A shortage of resale flats coming onto the Singapore property market is causing prices to keep rising and flat prices, which were already at an all-time high, rose again by a further 3.8% in the third quarter this year - higher than the 3.1% increase recorded in Q2.

Since property-cooling measures were introduced last year in an effort to take the heat out of the Singapore property market, the number of resale flat transactions has dropped significantly, down by -30% compared to a year ago, reported local press.

Homeowners have been put off by the new rule that requires them to sell their flat before they can be granted a higher bank loan of 80% LTV.

Eugene Lim, key executive officer at ERA Realty, reportedly said: ‘Most sellers prefer to buy first and then sell. Those people can only get a maximum 60% (LTV) loan and therefore there is a requirement for 40% equity.’

However, the government has increased the supply of new flats to draw first time buyers away from the resale market. But there is a limit to how much demand can be diverted and first-timers account for a quarter of resale transactions. Many of them are not willing to wait two-and-a-half years for a new flat to be built.

If the supply shortage is not resolved local analysts expect flat prices to inch up by another 3-4% in Q4 this year, which would bring the overall price increase to more than 10% in 2011.