Singapore’s residential real estate prices have dropped for the first time in three years, a sign that the government’s cooling measures are taking effect. 

The city-state’s private residential property index inched down 0.1 per cent during the first quarter of this year compared to the previous three months, according to the Urban Redevelopment Authority. It marks the first fall since June 2009. 

Singapore’s government in December pushed through a stamp duty hike on properties bought by foreigners and second and third homes bought by permanent residents, to cool housing speculation and discourage foreign investors from using the city-state as a safe haven for their cash - and it appears to be working.

Since the Additional Buyer’s Stamp Duty was enforced on 8 December 2011, sales volumes decreased sharply in December, with 632 units sold by developers. However there has been a strong rebound in sales in January and February 2012. 

Transactions in February were at the highest since July 2009, boosted by purchases in suburban areas as some developers offered incentives after the government curbs. Private home sales rose to 2,413 units in February from 1,872 units in January, according to data from the URA.

To offset an anticipated drop in demand, some developers are offering to share the burden of the ABSD, through discounts and incentives, said Nicholas Holt at Knight Frank’s Singapore office. “We have even seen a number of developers prepared to pay the ABSD with the buyer paying the standard stamp duty,” he added. Developers may increasingly target European Free Trade members who do not have to pay the duty. 

Holt said that with a softening of prices likely in the Singaporean market in 2012, buyers could pick up good deals at attractive prices. And the allure of Singapore remains strong. 

“Singapore has one of the more mature and liquid markets in Asia Pacific. It is not priced as highly as Hong Kong and has more secure tenure and better liquidity than China,” said Holt. 

The ABSD is tiered for different groups of buyers. While most foreign purchasers and corporate entities buying a first and subsequent residential property in Singapore will pay 13 per cent, permanent residents buying a second and subsequent residential property in Singapore will pay an ABSD of just three per cent.

Born-and-bred Singaporeans buying a third and subsequent residential property in Singapore will also pay just three per cent, said the government.