Some Thoughts On The Latest Property Cooling Measures

One crypto post, one-non crypto post. We all need some balance in life, eh?

Actually, it’s good to detox from the world of money from time to time. If you need some convincing, do check out Lawrence Yeo’s The Nothingness Of Money. Reading it convinced me to step away from this blog and crypto for the past few weeks, at the very least.

But well, the latest round of property cooling measures (sudden but unsurprising) has brought me back to pen down some thoughts.

Helping First-Time Buyers By Controlling Runaway Prices

If you need the full details of the measure to see how it will impact you as a buyer or seller specifically, just google it.

But basically, the government is raising taxes on the purchase of a second (or third and so on…) property and tightening leverage.

All in the hope of reducing property prices, or at the very least, stop it from increasing further. 

If I were a decade younger and a new entrant into the workforce, I would find myself increasingly priced out of owning my own place and therefore starting a family before 30, especially if I do not have the privilege of receiving financial aid from parents to buy my first home.

There is a long wait for BTO flats (up to 7 years?) and the increase in private property prices has had a spillover effect on resale flats in the past two years. From anecdotal observations, the same $500,000 flat in 2019 could now easily cost close to $600,000 in 2021.

And I believe most Zoomers will delay starting a family if they do not even have their own humble abode, which I thought should be enough alarm for the government to act and prioritise construction resources for government flats ahead of private apartments.

Prioritising Homes As A Need Vs As An Investment

We have come to this stage because of the popular adage that “Properties are a good investment in land-scarce Singapore”.

Buying multiple properties was extremely profitable for the Boomers and very profitable for Gen X.  My guess is savvy Boomers probably made out with 20% p.a. returns for the past 4 decades while astute Gen X property investors probably achieved 15% p.a. returns over the past 2 decades?

So much so that even many of my peers (millennials) have ambitions of staying in a private apartment while renting out their BTO flat. Everyone wants to leverage on zero interest rates, be a landlord and milk off the rentier economy.

However, this is increasingly difficult with the government’s new stance that housing should first and foremost be used as shelter, a need.

Especially as the economy matures. The country is more and more built-up and there are just fewer areas left to build new flats or apartments. Future supply has to be recycled from current supply.

Impact On Decoupling Strategy

Using my household as an example, I am actually quite uncertain if it’s possible to escape the ABSD if we

1. Sell our flat
2. Buy another flat using under my name (I am over 35)
3. Buy another private apartment under my wife’s name

I have heard differing views on this but I did not delve deeper as I felt it was not a financially feasible long-term plan for us.

If the above is possible, then decoupling is still a pretty feasible loophole for some families to own a second property.

Otherwise, with the tightening measures, the taxes and loan curbs will make it harder for middle income households or even higher middle income households to decouple effectively with two private properties.

With less demand for a second property, the authorities are expecting prices to hopefully come down slightly to be more palatable for first-time home owners or upgraders.

Making It Unprofitable To Own Multiple Properties

It is virtually impossible for the government to implement these cooling measures retroactively to prior purchases so one could argue that these measures would likely be limited in its impact.

The older generations who already own multiple properties can squat over them and allow their children and grandchildren to inherit them in the future.

Unless it becomes unprofitable to own multiple properties going forward.

If the government is already increasing property taxes on HDB flats, I would be incredibly disappointed if they do not follow up and increase property taxes on private properties, especially rental  properties.

Maybe muted future capital gains and negative cash flows (at a 0% interest rate environment) would make properties as an investment look more like a bond rather than a growth stock. 

If the above materalises, it should help curb demand and increase supply, helping to dampen prices.

I understand that some retirees rely on rental income for their needs but my argument is they could always sell the property and buy an annuity to replace this income.

In a world where direct wealth taxes are becoming less and less effective, the only option to improve equity is through consumption taxes, especially consumption of properties. It is probably the only lever left.

Therefore, policy makers will need to weigh if they should prioritise the needs of a retiree with multiple properties or that of a youth who is trying to climb the social ladder. 

Let’s wait and see.

Thanks for reading.