Singapore has been experiencing a surge in property prices in recent years, with the average price of private homes rising by 1.9% in 2020, despite the COVID-19 pandemic. This trend has raised concerns among both residents and policymakers, with questions about its sustainability and affordability. In this article, we explore the reasons behind the drastic increase in Singapore property prices and what it means for the property market and economy.
Low Interest Rates and Monetary Policies
One of the primary reasons behind the rising property prices in Singapore is the low-interest-rate environment. The low-interest-rate regime has been fueled by the accommodative monetary policies of the central banks around the world, including the Monetary Authority of Singapore (MAS).
With low-interest rates, the cost of borrowing becomes cheaper, making it easier for homebuyers to afford larger mortgages. This has led to an increase in demand for properties, driving up prices. Low-interest rates also make property investments more attractive, leading to higher demand from investors.
Singapore’s property market has been attractive to foreign investors, with the country’s stable political and economic climate, strong rule of law, and efficient infrastructure. The government’s pro-business policies and generous tax incentives for foreigners have also made it easier for them to invest in Singapore’s property market.
Foreign investors, particularly from China, have been active in the Singapore property market in recent years. This has driven up demand for high-end properties and contributed to the rising property prices.
Another reason behind the rising property prices in Singapore is the limited supply of land and housing. Singapore is a small island state with limited land resources. The government’s land policies, such as the Urban Redevelopment Authority’s (URA) land sales program, aim to balance the demand and supply of land and housing.
However, the process of acquiring and developing land in Singapore can be complex and time-consuming. It can take years for developers to acquire land and complete the necessary regulatory processes before they can start building. This has led to a shortage of supply and contributed to the rising property prices.
The Singapore government has implemented various policies to control the rising property prices and ensure that the property market remains stable. These policies include the Additional Buyer’s Stamp Duty (ABSD), Seller’s Stamp Duty (SSD), and the Total Debt Servicing Ratio (TDSR).
The ABSD is a tax imposed on foreign buyers and Singaporeans buying their second or subsequent property. It ranges from 12% to 20% of the property’s purchase price, depending on the buyer’s citizenship and the number of properties they own.
The SSD is a tax imposed on property owners who sell their properties within a specified period after purchase. The tax ranges from 4% to 16% of the property’s sale price, depending on the holding period.
The TDSR is a regulation that limits the amount of debt that a borrower can take on, based on their income and other financial commitments. It ensures that borrowers are not overleveraged and can afford their mortgage repayments.
Impact on the Economy and Affordability
The rising property prices in Singapore have both positive and negative impacts on the economy and affordability. On the one hand, it reflects the strong demand for properties, which can stimulate economic growth and job creation in the construction and related industries. High property prices also contribute to wealth creation for property owners, which can drive consumer spending and investment.
On the other hand, the rising property prices can make housing less affordable for the average Singaporean, particularly the younger generations. The high cost of housing can also lead to social stratification and inequality, with the lower-income households struggling to afford decent housing.