climb. Similarly, despite initial indications of private property prices reaching a plateau, they experienced a sudden surge towards the end of 2021, despite the implementation of cooling measures. The trendline shows an upward trajectory in the price indexes of both HDB and private housing, which suggests that cooling measures alone are insufficient in curbing the overall upward movement of property prices in the long run.
Are cooling measures a good solution in the long term?
It is worth noting that shock cooling measures, though implemented with good intentions, may not be the most effective long-term solution to regulate housing prices. The graph above illustrates a consistent upward trend in property prices over time, after property cooling measures have been put in place by the government. As such, the efficacy of cooling measures continues to be a subject of contention, as they alone cannot fully halt the rise of property prices. Hence, it is essential for policymakers to embrace comprehensive strategies that tackle fundamental factors and foster sustainable market expansion, thereby guaranteeing enduring housing affordability for everyone.
Uncertain about the opportune moment to engage in buying or selling due to the impact of cooling measures?
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