January 14, 2013 11:29 am

Singapore property: seventh time lucky?

Cheap money has produced a market with the attention span of a small child

That’ll teach them. Like parents reduced to confiscating toys after warnings have been ignored, Singapore has brought in unexpectedly punitive measures to cool its property market after six attempts in three years failed to do the trick. Developers’ share price falls imply the market has got the message. But that is what reaction to previous rounds suggested, too.

Property in Singapore, like Hong Kong, has been fuelled by cheap money made worse by currencies more or less pegged to the US dollar. In Singapore developers’ land price bids rose by a fifth last year while property prices were rising at 1.8 per cent quarter on quarter by the end of 2012, three times their third-quarter rate.

The cooling efforts are wide ranging, including lowering loan-to-value ratios and raising cash downpayments. Singaporeans must now put down a quarter in cash for a second home, from a 10th. They also face buyers’ stamp duty (ABSD) for the first time, at 7 per cent on second homes, while permanent residents must now pay 5 per cent ABSD on their first home and foreigners 15 per cent.

Almost a third of respondents to a recent Credit Suisse survey cited investment as their main reason for buying property, so the measures should hurt. City Development and CapitaLand, the most locally focused developers, dropped 7 per cent and 5 per cent respectively on Monday.

Singapore hands have seen all this before. After ABSD was introduced in December 2011 (round five of the cooling measures), developers’ share prices fell by about a sixth. But they went on to rally two-thirds last year, outperforming the Straits Times index by two-fifths. And round six, in October last year, barely registered: before these changes, developers were trading at a very slim average discount to net asset value of 15 per cent, according to Nomura.

Cheap money has produced a market with the attention span of a small child. Unless it does what it is told, the government has little choice but to consider more of the same. Investors have been warned.

Email the Lex team in confidence at lex@ft.com

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