Singapore Government Press Release

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In early 1996, the property market was overheating. Prices had risen steadily for 3 1/2 years, even though the Government had steadily increased the amount of land sold for building private properties. In 1995 and 1996 the Government sold land for 6,000 units of private property, which were record amounts. Despite this, buyers continued to scramble to snap up new properties at ever higher prices. The mood became frenzied, almost desperate.

The Government therefore introduced a package of measures to cool the speculative frenzy in May 1996. These measures stabilised the market and averted a property bubble. Today the situation, and market sentiment, has totally changed. Property prices have been gradually declining since May 1996. There is no shortage of supply, much less any panic to purchase.

Furthermore, in the last few months South East Asia has seen considerable financial instability. Foreign exchange rates have fluctuated dramatically. Stock markets have suffered major corrections. This has shaken confidence and dampened investor sentiments throughout the region. In several countries property booms have ended, leaving large supply overhangs and affecting the soundness of banks and financial institutions.

This major new development has affected the Singapore property market. In 3Q97, the sale of uncompleted private residential properties fell to 1,376 units, 22% lower than the previous quarter. Property prices declined another 4.4%, the sharpest fall since May 1996. The market is now in an excess supply situation.

The private and HDB property markets are interlinked. Lower private property prices have already caused prices of HDB executive and 5-room flats to soften. Exaggerated swings in property values will affect not only the purchasing power of the minority of Singaporeans planning to buy a property, but also the wealth of the majority who own private and HDB homes.

The Government has reviewed its policies towards the property market in the light of these new circumstances. The Government cannot maintain property prices at any specified level. It is neither possible nor desirable for it to ensure that property prices never fall in Singapore. However, the Government can avoid aggravating an excess supply of property by releasing more land than the market can absorb.

The Government will therefore revise its land sales programme, and the project completion period (PCP) specified for residential sales sites. It will also suspend the stamp duty surcharge payable on properties sold within 3 years of purchase. This will help to ease the excess supply in the property market.

However, the Government will not stimulate demand for properties by relaxing credit, for example by raising the 80% limit on mortgage loans. This would be imprudent, from the point of view both of the buyers and of the financial institutions, especially at this time of economic uncertainty. The limit of 80% of the value of the property is still higher than say Hong Kong. One major reason for the serious economic problems in several regional countries is that their financial institutions had lent excessively to finance property projects.

Under the 1997 Government Land Sale (GLS) Programme, 8 residential sites are scheduled to be launched for sale in November and December 1997. They will yield about 2,100 units, out of a total GLS quantum of 7,000 units in 1997. The Government will defer these 8 sales sites to the first half of 1998.

In September 1997, the Government announced that it would release land for 5,000 private housing units next year. Since we are now deferring 2,100 units from the 1997 programme to the first half of 1998, the Government will postpone the 1998 GLS programme until the second half of 1998. It will review the quantum for the 1998 programme after the first quarter of 1998.

Despite this deferment, the Government has already sold land for 4,900 units in 1997. This includes the 4 tenders which closed recently, which will be awarded.

This deferment is a temporary measure. The Government will resume selling a steady supply of land as the market recovers, in order to meet Singaporeans' aspirations to own private properties.

The project completion period (PCP) for residential sites sold by the Government is currently set at 4 or 5 years. Developers have to pay punitive liquidated damages of 2% of the land price for every month delay in project completion beyond the PCP. This is to ensure that sale site developments come on stream within 4 or 5 years after the land sale. However, developers who have good reasons why they cannot comply with the PCP are granted PCP extensions without penalty.

The current market uncertainties and the potential supply overhang make it desirable to give developers more flexibility to time their developments and sales in accordance with the state of the market, rather than have the Government predetermine this timing within narrow limits. This is especially so as land from Government sales now makes up a larger proportion of the supply of private housing land, leaving a smaller buffer for the private sector to adjust to market ups and downs.

For residential sale sites which have been awarded to developers, but where the projects have not been launched for sale to the public, the Government will allow developers to lengthen the PCP to a maximum of 8 years, by paying a premium of 5% of the land price per year of extension. Projects which are unable to meet the PCP on technical grounds will continue to be given extensions without penalty.

Currently residential sale sites with a potential supply of 13,000 units have been awarded to developers but the projects have not yet been launched. Of these 600 are in an advanced stage of construction, 4,200 in an early stage and 8,200 have not yet commenced construction.

New sites for residential development to be sold in 1998 and 1999 will be tendered out with a PCP of 8 years. Thereafter the Government will review this extended PCP.

For residential developments on private land, other than those exempted, foreign companies are required to obtain Qualifying Certificates (QC) under the Residential Property Act. One of the conditions in the QCs is that the developer has to complete the development within 2 or 3 years, depending on the project size. If the company fails to complete the project on time and without good reasons, the security deposit can be forfeited.

The Government will allow an extension of the PCP for new projects which have not yet been launched by up to 2 years, upon payment of a premium of 5% of the land price per year of extension. PCP extensions will continue to be given without penalty to projects unable to comply with the PCP for technical reasons.

The stamp duty surcharge was an anti-speculation measure introduced in May 1996. The vendor has to pay the same amount of stamp duty as the purchaser (3%) if the property is sold in the first year of purchase, 2/3 of this in the second year, and 1/3 in the third year.

As speculative activity in the property market has now been quenched, this additional penalty on vendors is no longer necessary. The Government will suspend the stamp duty surcharge on contracts for the sale of properties within 3 years of purchase made on or after 19 Nov 97. This will help to improve the liquidity of transactions in the market.

However, the income tax on capital gains made on the disposal of properties within 3 years of purchase will remain. This is not a penalty but to recognise that such short-term profits are more a form of income than a capital gain.

These measures are not intended to fix property prices at any particular level. They are to take into account the regional economic uncertainties and avoid aggravating the excess supply and pessimistic sentiment in the property market. Developers who start projects, and buyers who invest in properties, must make their own calculations and accept responsibility for the financial risks they undertake.

A healthy, stable property market is important to the economy as a whole. By moderating the supply of new land for private housing, and allowing greater flexibility for the supply of new projects to adjust to demand, the property market can better self-correct and buffer against volatile prices.

18 November 1997