Private home purchases by all categories of buyers took a hit in the quarter following the introduction of the TDSR in late-June, but foreigners posted the smallest percentage drop of 39.1 per cent - compared with declines of 51 per cent for Singaporean buyers and 44 per cent for PRs. This was not unexpected, as the TDSR framework (under which financial institutions are required to take a borrower's total debt servicing obligations into account when granting property loans) was targeted at Singaporeans rather than at foreigners.
In contrast, the initial rollout of the additional buyer's stamp duty (ABSD) back in December 2011 had a much bigger impact on foreign buyers. Then, the number of caveats they lodged for the purchase of private homes tanked 73.5 per cent quarter-on-quarter, according to a caveats analysis by DTZ.
Conversely, Singaporeans, who had accelerated purchases of private residential properties in the respective quarter following both instalments of the ABSD (the second was in January this year), finally pulled the brakes in Q3 this year.
"Compared with well-heeled foreign buyers who could have access to alternative funding channels overseas, Singaporeans appear to have been affected more by the TDSR rules," said Lee Lay Keng, head of Singapore research at DTZ.
However, the substantial quarter-on-quarter drop in Singaporean buying in Q3 this year was probably due not just to the introduction of the TDSR framework but a simultaneous plugging of loopholes that some investors had been using to avoid paying ABSD and to circumvent tighter loan-to-value limits on those with existing housing loans, say analysts.
"Singaporeans, in general, with better ground knowledge and understanding of the ins and outs of the rules than foreigners, would more likely have been able to tap such loopholes," said Knight Frank executive chairman Tan Tiong Cheng.
Some Singaporean investors had taken to buying private homes in the names of family members who do not own existing residential properties (to avoid paying ABSD) and acting as "guarantors" for loans taken by the proxy buyer/family member (to avoid being hit by tighter LTV limits for those with existing housing loans as well as for older borrowers). In late-June, the authorities shut this escape route by requiring a party giving a guarantee for a housing loan application made by such a proxy buyer to be brought in as a co-borrower and hence as an owner of the property.
"Once the authorities closed this loophole, that immediately prevented more people from buying," said Mr Tan.
"On top of that, because the government pitched TDSR not as a temporary property cooling measure but a permanent framework, it made everybody realise that the government was dead serious. That was bound to have some psychological impact," he added.
DTZ's analysis showed that the number of private residential properties bought by Singaporeans tanked 51 per cent to 2,748 in Q3 this year from 5,609 in the previous quarter. The number purchased by PRs fell to 562 from 1,004. Foreigners acquired 323 units in Q3, down 39.1 per cent from 530 in Q2. Consequently, in Q3, the share of PR buyers rose by 1 percentage point to 15 per cent and that of foreign buyers increased 2 percentage points to 9 per cent, Singaporean buyers' share fell 3 percentage points to 75 per cent.
In contrast, following the introduction in late-2011 of 10 per cent ABSD on all private residential properties here bought by foreigners, their purchases slumped 73.5 per cent from 1,434 units in Q4 2011 to 380 the following quarter. The introduction of ABSD II in Q1 this year raising the rate on foreign buyers to 15 per cent was followed by an 11.4 per cent quarter-on-quarter drop in their private home purchases to 530 in Q2.
For Singaporeans, the opposite trend prevailed. In the quarter following the rollout of ABSD I - which spared them the duty on their first two residential property purchases - they snapped up 16 per cent more private homes. The number of private homes they picked up rose from 4,883 in Q4 2011 to 5,666 in Q1 2012. And after the ABSD II was announced in January this year introducing 7 per cent ABSD on Singaporeans for their second home purchase, they again accelerated their buying - resulting in a 26.9 per cent quarter-on-quarter increase in units they bought to 5,609 in Q2.
The number of private homes acquired by PRs rose 20.9 per cent quarter-on-quarter to 1,087 in Q1 2012 after ABSD I, which spared them the tax on their first Singapore residential property purchase. In January 2013, when 5 per cent ABSD was introduced on the first purchase, their private home purchases dipped 0.9 per cent quarter-on-quarter to 1,004 units in Q2.
Summing up its findings, DTZ said that since ABSD was first introduced in December 2011, foreign purchases of private homes have hovered around 500-700 units every quarter (with the exception of Q1 2012, when 380 units were bought, and Q3 2013, when 323 units were transacted). "This is a significant drop compared with the quarterly average of about 1,100 units in 2010 and 1,400 units in 2011 before the ABSD was first implemented. Consequently the foreign buying share was below 10 per cent in 2012 and for the first nine months of 2013 - down from 18 per cent in 2011 and 12 per cent cent in 2010," said Ms Lee.
The TDSR framework requires financial institutions, when granting property loans to individuals, to ensure that a borrower's monthly total debt repayments do not exceed 60 per cent of gross monthly income.
Putting things in perspective, Ku Swee Yong, CEO of Century 21 Singapore, noted that private home purchases across all categories of buyers took a hit in Q3 in a knee-jerk reaction to the TDSR framework. "Developers also pulled back launches and banks were seeking clarifications on the TDSR implementation with MAS."
He expects purchases by Singaporeans to recover this quarter and in Q1 2014 as "they are mostly still cashed up - though the drop in HDB resale flat prices may have an impact on investor sentiment".
Source from BTInvest