Singapore Market

Singapore’s housing market is skewed towards the public sector. In 1995, 86 per cent of the 3.6 million populations in Singapore resided in public housing (see Yearbook of Statistics Singapore, 1995). Of the 700,060 units of public housing, 90 per cent were owner-occupied units while the other 10 per cent of the public housing stock comprised rental units. Owner-occupied public housing, an anomaly in most other countries, is housing built by the Housing and Development Board (HDB) and sold on

99-year leases to eligible households who are subject to resale and other regulations imposed by the housing authority. Designated town councils chaired by members of parliament take care of general estate maintenance for a monthly fee.

The home-ownership rate in Singapore is therefore in the region of 90 per cent - one of the highest rates in the world. Besides HDB policy, this high rate is also attributed to Singapore’ s unique housing finance arrangement known as the Central Provident Fund (CPF) (see Asher, 1991, 1996). The fund is essentially a fully funded, pay-as-you-go social security scheme, which requires mandatory contributions by both employers and employees of a certain percentage of the employees’ monthly contractual wage to his/

her account in the fund. The contribution rates peaked at 25 per cent of wages for both employers and employees from 1984-1986. Contribution rates are currently 20 per cent of wages for both employees and employers. The scheme covers about two-thirds of the work force and CPF balances at the end of 1995 were S$66 ban or 56 per cent of GDP.

CPF contributions are exempt from income tax and balances earn interest, which are also tax-deductible. The interest rate is based on the average of 1-year fixed deposit and month-end savings rates of the `Big Four’ Singapore banks, subject to a minimum rate of 2.5 per cent.

These substantial forced savings may be withdrawn at age 55 or earlier for various approved purposes. Between 1968 and 1981, they could only be withdrawn for purposes of down payment, stamp duties, mortgage and interest payments incurred for the purchase of public-sector-built housing. In 1981, the scheme was extended to allow for withdrawals for mortgage payments for the purchase of private housing. During the past decade, rules governing the use of CPF savings have been gradually liberalized to allow for withdrawals for medical and education expenses, insurance and investments in various financial assets (Phang, 1992, pp. 74-83).

Public housing rents and prices of new units are subsidized by the government.

While a brand new 5-room, HDB flat cost between S$160,000 and S$260,000 (depending on location) in 1995, a comparable resale HDB at would cost double the amount. Subsidies to the HDB are in the form of loans (at below market rates of interest) and grants financed from the government’s budget, and more importantly, land made available to the HDB at prices below market value. About four-fifths of the land in Singapore belongs to the state.

Public housing supply is allocated based on “first-come- first-served” waiting lists as well as various eligibility conditions. About 140,000 households are presently on the waiting list for new HDB flats and the waiting time is about 5 years. An applicant who satisfies the eligibility conditions is entitled to apply to the HDB to purchase a flat twice.

Half the households on the present waiting list are second-time applicants. Eligibility conditions (which have been relaxed over time as the housing programme expanded) include citizenship status, non-ownership of other residential properties, minimum household size of two, and having household incomes below the ceiling set by the HDB.

The present monthly income ceilings are S$800 for rental flats (mainly 1- to 3-room units), S$1200 for 3-room flats, S$8000 for 4- and 5-room flats, S$10.000 for executive condominiums, and S$12.000 for multi-tier families.

An authorized resale market for HDB flats has existed since 1971 and is subject to the regulations laid down by the HDB. The seller must satisfy a minimum occupancy period of 5 years if the flat was purchased at a subsidized price from the HDB. The minimum occupancy period is 30 months if the flat had been purchased in the resale market. A resale unit differs from a new unit in that the buyer does not have to be on a waiting list for new units to be completed. In contrast to the chronic disequilibrium evident in the market for new flats, prices in the resale market are determined largely by

market forces but are also influenced by prices for new HDB flats and HDB credit and valuation policies for resale flats.

The housing market was dull after the Dot-Com bubble burst in late 2000 and the outbreak of Severe Acute Respiratory Syndrome (SARS) in 2003. A strong recovery from the market downturn was necessary to Singapore’s economy. As housing asset is the largest component of household wealth, a prolonged decline can cause financial hardship especially to the elderly whose retirement savings are largely in terms of housing assets (Ronald, 2010). As such, the government introduced several measures to boost the market. First, foreigners were allowed to buy land parcels and complete homes at Sentosa Cove since August 2004. The favorable policy caused a surge of foreign liquidity into the private residential market. The percentage of foreign buyers rose from 6% to 10% within two quarters and the presale segment increased from 6% to 17%. In mid-2005, the government removed the restriction on foreigners owning apartments below six stories, raised the loan-to-value limit and reduced the cash down payment. An upward trend in housing price appreciation was observed until end 2007.

Between 2005 and 2007, foreign buyers accounted for 10% and 15% sales in the entire private residential market and the presale segment, respectively. In contrast, between 2000 and 2004 total sales made to foreigners were only 6%. The rise in foreign buyers was in tandem with the recovery of Singapore’s housing market, as evidenced by the rebound in housing prices in 2004 led by an influx of foreign liquidity into the high-end private-housing market, which then aided the general recovery of the market (Deng et al., 2012).

Even after the Global Financial Crisis, foreign investment still played an important role in supporting or raising Singapore’s private-housing prices. For instance, in the

recent recovery from the last downturn, significant appreciation of housing prices and upsurge of foreigners’ buying activity were observed.

The foreign liquidity into Singapore’s property market is sensitive to government policy shifts. Although changes in regulations had been successful in attracting foreigners to buy properties in Singapore, as continual hikes in housing prices could cause issues in housing affordability, the government introduced the Additional Buyer’s Stamp Duty (ABSD) in December 2011, targeting foreigners and non-individuals. With ABSD costing 10% of property value, foreigners became inactive and prices in the central region dropped. In 2012 Q1, home prices had fallen for the first time in almost three years.