Higher stamp duty: ‘Knee-jerk’, slight impact on share prices, larger properties

SINGAPORE — Shares of major property developers fell on Tuesday (Feb 20) following the Budget announcement of higher Buyer’s Stamp Duty rates, as concerns surfaced that the hike could dampen the ongoing wave of en-bloc sales.

Some property experts said that the higher stamp duty could cause developers to think twice before going for large plots, potentially throwing a spanner in the works for en-bloc bids at Braddell View and Laguna Park, for instance.

Others said that there could be knee-jerk reactions but, ultimately, the higher stamp duty would not have a big impact on the market in the long run.

On Monday, Finance Minister Heng Swee Keat announced that buyers of residential properties valued at more than S$1 million and which are acquired on or after Tuesday would have to pay a new buyer’s stamp duty of 4 per cent. The previous rates ranged from 1 to 3 per cent.

At the end of Tuesday, shares for City Developments dropped by 3.02 per cent, while UOL Group’s shares closed 3.25 per cent lower. CapitaLand’s shares fell for the first time in a week, closing at 1.93 per cent lower at S$3.56 each.

Mr Chris Koh, director of property firm Chris International, said that the higher stamp duty would have a “slight impact” on larger property developments that have more than 200 units. For example, a developer buying a 200-unit development, priced at S$2 million per unit, would now have to fork out $4 million more in taxes.

“Developers will take this into consideration for redevelopment costs… For developments with not that many units, they can still (absorb) the increase in taxes,” he added.

In a research report on the Budget, Mr Andy Wong, an analyst at OCBC Investment Research, noted that the higher stamp duty would have a more significant impact on the collective sales market, which is larger in ticket size compared to the residential market.

However, he said: “While there could be a negative knee-jerk reaction to the share prices of developers, we believe the incremental outlay is unlikely to severely dampen demand for the residential market.”

NOT A BIG IMPACT ON DEVELOPERS’ EXPENSES

Other experts are of the opinion that the hike is within range of developers’ cost calculations.

International Property Advisor’s chief executive Ku Swee Yong said that while the higher stamp duty would raise developers’ costs, “it is not so significant that it exceeds their error of margin”. Developers would have factored in possible increases in construction or materials costs, so a 1 percentage point rise would be within range of their contingency expenses.

“A future long-term repercussion could be that developers are encouraged to construct smaller units and price them below S$1 million. Already, there are a huge number of small-sized properties,” Mr Ku added.

Developers may also be prepared to absorb the higher stamp duty due to competition.

Mr Nicholas Mak, executive director of real estate investment firm ZACD Group, said that some would pay more than the increased sum compared to their competitors to acquire a favourable plot of land.

As for the en-bloc fever, Mr Mak pointed out that even without the announcement, it was “already slowing down” partly because of the cooling measures, which were not in place during the last en-bloc run about a decade ago.

“(This round), when a tender closed, it took more than a month to find a buyer, for example, Pearl Bank (Apartments), Cairnhill Mansions... For others, when the tender closed, there was no news on it, either because there was no buyer or the bids came in below the reserve price,” he added.

Mrs Tang Wei Leng, managing director of real estate services firm Colliers International, is also of the view that the higher stamp duty is not a big concern. “The message sent by the Government is that it is watching the market,” she said.

UNLIKELY TO DISCOURAGE BUYERS

For buyers, the signs are not there yet that they are overly bothered.

Property agents interviewed by TODAY said that they received some calls from their clients but, by and large, there was no rush to close deals before the Tuesday deadline, since the extra amount payable is relatively small for mass market purchases.

PropNex Realty’s Aaron Lin said that agents may hype up the tax to create a sense of urgency for buyers. “But for people who can afford property that is more than S$1 million, it’s not going to be a very big thing.”

Mr Mak from ZACD Group figured that someone intending to buy a S$2 million condominium unit would have to pay S$10,000 more now. “For this person, S$10,000 is not going to put him off. Renovating such a unit will far exceed that sum.”

Mr Alan Cheong, senior director of research and consultancy at property firm Savills Singapore, said that buyers of mid-tier market apartments would pay a “pretty manageable” amount of about S$5,000 more in stamp duty. “For high-end houses, we’re talking about high-networth individuals (who can afford these),” he added.

As for how sellers have responded to the news, in particular those hoping to secure an en-bloc sale, reactions have been mixed.

Mr Tony Sum, chairman of Laguna Park’s collective sale committee, told TODAY that the higher stamp duty could mean that developers are less likely to come forward. The 528-unit development at Marine Parade is making its second attempt at an en-bloc sale and has received 65 per cent approval from residents so far, still short of the 80 per cent needed.

He said: “Some of (the developers) might take this into consideration. The likelihood is that they will factor this into their calculations and offer the residents less than what they could have offered before.”

Mr Alex Teo, chairman of Braddell View’s management corporation, doubts that the extra tax amount “will have a big impact” on its en-bloc bid, given the relatively small-scale increase. The 918-unit estate, first built as public housing for middle-income families but privatised last year, is reportedly going for at least S$2 billion.

Whether for buyer or seller, Mrs Tang from Colliers International said that the stamp duty hike “represents a small margin” for both parties that would be absorbed. “There could be some knee-jerk reaction, but the economy remains the market’s key driver,” she said.