Will Singapore Property Cooling Measures Work?

The Government announced the following measures to maintain a stable and sustainable property
market:

1. Increase the holding period for imposition of Seller’s Stamp Duty (SSD) from the current 1
year to 3 years (the 1-year SSD was imposed only in February 2010).

In summary, properties bought before 20 February 2010 will not be subject to the SSD. Properties
acquired on or after 20 February 2010 and before 30 August 2010 will be subject to the one year
holding period for the purpose of SSD. The SSD will be applied at the standard ad valorem stamp
duty rates for the conveyance, assignment or transfer of property: 1% for the first $180,000 of the
consideration, 2% for the next $180,000, and 3% for the balance. Properties acquired on or after 30
August 2010 will be subject to the three years holding period for the purpose of SSD. The SSD rates
would be tiered according to the duration of the holding period – such that the seller pays the full
conveyance rate if the residential property is sold within one year of purchase; 2/3 the amount if the
sale is in the second year; 1/3 the amount if in the third year.

Presumably, most investors of a second private property will seek financing for their purchase. For
these buyers, the new measures will lower their future Return on Equity (assuming sale within three
years) as the benefits of cheap leverage from current low interest rates are significantly reduced.
Some have commented that the SSD resembles a capital gains tax.

For property buyers who already have one or more outstanding housing loans at the time of
the new housing purchase:

2. Increase the minimum cash payment from 5% to 10% of the valuation limit;

This means the amount of CPF monies plus housing loan that can be used for purchase of a property
will be reduced from 95% to 90%.

3. Decrease the Loan-to-Value (LTV) limit for housing loans granted by financial institutions
regulated by MAS to these buyers from the current 80% to 70%.

If you consider a $1m home, you have to pay $100k in cash and can borrow up to $700k of housing
loans. The remaining $200k will be from CPF/cash.

In addition, the HDB announced some additional actions that are aimed at increasing public
housing supply and dampening demand from those not in urgent need of housing.

The HDB announced measures to:

1. Increase the supply of new HDB flats, Design, Build and Sell Scheme (DBSS) flats, and
Executive Condominiums (EC);
2. Allow households earning between $8,000 and $10,000, to buy new DBSS flats with a
$30,000 CPF Housing Grant;
3. Shorten the completion time of Build-To-Order (BTO) flats;
4. Increase the Minimum Occupation Period (MOP) for non-subsidized HDB flats from 3 years
to 5 years; and
5. Disallow concurrent ownership of both HDB flats and private residential properties within
the MOP.

Previously, buyers who owned non-subsidized HDB flats could own private properties during the
minimum occupation period, as long as they lived in the HDB flats. This was also true vice versa.
Buyers of subsidized HDB flats, however, are now not allowed to own private residential properties
within the 5-year minimum occupation period. The change in ruling appears aimed at addressing the
disparity in the treatment of the two groups and provide more help for first-time home buyers of public
housing.

The HDB measure to lengthen the MOP and the concurrent ownership of private residential properties
during the period will likely restrict investment demand for HDB resale flats as well as in the upgrader,
mass-market segment.

The changes in HDB rules will also affect demand. A record 22k HDB flats will potentially be released
in 2011 to satisfy demand. For 2010, HDB plans to release 3k units of design-build-sell (DBSS) flats
and 4k executive condominiums for tender. Owners of non-subsidized HDB flats are also now barred
from buying private properties within the minimum occupation period. While the purpose is to ensure
HDB flats are purchased for owners’ stay, the latest measure appears to preclude buyers currently
living in resale HDB flats for less than five years from investing in private properties for rental yields
too. Based on URA estimates, around 40% of the buyers of new private units have HDB addresses.

Not Yet The Peak of Policy Risks

The Government has repeatedly warned that more measures would be introduced if the froth in
property prices does not abate. This set of measures is further demonstration of its willingness to take
steps to ensure a sustainable property market. CIMB Research writes “if prices and volumes continue
to climb, we believe other measures could include: 1) extending the 70% LTV limit to first-time buyers
with no outstanding loans; 2) a capital-gains tax; and 3) credit restrictions for foreign buyers.” Daiwa
Capital Markets Research believes that if “the market continues to remain buoyant (with price
increases of over 5% per quarter), we should expect even more severe measures”.

New Private Home Sales from 1996 to July 2010

From the above chart, we can see that sales for 2010 so far have already crossed the historical
average.

Prices rose 38% in the 12 months to June 2010 despite 2 rounds of measures
HDB re-sale prices rose 15% in the past 12 months

Key Takeaways from 6 Research Houses:

Credit Suisse:
This set of measures are primarily targeted at speculators at the mass market, especially HDB, and
disallow private home owners from buying HDB flats for speculation. We do not expect prices of the
mid to high end to be affected although transaction volumes could be soft in the near term and
speculation levels in the private markets have come off significantly from 2007 and 1995 levels, with
about 9% of total transactions.

Daiwa:
All in, this package looks to us like a mild warning from the Government to be careful. The
Government believes the market is ‘currently very buoyant’ and these measures are intended to
‘temper sentiments and encourage greater financial prudence’. If the market continues to remain
buoyant (with price increases of over 5% per quarter), we should expect even more severe measures.

JP Morgan:
Whilst the measures are incremental to the ones announced in February this year, the announcement
has caught the market by surprise, given that private residential transactions (volume is a leading
indicator of price) have already started falling off in the primary and secondary markets with the
monthly volume run rate in June and July 2010 less than half the levels recorded in the Feb - May
2010 period.

Macquarie:
We believe these new measures will ensure a more orderly property market. Our expectation of a 12–
15% rise in residential property prices in 2010 (given we already had +11.2% in 1H10) and 5% in
2011 remains unchanged.

CIMB:
The new measures would reduce liquidity for investors/speculators and potentially raise transaction
costs, undermining the attractiveness of properties as an investment asset.

Phillips Securities:
We believe the measures will taper off the sentiments of short-term property investors. We see
demand from genuine property buyers remain healthy due to stable economy outlook, but expect
wait-and-see approach from property buyers in the short term. As a result, sale volume of private
residential property is likely to drop, particularly in the mass and mid-market segments. Prices will
likely trend sideway for the rest of year 2010.
Speculator Standpoint

While this latest regulation seems to be a “mild warning” especially for HDB speculators, it is uncertain
if it can halt the bull run of the private property market for the following reasons:

1. Increase in foreign demand resulting from Singapore’s push into the international scene with the
Youth Olympic Games, Formula 1, Casinos and new tourist attractions. More and more foreigners are
bringing their children to study in Singapore; evident from the rise in foreign children in our public
school classrooms. We are also attracting foreign talent/workers across the economic value chain. All
these will increasingly spur the demand for private property on our sunny island.

2. HDB is clearly a disadvantaged asset segment (compared to private property) with a 5 year holding
period, slower capital appreciation, restriction on rental, and restriction on multiple property holdings.
This may cause investors, assuming they are still bullish on property, to shift their capital to the private
property segment in the near term. Fueling this trend will be genuine homebuyers who can afford
private property, and who choose to give up “starting out” with a subsidized HDB to enjoy the freedom
of private property from the onset.

__________________________________________________________________________________________

*Content Sources: Phillip Securities Research 31/8/10, J.P.Morgan Research 30/8/10, Daiwa Research 30/8/10,
Credit Suisse Research 30/8/10, Macquarie Equities Research 30/8/10 and CIMB Research 30/8/10.

APF Trading is a trading advisory firm offering clients Managed Forex Accounts and advice on multi-asset
trading strategies, signals, trading systems, execution services and trading platforms. The firm also conducts
research and technical analysis with a focus on Ichimoku Kinko Hyo and DeMark Indicators.