Yes, policymakers are changing tack when it comes to property cooling measures

Gone are the days when only a sharp price drop would warrant an easing.

When policymakers first introduced the Total Debt Servicing Ratio (TDSR) at the end of June 2013, many predicted that it would be able to single-handedly cool Singapore’s then-heated property market.

This prediction came true in a certain sense. The TDSR managed to do what the seven rounds of cooling measures that preceded it failed to achieve: new home sales volume was halved a mere twelve months after its implementation, with a total of 7,500 new homes sold in 2014.

“The Total Debt Servicing Framework or TDSR as it is called in short, has proven to be the most impactful in bringing down private residential sales volume since it was introduced at the end of June 2013. Home prices have seen only modest corrections, however, resulting in the government’s unwillingness to relent on property measures,” noted Han Huan Mei, analyst at CBRE.

The TDSR may have managed to drastically reduce new home sales, but a meaningful decline in property prices is another matter altogether. Although 2014 saw the first full year of property price declines, the private Property Price Index slipped only by a marginal 4%.

“The widespread speculation that home prices could see double-digit corrections in 2014 due to the cooling measures did not happen although they have been severe enough to cause sales volume to fall. This is because economic fundamentals are still sound,” Han stated.

In light of very gradual price declines, analysts note that the government is beginning to change tack when it comes to addressing its property cooling measures. In his Committee of Supply speech, for instance, Minister for National Development Khaw Boon Wan noted that the government is aiming for a “soft landing” for the property market because a crash benefits no one.

“Over the course of the past 21 months since the TDSR took effect, we seem to sense a nuanced shift in the way policy makers look at the residential real estate market. Initially, the tone were more in tune with a need to see price decline significantly. However, presently, we appear to be hearing a more conciliatory tone in wanting real estate prices to stabilise,” said Alan Cheong, Senior Director for Research & Consultancy at Savills.

Cheong noted that this gradual perspective shift, if indeed is the case, is welcome because the real estate market is complicated and is not so easily understood nor tamed to obedience by traditional economic tools.

“We would believe that henceforth, if no crisis occurs, looking for that certain price decline milestone to be met before the measures are modified could be unproductive,” Cheong stated.