SINGAPORE Singapore property shares slumped the most in more than six months after the government launched sweeping measures to cool the housing market, where prices have soared to record highs due to low interest rates and huge demand from real estate speculators.
Shares in major developers CapitaLand Ltd (CATL.SI) lost more than 4 percent, while Keppel Land Ltd KLAN.SI and City Developments Ltd (CTDM.SI) both shed over 6 percent, dragging the main index .FTSTI 0.4 percent lower.
Under pressure from voters who complain of overcrowding as well as stiffer competition for housing and jobs, Singapore's ruling party is trying to curb an influx of foreigners. It has also said it would do whatever it could to avoid a bubble that would destabilize one of Asia's key financial markets.
Foreigners, as of Saturday, must pay stamp duties of 18 percent on the price of a home, compared with 13 percent previously. The stamp duty paid by foreigners permanently residing in Singapore increased to 8 percent from 3 percent, while that paid by Singaporeans remains unchanged at 3 percent.
"The actions taken on Friday for the property market have a lot of teeth," Piyush Gupta, Chief Executive of Southeast Asia's largest bank DBS Group Holdings (DBSM.SI), said at a private banking event. "Everybody is impacted by the measures."
The loosening of monetary policy in the United States has, in part, prompted large amounts of money to flow to Asia.
Much of that money has been invested into houses and apartments in regional hubs Singapore and Hong Kong because Asians tend to allocate a larger proportion of their money into property, which many perceive as more tangible and less risky than shares.
Prices for private homes have risen by almost 60 percent in the island-state since mid-2009 despite repeated attempts by the government to subdue them.
"We are in unchartered territory in terms of how much the property market can take. But I think the likelihood of the end of property price increases has never been higher than it is now," said Eli Lee, an analyst at OCBC Investment Research.
The new restrictions appear to be aimed at curbing investment demand in AAA-rated Singapore, where banks are charging as little as 1 percent annual interest on mortgage loans. They follow steps taken by Hong Kong, home to the world's most expensive apartments, where the government late last year unveiled a slew of measures to curb price rises.
Singapore and Hong Kong are among the world's most open economies and their property markets are easy to enter, making housing sectors there a popular target for "hot money", which in turn pushes down local interest rates and stokes inflation.
The Southeast Asian city-state also introduced, for the first time, a seller's stamp duty of 5 to 15 percent on those who buy and then sell industrial properties such as warehouses and factories within three years.
Individual buyers applying for loans for second homes will also have to make a minimum cash downpayment of 25 percent compared with 10 percent previously.
"The government is serious about addressing affordability for new Singaporean homebuyers," said Kristy Fong, an investment manager at Aberdeen Asset Management PLC. "Therefore the intent is for the property market to cool, but not crash given that they are clear about these measures being temporary depending on future market conditions."
The property sector index .FTFSTAS8600 - last year's best performer on the Singapore bourse with a 48 percent jump - fell as much as 2.7 percent on Monday, its biggest drop since May.
Tighter loan measures affected bank stocks across the board on Monday, with DBS, Oversea-Chinese Banking Corp (OCBC.SI), and United Overseas Bank (UOBH.SI) down between 1.2 percent and 2 percent.
"UOB and OCBC appear to have had the highest dependence on mortgages for loan growth in recent times," Anand Swaminathan, analyst at Credit Suisse, said in a report.
"With the regulator showing resolve to 'do whatever it takes', future measures could target bringing down the mortgage profitability for banks." Credit Suisse remains underweight on banks.
(Additional reporting by Saeed Azhar and Kevin Lim; Editing by Daniel Magnowski)