What's New In Property

Still a business-as-usual Budget for developers, home buyers

Mar 4, 2018


The Budget has unveiled a move to enhance progressivity by increasing the top marginal Buyer's Stamp Duty (BSD) rate for residential properties with a value above $1 million from 3 to 4 per cent.

The top rate, which will apply only to the portion above the first $1 million, took effect for all residential property purchases from Feb 20.

With the upsurge in land prices last year and positive market sentiment, private real estate prices are expected to grow by 5 to 7 per cent this year.

Given the heightened interest in the market, the Government has timed the increase well, as prices and transaction volumes could return with a vengeance now that the Chinese New Year celebrations are over.

While this move was largely unexpected, we do not believe that it will have any wide-ranging impact on the residential market recovery, although developers making big collective sale purchases or bidding for government land sale sites through state tenders will feel the pinch more due to the sheer quantum of these transactions.

The BSD is progressive, so the effective increase is less than 1 percentage point for most properties below $5 million. For example, the increase in effective BSD is only 0.5 percentage point or $10,000 more for a $2 million property purchase, which is merely a slap on the wrist for such buyers. So it is not expected to have a substantial cooling effect on property demand.

Any pullback in transaction volumes in the near future should be short-lived, as the sound fundamentals of the market will keep the sector buoyant.

Nonetheless, the stamp duty increase could sway more demand towards smaller units in suburban areas, where the quantum is relatively lower. New launches may also benefit as the current unit mix tends to be geared towards smaller units.

The higher duty will marginally impact the collective sales market, as the price tag can be hefty for most en bloc deals, which easily run into hundreds of millions of dollars. Developers may pull back a little after securing a total of eight sites over the first seven weeks this year for a total of $3.1 billion to reassess the feasibility at the current prices. Some may also look at commercial properties instead, as commercial buyer's stamp duty rates remain unchanged.

NOT A BIG BOOST TO THE GOVERNMENT'S COFFERS

Based on data from URA Realis, the proportion of the properties transacted above $1 million is around 64 per cent of the total private residential sales, including executive condominiums.

The incremental tax revenue based on the 2017 financial year is $193 million from all residential transactions. In addition, the total residential land acquisitions by developers last year amounted to $15.9 billion, which would translate to around $159 million of additional tax revenue if the new stamp duty rates were to be applied.

If we assume the total residential transaction value this year to go up by 30 per cent, and land acquisitions remaining in the range of $16 billion, we can expect the incremental tax revenue to be around $411 million this year. This is equivalent to 8 per cent of the total stamp duty collected last year. The increase in the Government's coffers is hence quite minimal.

All in all, it is still a business-as-usual Budget for developers and home buyers. From the Government's perspective, the approach for tax revenue through the buyer's stamp duty is more targeted and progressive, and is probably a better alternative to a wealth tax and estate duty, which may hurt Singapore's reputation as a wealth hub in the region.

At the same time, it sends a subtle message to the red-hot property market, probably dampening some excessive exuberance in the residential market that has been fuelled by collective sales fever. It is a win-win situation for the Government.

•The writer is the director and head of Singapore research at property consultancy Cushman & Wakefield.