Impact of property speculation & cooling measures on private residential property prices & the future of shoebox units in singapore.

Abstract

This report studies the impact of property speculation and the recent property cooling measures on private residential property prices in Singapore. In addition, we also discuss the development of shoebox units and their future demand.

Our survey finds that private property prices were generally thought to be high, yet there is a belief that prices will continue to rise even further in the future, prompting speculation and signalling that an inflation mentality has set in. Anticipatory or predictive cooling measures could be implemented progressively to curb such sentiments from leading to an asset bubble.

Cooling measures are generally thought to be ineffective, from which we infer that they will have a muted impact in moderating price and transaction volumes of private properties in the near future, ceteris paribus. Consistent with our findings, the Singapore Government introduced a new tougher set of cooling measures right after our survey was completed. We propose alternative cooling measures like an age-based levy or restricting the number of properties by groups of individuals or by floor area to curb future speculative sentiments.

Liquidity constraints are fuelling the current demand for shoebox units because of its low total price. However, a majority of respondents would not purchase a shoebox unit because it does not provide a reasonable level of comfort. Hence we propose marketing shoebox units for their low total price to low income buyers and high yield potential to high income buyers or upsizing shoebox units to increase future demand.