Real estate prices in Singapore have plummeted since the beginning of 2015, and analysts are worried that the Singapore property bubble could burst soon.

The city state’s real estate market has underperformed since February of this year, when home sales were 48% lower compared to the same period in 2014. Meanwhile, residential prices fell by 4% in 2014 even while those in neighboring ASEAN countries boomed.

Christine Li, Director of Cushman & Wakefield’s Singapore branch, says to expect poor performance for the rest of 2015. “I think the decline will continue as long as cooling measures are in place for the rest of the year.”

“I expect the full year decline for the high-end market to be in the range of 5% to 8%, as most owners still have deep pockets who are able to hold it out,” she explained.


Foreign Investment Regulations Under Fire

The government of Singapore has tried to cool its property market and avoid a bubble since 2009. Its measures have mostly targeted foreigners and include higher taxes, borrowing limits, and restrictions on the number of properties that can be owned.

However, initial efforts did not push away foreign buyers. Many have deep pockets, come from countries such as India and China, and weren’t deterred by paying higher taxes to buy what they see as a safe place to store their wealth.

The implementation of the Additional Buyer’s Stamp Duty (ABSD) in late 2011 imposed an additional 10% tax on foreigners buying property, and was then increased to 15% in 2013 resulting in a reduced transaction volume.

Since then, prices have suffered a massive decline and many real estate developers are saying the measures to avoid a Singapore property bubble have gone too far, destroying its luxury property market.

The Real Estate Developers’ Association of Singapore asked the government to ease regulations and stop prices in the luxury property market from declining further.

“Not many Singaporeans are buying into this segment, and prices have indeed come down substantially,” explained Augustine Tan, the association’s president.

“The imposition of ABSD on this segment runs counter to the government’s efforts to encourage foreign investment flows into the country, to activate the economy, grow investments and create jobs for Singaporeans.” Tan elaborated.


Developers Are Bearish Due to Singapore Property Bubble

City Developments, one of the largest property developers in Singapore, believes the housing market could face foreclosures and fire sales as rental demand plummets, leading to homeowners and buy-to-let investors being unable to pay off their mortgages.

“Average residential rents across all market segments, particularly the high-end, are on the decline, coupled with a weak secondary market,” warned Kwek Leng Beng, executive chairman of City Developments Ltd.

“If this trend continues, with prices dipping more, some mortgage borrowers affected by lower rentals may have difficulty servicing their loans, possibly leading to forced fire sales,” said Kwek.

Singapore clearly has a difficult time ahead of it, and all eyes are on the ruling People’s Action Party (PAP) to achieve a balance of keeping the city state’s real estate market robust, yet sustainable at the same time.

EDITOR’S UPDATE FOR 2017: Singapore’s property market still isn’t growing as much as others in Southeast Asia. But for the right type of investor, buying real estate in Singapore might still be worth considering.

About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's experienced with trading stocks and buying property in Thailand, Cambodia, and elsewhere. He's been featured in publications such as Forbes, Nomad Capitalist, Property Report, and Seeking Alpha. Download his free investment guide by clicking here.

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