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Government introduces new round of property cooling measures

SINGAPORE — In a move that caught the property market by surprise, the Government on Thursday (July 5) raised Additional Buyer’s Stamp Duty (ABSD) rates and tightened the Loan-to-Value (LTV) limits for Singapore citizens, permanent residents, and foreigners in a bid to “cool the property market and keep prices in line with economic fundamentals”.

Government introduces new round of property cooling measures

With immediate effect, the Additional Buyer’s Stamp Duty rates will be raised by 5 percentage points for all individuals, and 10 percentage points for entities.

SINGAPORE — In a move that caught the property market by surprise, the Government on Thursday (July 5) raised Additional Buyer’s Stamp Duty (ABSD) rates and tightened the Loan-to-Value (LTV) limits for Singapore citizens, permanent residents, and foreigners in a bid to “cool the property market and keep prices in line with economic fundamentals”.

With immediate effect, the ABSD rates will be raised by 5 percentage points for all individuals, and 10 percentage points for entities, said a joint statement issued on Thursday from the Ministry of Finance, the Ministry of National Development and the Monetary Authority of Singapore (MAS).

An additional ABSD of 5 per cent that is non-remittable will also be introduced for developers buying residential properties for development.

Analysts TODAY spoke to said that the introduction of an upfront cost for developers is targeted at the euphoria surrounding recent land acquisition bids, be it en bloc or government land sales, which have seen bid prices hitting record-highs.

Not only would the 5 per cent ABSD increase the cost of land acquisition, said Mr Nicholas Mak, executive director of real estate investment firm ZACD Group, it would also reduce the bullishness of tender bids, and deflate the en bloc sale market.  

Cushman and Wakefield senior director Christine Li said that developers were previously not overly concerned about acquiring land, as meeting the five-year deadline of selling off all their units before applying for the remission of the 15 per cent ABSD was not an issue.

The introduction of a non-remittable 5 per cent ABSD for developers meant that they would have to be “extra cautious” when deciding whether to start a new development, said Ms Li.

GOVERNMENT CONCERN

National Development Minister Lawrence Wong said on Thursday that the Government is “very concerned” that prices are rising faster than economic fundamentals.

“There is a large supply of units coming on stream and interest rates are going up. We want to avoid a severe correction later, which can have more destabilising consequences. Hence, we are acting now to maintain a stable and sustainable property market,” he added.

With the adjustments, ABSD rates for Singapore citizens buying their second home will be raised from 7 per cent to 12 per cent, while those buying their third or subsequent home will be raised from 10 per cent to 15 per cent.

Singapore permanent residents who are buying their second property will have to pay a higher ABSD rate of 15 per cent, up from the current 10 per cent.

ABSD rates for foreigners will be raised from 15 per cent to 20 per cent.

There will be no change in ABSD rates for Singapore citizens or permanent residents buying their first property.

LTV limits will be tightened by 5 percentage points for all housing loans granted by financial institutions. These revised LTV limits do not apply to loans granted by the Housing and Development Board.

Previously, the LTV limit for a buyer’s first housing loan was 80 per cent, or 60 per cent if the loan tenure was more than 30 years, or extended past age 65. This will be cut to 75 per cent, or 55 per cent respectively. Similarly, the limit for a second housing loan will be reduced from 50 per cent to 45 per cent, or 30 per cent to 25 per cent if the loan tenure is more than 30 years or extends past age 65.

There will be a transitional provision for cases where an Option to Purchase (OTP) has been granted by sellers to potential buyers on or before Thursday, and this OTP has not been varied on or after Friday. For such cases, the previous ABSD rates, instead of the revised ones, will apply if the OTP is exercised within three weeks of the announcement or the OTP validity period, whichever is earlier.

The joint statement noted that private residential prices began rising in the third quarter of last year after declining gradually for almost four years between mid-2013 and mid-2017. On Monday, Urban Redevelopment Authority (URA) statistics showed that property prices had risen to the highest since 2014.

“Prices have increased sharply by 9.1 per cent over the past year. Demand for private residential property has also seen a strong recovery, as transaction volumes continue to rise,” said the statement.

“The sharp increase in prices, if left unchecked, could run ahead of economic fundamentals and raise the risk of a destabilising correction later, especially with rising interest rates and the strong pipeline of housing supply.”

MARKET CAUGHT OFF GUARD

Some analysts were surprised by the latest move to cool measures, as they noted that the property market is already showing some signs of slowing down.

Ms Li said that she was “pretty surprised", as residential units in new project launches have seen slow take-up rates, while the en bloc market is experiencing fatigue.

“If this development continues, I think the property market would still go back to the price trajectory that the Government hoped for,” she added.

Others like Mr Ku Swee Yong, chief executive officer of International Property Advisor, said the surprise came more from the timing of the measures, which were announced just a day after MAS’s managing director Ravi Menon sounded warnings on the property market.

On Wednesday, Mr Menon advised developers, home buyers, and banks to exercise caution amid “euphoria” in the current property market. “We're sounding cautions to everyone to be sober, to be balanced and exercise good judgement," he said at a briefing on the central bank's annual report.

Earlier on Thursday, DBS chief executive officer Piyush Gupta referred to Mr Menon’s remarks, and said that the possibility of the Government introducing cooling measures “can’t be discounted”.

"The MAS is getting nervous...And so, from my understanding, is the URA," said Mr Gupta at a luncheon on the bank's market outlook for the second half of 2018.

Aside from the timing, analysts were also shocked by the heavy-handedness of the cooling measures.

With the property market only into its first year of recovery, Mr Mak said “these draconian measures are like … strangling the baby in the cradle”.

But Mr Ku pointed out that there are some benefits, particularly for the banking system as “it prevents the banks from being overly invested in the real estate sector”.

Mr Desmond Sim, head of research for Singapore and Southeast Asia at CBRE, said that the measures are targeted at speculative buyers, and will “curb exuberance on the land cost.”

“The measures are there basically not to kill demand but to make sure that the demand is genuine,” he added.

Analysts generally agreed that the measures would put the brakes on price increases, and reduce the volume of sales in the short-term.

However, prices would not decline immediately, said Ms Li, as developers would not slash prices in the near term since they have deep pockets.

CORRECTION: An earlier version of the story stated that Cushman and Wakefield senior director Christine Li said it was not an issue for developers to meet the five-year deadline of selling off all their units before applying for the remission of the 25 per cent ABSD. This is incorrect. Ms Li was referring to the 15 per cent ABSD which developers were previously subjected to. We are sorry for the error. 

 

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