WORLD PROPERTY CHANNEL ®

Singapore skyline

China, Hong Kong and now Singapore - three of the hottest real estate markets in Asia striving to prevent a price bubble from bursting.

The Singapore government has introduced new curbs against housing market speculation in the city state after prices surged to record highs, stoking fears of a bubble, The Wall Street Journal reports.

This is the third time in the last 12 months the government has tried to cool the market.

Their newest moves include:

• Increasing the holding period for the imposition of the sellers' stamp duty introduced earlier this year to three years from one year.

• Property buyers with outstanding loans on one or more properties must pay a bigger portion in cash--at least 10% of the value, up from 5%.--and borrow only up to 70% for the purchase, down from 80%.

• The government will increase supply in the public housing sector with plans to offer up to 22,000 new flats and release more sites for tender next year if demand remains strong

The current moves took investors by surprise, the WSJ reports. Many had expected an end to property cooling measures after some moderation in house price increases in the second quarter.

Mah Bow Tan

"If the current momentum in the market continues, what will likely happen is a bubble will form," Singapore's National Development Minister Mah Bow Tan told a news conference.

"When the bubble bursts, not if (it bursts), there will be severe implications for individuals as well as for the economy as a whole."

Mah said the government is "very reluctant" to impose a capital gains tax--a tax on profits made from selling private property--as it did just prior to Singapore's 1996 housing market crash.

The new measures take effect immediately and the government said it will take further action if required.

According to The Wall Street Journal, the Singapore government earlier this year introduced a sellers' stamp duty, raised the minimum down payment required for home financing and ramped up its scheduled release of land for the second half of the year to cool the housing market. But property prices continued to climb despite those steps.

"While the rate of price increase of private residential properties has moderated in the last three quarters, prices have still increased significantly by 11% in the first half of 2010, and price levels have now exceeded the historical peak in the second quarter of 1996," the government said.

The government says it expects Singapore's economic growth to moderate in the second half of the year and that uncertainties hang over the global economy. Singapore's economy grew a blistering 24.0% in the second quarter from the first quarter and 18.8% from a year earlier.

Barclays Capital economist Wai Ho Leong said new possible measures that could be introduced include a further reduction in loan-to-value ratios, further increases in stamp duty rates and more stringent exam requirements for property agents to acquire their licenses--some fear the sheer number of agents could contribute to speculative activity, the WSJ reports.

"Similar to past tightening measures, this could result in buyers taking a wait-and-see approach which would be negative for sentiment and moderate transaction volumes in the near term," Deutsche Bank said.

Lee Hsien Loong

In June of this year Lee Hsien Loong, Singapore's prime minister, noted, "We took steps last year and earlier this year to cool the private property market but prices are still going up."

He said Singapore will limit its number of foreign workers to a third of the working population. About 80,000 foreign workers will be added in 2010, lower than the 100,000 estimated earlier.

"We have moved fast over the past five years," Lee said. "But now I think we should consolidate, slow down the pace. We can't continue like this, increasing the population by 100,000, 150,000 a year indefinitely."

The move is controversial in Singapore where foreign workers have long had a major role but where rising prices and wage pressure are beginning to fuel discontent in the tightly controlled city-state, according to the WSJ.

 

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