Do the Additional Stamp Duties and HDB Cash Over Valuation Make Sense?

By The Folks(guest contributor)

A letter from a certain Mr Zhuang Li-Hao was published in the Straits Times forum page recently. Mr Zhuang felt that existing policies curb transaction volumes, but are by themselves inflationary. This is why prices continue to rise despite the various rounds of cooling measures. He suggested two ways to modify current housing policies to stabilize housing prices and demand:

1. Replace Additional Buyer’s Stamp Duty (ABSD) and Seller’s Stamp Duty (SSD) with a capital gains tax

Mr Zhuang feels that both ABSD and SSD deter speculators, but directly increase the costs of ownership and transaction. And in a rising housing market, buyers and sellers will hold on to their positions. Sellers in particular, will build the ABSD and SDD into selling prices. As such, the number of transactions will drop as prices increase.

He proposed to replace ABSD and SSD with a capital gains tax of 100 percent, 75 percent, 50 percent and 25 percent respectively in the first four years. In this way, the cost of ownership remains the same. Speculators have no incentive to buy and sell since all profits are taxed, especially in the first year, while genuine buyers and sellers are not punished.

2. Replace the Cash Over Valuation (COV) with Cash Over HDB Price

The COV component for resale flats creates a volatile and unstable system as valuation is based on the last transaction. In a rising market, every transaction increases valuation by the COV amount.

Mr Zhuang proposed to replace COV with cash over HDB price. The prices of flats that HDB sold to the first owners are fixed. The new component will force buyers to fund the difference between the selling and original prices with cash or CPF savings, and not with loans. He felt that thus will immediately create a stable pricing system.

Our thoughts on the suggestions

A couple of thoughts after reading the article:

  • My wife and I have bought and sold three different properties over the course of six years, prior to our current home. We only owned those properties for less than two years each but we were staying in all the properties concerned during the period of ownership. Does that still make us a speculator as opposed to genuine buyer and seller?
  • While we understand the (real) reason our Government would prefer alternative form of measures to cool the market rather than imposing capital gains tax, is the latter really a more effective measure to stabilize housing prices and demand?

The proposal by Mr Zhuang is likely to kill the sub-sale market instantly and reduce activities in the resale market . But if it is indeed true that the current high prices are due to exceptional strong demand for mass-market homes from genuine upgraders with primarily HDB addresses, even the change-over to a capital gain tax will have a muted effect on buying interests.

  • And speaking of COV and escalating HDB resale prices,  the whole purpose of subsidized public housing is to ensure that every Singaporean has a roof over their heads and to fulfill their aspirations of home ownership. It is not meant to be a mechanism for people to make money.

One of the primary reason prices for mass-market homes being “chased up” to the current levels is because of the money that potential HDB upgraders can make out of selling their flats these days. As such, the Cash Over HDB Price proposal is an interesting proposition. The public housing market should be “controlled” for both the new and resale markets. You can have all the free market mechanism you want in the private housing sector.

By The Folks who blog at SG PropTalk.

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