Property Cooling Measures Freeze District 9

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If you want to see out how impactful the government’s cooling measures, look no further than District 9.

According to the Singapore Real Estate Exchange (SRX), the median Transactions-over-X Value (T-O-X) for District 9, which consists of Orchard, Cairnhill, and River Valley, was NEGATIVE $130,000.
Each month, SRX computers compare the actual transacted value for each unit in a district with its X-Value.  The X-Value is a computer-generated estimate of the market value for a home.  The difference between the median transacted price and the district’s X-Value is the T-O-X.
In District 9, more than half of the buyers paid below market value. In fact, 50% paid at least $130,000 below market value.
In contrast, the T-O-X in District 10, which covers Bukit Timah, Holland Road, and Tanglin planning areas, was POSITIVE $37,500.  That means more than half of buyers paid above market value, with 50% of them paying $37,500 or more.  That tells us that the sentiment in District 9 is very bearish while District 10 is bullish.
Two luxury districts right next door to each other.  Why the huge disparity in T-O-X between the two?  The data suggests that District 10 is where Singaporeans buy to live whereas District 9 is where people – both local and foreigners – invest.
The cooling measures primarily targets investors – both local and foreigner.  The buyer stamp duty applies to most foreigners while the Total Debt Servicing Ratio (TDSR) limits Singaporeans ability to over-leverage and purchase homes for pure investment reasons.
Therefore, the cooling measures should dampen districts where investment activity outweighs purchasing homes to dwell in them.
The tale of these two districts bares this point out.  Back in first quarter 2005, at the start of the private market’s huge growth spurt, District 10 was the luxury heavyweight.  It was about 13% more expensive, on a median resale PSF basis, than District 9.  In addition, District 10 saw 18% more transactions.
During the huge run up in prices after the Global Financial Crisis, District 9 outpaced District 10.  Today, even with the cooling measures, it is 12.4% more expensive than District 10.  Before the SRX Price Index turned in first quarter 2013, District 9 was 16.6% more expensive.
Since the turning the index (1Q2013-1Q2014), resale prices in District 10 has appreciated 0.4% while District 9 has seen a depreciation of 3.2%.  Meanwhile, District 10 has posted nearly double the number of transactions during this same period.
What this data suggests, at least in District 9 and 10, is that the cooling measures have been effective at cutting the investment market off at the knees but allowed the indigenous homeowners’ market to continue to grow, albeit at a slower pace.
At the risk of further mixing metaphors, the cooling measures have frozen hot money.

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