Singapore has long been lauded internationally for its public housing policies and 90% home ownership rate, one of the highest in the world for a market economy. The public housing system is based off the Housing and Development Board model and prioritises housing security, reduction of neighbourhood inequalities, and high home ownership rates.     

Additionally, Singapore’s private housing market has also proven many attractive qualities for both local and foreign buyers. Indeed, foreign buyers have been eyeing Singapore’s property market and making use of the housing investment opportunities in the domestic market. This has raised several concerns amongst domestic residents about potential house price inflation and affordability. However, ACI research demonstrates that foreign investments in the housing market can, with some policy interventions, benefit the local Singaporean demographic.  

Research by Xie et. al. dampens stability and affordability concerns by suggesting that foreign investments in Singapore’s domestic housing market are generally welfare-improving and do not de-stabilise house price inflation. The research evaluates the effectiveness of several monetary, macro-prudential, and fiscal policy rules in mitigating the potentially detrimental effects of foreign direct investments in the housing market.  

For policy makers, foreign direct investment in the domestic housing market presents the challenge of striking a suitable balance between managing a growing housing market and implementing policies that are neither too flexible nor too stringent. While FDI can stimulate employment and higher income opportunities in the local construction economy, it also causes expectation-driven boom-bust housing cycles and requires efficient policy intervention.  

Policy measures that consider the coordination of monetary policy (interest rates) with time-varying instruments such as macro-prudential loan-to-value ratio caps and stamp duty rules, enhance welfare in the local economy. The implementation of active stamp duty rules on foreign buyers redistributes the wealth from foreign buyers to domestic residents and increases local consumption and investment. 

Recently, despite COVID-19 and the ongoing recession, private residential sales in Singapore have shot up for the fourth consecutive month, reaching an annual high. This is primarily attributed to built-up demand during Singapore’s circuit breaker (lockdown) period that ended in June. Furthermore, housing is considered a safer and more stable asset to invest in, and in the context of economic uncertainty, volatile markets, and record low interest rates during this time, there are several encouraging reasons to invest in housing units.   

by Sunena GUPTA

Researchers: Taojun Xie, Guay C. Lim, Hwee Kwan Chow