By Property Soul (guest contributor)
On 10 March 2017, a press release was jointly issued by Ministry of National Development, Ministry of Finance and the Monetary Authority of Singapore to make adjustments to the Seller’s Stamp Duty (SSD) and Total Debt Servicing Ratio (TDSR) framework, with effect from 11 March 2017. The changes are as follows:
1) The holding period liable for SSD is revised from 4 to 3 years. There is also a 4 percent reduction every year on the original SSD payable.
2) TDSR is exempted for mortgage equity withdrawal loans with LTV (Loan To Value) ratios of 50 percent and below.
3) A new stamp duty, the Additional Conveyance Duty (ACD), is introduced for residential property transactions undertaken via transfer of shares in property-holding entities. The seller pays a flat rate of 12 percent for a 3-year holding period. On top of that, a prevailing 0.2 percent stamp duty for transfer of shares applies.
Contrary to those who celebrated by dumping more money into new launches and property stock counters, the sudden tweak of the cooling measures is not a good sign for the property market for the following three reasons.
Reason #1 – If everything is going to be fine, you don’t have to do anything
Singapore introduced the first round of cooling measures in September 2009. The last round of cooling measures, the eigth and the hardest round with the new TDSR framework, was announced in June 2013.
After that, for a long 45 months, the government stayed firm on its implementation. The intention was to ensure that there is a ‘meaningful correction’ and a ‘soft landing’ of the property market. A pre-mature lifting of the measures would undo the government’s efforts to make home prices affordable. The government would monitor the market and adjust when necessary.
A necessary move was finally taken on the 10th of March.
When the adjustment is on the Seller’s Stamp Duty but not the Additional Buyer Stamp Duty, this is not good.
Relaxing the ABSD implies that the government wants to stimulate demand. But tweaking the SSD means that the government perceives the market will go through a tough time soon. When the group of owners with less holding power decides to cut loss, we have to ensure that they can afford to pay the SSD.
The Federal Reserve is expected to hike rates at least three times this year. With the slowdown of the economy and oversupply in the current market, things are not going to be fine.
Reason #2 – If it works so well, forget about the market going up any further
Hong Kong property prices have increased more than 150 percent since 2009 and 370 percent since 2003. The government has announced borrowing restrictions and a 15 percent hike in stamp duties. Still, prices continue to reach record high in new projects. Similarly, countries like Australia, New Zealand and Canada have imposed tighter rules for foreign investment in properties. Still, their real estate market proves to be more resilient than ever. As economist John Maynard Keynes said, “The market can stay irrational longer than you can stay solvent.”
Singapore seems to be the only odd one out that defied the norm for the effectiveness of property cooling measures. Since the enforcement of TDSR, prices have dropped 11.2 percent from the peak. While governments in other countries are deciding whether to impose new restrictions, Singapore has already started fine-tuning some rules without worrying about a U-turn in the market. So, forget about any hope that prices can recover any time soon.
Reason #3 – If the obvious option is not available, there is only one way out
Under the Qualifying Certificate (QC) regulation, developers have to sell all their units within two years of obtaining the Temporary Occupation Permit, or pay extension charges on the unsold units. If developers can’t sell all units in their project after five years, they have to pay ABSD on the remaining units.
But developers have found a smarter way out by moving their outstanding stock through transfer of shares. In January, banker Wee Cho Yaw used a company to buy over 45 remaining units of The Nassim for S$411.6 million, through the purchase of a 100 percent stake in Nassim Hill Realty from CapitaLand.
Last July, City Developments forked out $410.96 million for Wing Tai Holdings’ joint venture Summervale Properties which owns Nouvel 18 condo. Just three months later in October, the unsold units were offloaded to a group of Singapore investors via a S$977.6 million profit participation securities platform with an annual payout. Out of that S$102 million was raised through issuing equity shares.
With the new Additional Conveyance Duties, the loophole was plugged. Developers with projects that are approaching the deadlines have no choice but to pay ABSD and extension charges. CapitaLand just called for an extension of timeframe for developers liable to ABSD and QC. It is also asking the government to relook the definition of a foreign developer. So far CapitaLand have paid $8.03 million for The Interlace and $2.56 million for d’Leedon in extension charges. This is not a big sum for a big developer.
ACD should still be bearable for large developers that are cash-rich and financially sound. But this may not be true for smaller developers holding onto unsold units in projects that are fast approaching the deadlines. When the option of share transfer is not feasible, pricing cutting to move leftovers off the shelves is the only way out. A good sign for the home buyers: There is no rush for the new launch. Many good offers are on the way.
As the saying goes, they always save the best (bargains) for last.