In a country where 1 in 10 people are millionaires (defined as having at least US$1 million in investible assets, excluding property), Singapore's real estate prices have surged to new highs after dipping momentarily in 2009. The average prices for private residential homes in particular, have risen more than 38 per cent for the year to June 30th 2010, well surpassing the historical peak achieved in 1996. The exuberance is so pronounced that it is not uncommon to see private apartments costing S$1 million to be sold out during a launch.

Singapore's red-hot property market is fueled by easy credit and low interest rates, and an economy that expanded a mind-boggling 18 per cent year-on-year in the second quarter of 2010. The huge demand for residential property is also being driven up by the influx of immigrants, as the island republic works towards its ambition of achieving a 6 million population by 2012. The question that is being asked by everyone now is whether Singapore property prices is in a bubble?

According to the Real Estate Developers' Association of Singapore (REDAS), first time home buyers currently use 36 per cent of their monthly income on average to service their housing loans every month, well below the 50 per cent ratio achieved at the peak of the 1997 property boom. Most property analysts observed that a less than 40 per cent "affordability rate" indicates that Singapore property is still affordable.

However, like Australia, China and Hong Kong, Singapore's government is not taking any chances and has moved to cool down the property market for a third time this year, amid fears of an unsustainable bubble. Last month, the government announced that it would impose a 3 percent tax on resales within the first 3 years of purchase, up from the previous one-year. The minimum deposit on second homes will also be raised from the current 20 per cent to 30 per cent of the purchase price. In addition, the government announced a stepped-up schedule for the release of land for the second half of 2010.

The government's relaxation of certain housing policies will also make the common Design, Build and Sell Scheme (DBSS) flats more affordable to Singaporeans earning between S$8,000 and S$10,000, and who did not previously qualify for CPF housing grants for their purchase. This group of "sandwiched class" buyers have been snapping up private homes in the past year and thus, market observers opined that the policy change would shrink the pool of buyers upgrading from public housing to a private property, causing demand for private homes to soften.

In reaction, real estate developers may also hold back on property launches, and turn to preview sales instead. leedon green The majority of market analysts also expect these developers to be less aggressive in their bids for state land.

Market watchers are not surprised by the government's series of measures to cool the housing market, in fact, some felt it is long overdue. Most analysts polled expect the latest moves to dampen Singapore's private home sales by 20 per cent for the rest of 2010. Despite this blip, the prices of private homes are still projected to grow by up to 6 per cent for the second half of the year.

Overall, Singapore properties largely remain a highly attractive investment vehicle for those seeking higher returns than bank deposits and a hedge against inflation. However, the government is certain to implement more cooling measures should prices continue to rise rapidly.