Recent Singapore Real Estate Exchange (SRX) data suggests that the government’s cooling measures have been very effective at reducing the volume sales for condominiums and private apartments. In particular, the combination of measures to tighten the loan-to-value limits and the total debt servicing ratio have helped cut volume sales from 32,125 transactions in 2012, to 20,203 last year. These two measures have been effective at reducing demand because they restrict the amount of capital Singaporeans can borrow to purchase investment properties.The impact of the cooling measures on price has been less dramatic. Again, the two measures seem to have had the most effect. However, prices did not plummet like volume did. Instead, the former plateaued and experienced monthly gains and losses.
It is more difficult for cooling measures to bring down prices than it is to bring down volume sales. The reason is that the market is constantly in search of a fundamental price for each home, factoring in many variables and pricing signals unavailable to analysts and policymakers.This fundamental price does not change when policymakers introduce measures to stimulate or dampen the market. It merely goes into hibernation.
For a transaction to take place, the buyer and seller must agree that the price of the house is acceptable; otherwise one of the two parties will sit out and wait for the market to change. Cooling measures encourage one or two, or both, parties to sit on the side lines and wait for a more favourable environment. Most participants in today’s private market are