New steps rain on speculators' parade

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Published January 14, 2011

New steps rain on speculators' parade

Big hike in seller's stamp duty and mortgage restrictions to cool property market

By UMA SHANKARI


(SINGAPORE) Starting today, speculators in the Singapore property market will find their ardour cooled by a severe new regime. The seller's stamp duty for private homes will rise to as high as 16 per cent, from up to 3 per cent previously, while tighter mortgage restrictions will be put in place.

The government yesterday unveiled a new and stronger round of demand-side cooling measures - the third set in less than 12 months.

The killer move, according to analysts, is a sharp hike in the seller's stamp duty to 16 per cent, 12 per cent, 8 per cent and 4 per cent respectively for properties that are bought on or after Jan 14 this year and are sold in the first, second, third and fourth year after purchase.

Previously, owners who sold houses and apartments less than three years after buying them had to pay a seller's stamp duty of only up to 3 per cent.

Singapore also further slashed the Loan-To-Value (LTV) limit on housing loans for both individual and corporate buyers.

Its move follows Hong Kong's, which in late November 2010 announced some of its toughest-ever measures to cool the property market - including a stamp duty of as high as 15 per cent on apartments sold within six months of purchase. Hong Kong also tightened mortgage restrictions.

Analysts expect the higher seller's stamp duty will wipe out most speculators' gains and keep them out of Singapore's property market.

'For those buyers who intend to flip their properties within one or two years, the increased seller's stamp duty erases their potential gains,' said Merrill Lynch economist Chua Hak Bin. 'So this measure is pretty targeted and will take away a big chunk of these potential investors.'

But most analysts found the unexpected sharp hike in the seller's stamp duty to be harsh. In addition to hindering short and medium-term investors, it could also hurt genuine owner-occupiers looking to change homes.

International Property Advisor chief executive Ku Swee Yong said that a staggered-down capital gains tax - one that could perhaps be imposed only on capital gains from real estate - might have been more advisable. This would spare those who sell their properties at a loss.

'The government's intention of forcing people to treat real estate as a long-term investment is admirable,' said Mr Ku. 'But this (the higher seller's stamp duty) will force people to hold, including some genuine cases where there might be a real need to sell off a property.'

In addition, Singapore lowered the LTV limit on housing loans from 70 per cent to 60 per cent for individual buyers with one or more outstanding housing loans at the time of the new home purchase.

And for corporate purchasers (such as firms, trusts and collective investment schemes), the LTV limit has been cut to an even lower 50 per cent - regardless of the number of outstanding housing loans at the time of the new home purchase.

In August 2010, the government reduced the LTV ratio from 80 per cent to 70 per cent.

Yesterday's measures follow three gentler sets in September 2009, and February and August 2010.

'Previous government measures have to some extent moderated the market, but sentiment remains buoyant,' said the National Development and Finance Ministries in a joint statement with Singapore's central bank, the Monetary Authority of Singapore.

'Low interest rates plus excessive liquidity in the financial system, both in Singapore and globally, could cause prices to rise beyond sustainable levels based on economic fundamentals.'

Private home prices rose 17.6 per cent last year, according to flash estimates. A record 15,500-16,500 new private homes are also estimated to have been sold in 2010.

In a statement, the Real Estate Developers' Association of Singapore (Redas) said it has 'taken note' of the latest measures.

The measures will discourage speculative demand and will encourage longer-term holding of properties which will contribute to the stability of the market, Redas said: 'It is in the interest of the market to see a more gradual trend in growth and value for genuine home owners and investors.'

Merrill Lynch's Dr Chua also said that in addition to curbing speculators, the government could be concerned by aggressive mortgage lending by banks.

Analysts expect the volume of new home sales to fall in 2011 but were spilt on whether the new measures will cause private home prices to decline.

'There will be a sense of uncertainty in the market leading to hesitation among buyers and sellers and we can expect to see transactions easing in the short term,' said Credo Real Estate executive director Ong Teck Hui.

But the measures may not lead to an immediate price decline in Q1 2011, he said. This round of measures is still not as severe as the anti-speculation measures announced in May 1996, which resulted in a 1.9 per cent drop in prices in Q3 1996. But any upside in prices in Q1 2011 will be 'minimal', Mr Ong added.

But in any case, analysts said that the 5-10 per cent growth in private home prices for the whole of 2011, which they predicted just one week ago, now looks highly unlikely. They also expect property stocks to fall today in reaction.

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Published January 14, 2011

COMMENTARY

A cold shower on hot money

By KALPANA RASHIWALA


THE Singapore government yesterday acted defensively to stem the tide of hot money flowing into the island's housing market. This comes in the light of recent steps taken by Chinese and Hong Kong authorities to guard against property asset bubbles in their markets.

The latest measures are also the most severe announced till now to cool Singapore's housing market. Analysts say transactions will slide and so will prices. 'There's 100 per cent certainty these measures will work to cool the market,' declared Knight Frank chairman Tan Tiong Cheng.

The sharp spike in seller's stamp duties is even harsher than the May 1996 anti-speculation measures that had treated gains from sales of properties within three years of purchase as taxable income. Whereas that tax applied only to those who profited from flipping their properties, the latest set of hefty seller's stamp duties must be paid regardless of whether the seller makes a gain or loss.

Now, even if a property speculator or investor decides to simply cut a loss in future, he'll be liable to pay the hefty seller's stamp duty (SSD). This is a more severe deterrent to investing or speculating in property than the old 1996 tax.

In letter, the new SSD rates apply to those who buy a private home from today. In reality, they will also frustrate existing home owners' efforts to offload their properties as buyers become scarce since anyone who buys from today will be hit with the new SSD regime.

For those who buy a private residential property from today and sell it within the next 12 months, the seller's stamp duty will be 16 per cent of the sale consideration (much higher than the up to 3 per cent currently). If the property is disposed of in its second year of purchase, the SSD is 12 per cent (again higher than the up to 2 per cent currently). The SSD is fixed at 8 per cent if the property is sold in its third year of purchase (higher than up to 1 per cent currently). The government is also extending SSD for sale of properties in the fourth year of purchase, with the rate fixed at 4 per cent.

What the new SSD rates effectively mean is that short-term speculators would have to be confident of being able to clear a profit hurdle of about 20 per cent (comprising the 3 per cent stamp duty payable when buying the property and the 16 per cent SSD when divesting it within a year) before they'd find it worth their while to enter the market.

Following HK's example

The SSD package is somewhat similar to what Hong Kong authorities announced in November. Under those measures, homes sold within six months of purchase attract an extra 15 per cent stamp duty; the rate is 10 per cent for properties resold between 6 and 12 months; and 5 per cent for those resold between 12 and 24 months.

The Hong Kong government also raised downpayments for homes (depending on their value) and lowered the loan-to-value (LTV) limit for non-owner occupied residential properties and those held by corporates to 50 per cent.

Yesterday, Singapore's authorities too announced a lowering of the LTV limit (from 70 or 80 per cent currently) to 50 per cent on housing loans granted to corporates, trusts and other non-individual buyers.

Analysts suggest that this measure could have been triggered by recent bulk purchases of units in new residential developments which help developers achieve more pricing power.

As well, the Singapore authorities are further reducing the LTV limit on housing loans from 70 per cent to 60 per cent for new purchases by individual home buyers with one or more existing housing loans. This should further foster financial prudence and reduce over-exposure to the property market among Singapore households. After all, the hot money coming in from overseas can easily leave the local property market, and Singaporeans may be left holding the baby from a property downturn.

The latest package is the biggest bomb the government has dropped from its arsenal to cool the property market - and this will no doubt unnerve market players.

But the measures are not intended to cause a severe crash in the market and if that threatens to happen, the government can quite easily withdraw them.

On a brighter note, those who have been waiting for a price correction to enter the market may now see their wish fulfilled.

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Jan 14, 2011

new property curbs

New measures to curb property speculation

Govt steps in for fourth time in two years, catching many by surprise

By Esther Teo


A CHILL is set to descend on Singapore's property market after the Government unveiled tough new measures yesterday that analysts say will effectively kill off short-term speculation and make most property investors look before they leap.

They include hiking seller's stamp duty to a new maximum of 16 per cent, up from 3 per cent previously, and making it payable for up to four years from the date of purchase of a property.

Anyone with an existing home loan looking to buy a second property for investment will also now need to fork out more cash and Central Provident Fund savings.

That is because the loan limit for such properties is now 60 per cent of the property's value, down from 70 per cent previously.

The measures take effect today.

Yesterday's announcement marked the fourth time in less than two years that the Government has stepped in to cool the property market here.

It caught many by surprise, since it comes barely five months after tighter financing and ownership rules were announced on Aug 30 last year.

In its statement, the Government said that while these previous measures had to some extent moderated the market, sentiment remained buoyant.

'Low interest rates plus excessive liquidity in the financial system - both in Singapore and globally - could cause prices to rise beyond sustainable levels based on economic fundamentals,' it added.

'Moreover, when interest rates eventually rise, it could strain purchasers who have over-extended themselves financially.'

Even as the Government moved to temper exuberance in the market, homes were flying off the shelf.

Local developer Oxley Holdings separately announced yesterday that its 41-unit Loft@Holland condominium was sold out within two hours of its soft launch at prices from $1,630 per sq ft to $2,166 per sq ft.

'Demand was strong enough to require balloting to be conducted for all but two units,' it added. 'On average, there were about three interested buyers per unit.'

The seller's stamp duty was first introduced in February last year. Its impact is especially significant because it is payable regardless of whether the property is sold at a gain or loss.

The Government also introduced a new rule that will see institutions such as corporations, trusts and collective investment schemes face tighter financing rules.

The loan limit will be lowered to 50 per cent on housing loans granted to property purchasers of such types who are 'not individuals or natural persons'. There was no rule specific to this class of investors previously.

But these tighter rules will not apply to loans granted to property developers for en bloc sales or land zoned for residential purposes, the Monetary Authority of Singapore said.

Although the new measures have been introduced to cool the market in general and encourage greater financial prudence among home buyers, some property buyers will remain unaffected.

First-time buyers, as well as property owners without outstanding home loans, continue to be able to borrow up to 80 per cent of the value of the property.

Private home prices climbed 17.6 per cent last year as a record 15,025 new homes were sold in the first 11 months of the year.

A surfeit of liquidity and low borrowing rates have also fuelled concerns that asset bubbles are forming not just in Singapore but in regional economies like Hong Kong and China.

In November, Hong Kong announced some of its toughest-ever measures to cool the property market, applying a stamp duty of as high as 15 per cent on apartments sold within six months of purchase.

Downpayments for homes costing HK$12 million (S$2 million) or more also rose to 50 per cent, from 40 per cent previously.

Sounding shell-shocked, industry players said the market will probably react in a knee-jerk manner.

Buying interest will dry up initially and new property launches will slow down as the market digests the news.

Ms Tay Huey Ying, director of research and consultancy at Colliers International, expects home buyers to be on their guard, leading to a fall in sales volume in the short term before possibly recovering later.

She has revised her price growth forecast for this year down from 10 per cent to between 5 and 8 per cent.

The Real Estate Developers' Association of Singapore (Redas) said that the measures will discourage speculative demand and will encourage longer-term holding of properties, contributing to the stability of the market.

'It is in the interest of the market to see a more gradual trend in growth and value for genuine home owners and investors,' it said.

Ms Valerie Lee, 24, a first-time buyer looking for a private home, welcomed the new measures, saying that property prices have remained out of her reach even after the Aug 30 measures were introduced.

'As a genuine buyer, I think it's a good move,' said the executive in a utility and energy company. 'The property price index is still going up, so hopefully these new measures will work and be substantial enough to keep speculators away. I'm hoping that prices will come down.'

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Jan 14, 2011

new property curbs

Property measures will stem demand for now: Analysts

Investors will think twice and developers are expected to delay launches

By Jessica Cheam, Housing Correspondent


THE property cooling measures announced yesterday will effectively halt buying activity from property investors across the private market - at least for the time being.

Market analysts that The Straits Times spoke to said the drastic measures will make investors reassess their finances and think twice before signing on the dotted line.

Developers are also widely expected to postpone their property launches and may lower their prices to lure buyers back to the market in the coming months.

Yesterday's measures, which included raising the seller's stamp duty to a hefty maximum of 16 per cent of the purchase price, and lowering the amount banks can loan home buyers for a second property to 60 per cent of the property's value, were described as 'punitive' by analysts.

Property consultancy International Property Advisor's (IPA) chief executive Ku Swee Yong said the move was a 'sledgehammer' that came as a surprise to the industry.

'Many of our clients who are genuine investors are now re-assessing their loans situation. The market will be frozen stiff for a while,' he said.

And for sellers who buy a private property from today onwards but genuinely need to dispose of their properties in the short-term, such as those who have suffered losses in business or who have fallen critically ill, the stamp duty will 'cripple them completely', he added.

Property investor S.K. Cheah, 42, who is self-employed and already owns a few investment properties, said that genuine investors will find it hard to come up with the 40 per cent downpayment for new investments.

But he conceded that in the long run, this may be healthy for the market as there are many investors out there who may be heavily leveraged and may get into financial trouble when interest rates start climbing.

Mr Colin Tan, research and consultancy director of Chesterton Suntec International, said that the industry had somewhat anticipated another round of measures - but not so soon.

The last round of measures, which tightened ownership rules and restricted financing, was announced last August and the market was still reacting to that, he said.

Demand will most certainly be dampened, added Mr Tan, but he noted that investors who are 'comfortably well off' will not have problems forking out a higher amount upfront for investment homes.

Foreign capital inflows into Singapore - a well-known destination for property investment on the international property circuit - could still create demand in the market, he added.

All eyes are on developers now for their next move.

CapitaLand, for example, was expected to launch around 1,700 new homes this year across some projects such as The Nassim, Urban Resort Condominium, The Interlace and d'Leedon.

City Developments and Far East Organization also had new launches slated for the next few months. When contacted, all three developers declined to comment.

Mr Tan said he expects a knee-jerk reaction from developers, who will now most likely postpone these launches.

Mr Lim Yew Soon, managing director of EL Development, said he is mulling over the effect of the measures on his company's Skysuites 17 at Balestier, which is slated for launch in March.

'If the market takes it lightly, our pricing will still meet market expectations. But if the market reacts drastically, based on upcoming launches, we may decide to hold off the launch by three months or so,' he said.

IPA's Mr Ku said developers may have to reduce their asking prices, and may drop them by 1 to 2 per cent initially to test the market.

Although yesterday's measures did not directly address the public housing market, analysts say the measures could also have a trickle-down effect on HDB resale flat prices.

Mr Ku noted that if mass market home prices started declining to the level of sought-after HDB resale flats in good locations, resale flat prices could weaken as buyers look to buy private property instead.

First-time home buyers such as Ms Yvonne Koh, 26, a bank executive, said the prospect of falling prices is music to her ears. 'I just started looking for a home and was deciding between a private apartment and a resale HDB flat. Hopefully the measures will bring prices down to a more affordable level so I can buy sooner rather than later,' she said.

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