By Mr. Propwise
It’s finally happened – or so it seems. While steadfastly claiming that the property measures are here to stay, the government has finally eased the property cooling measures. These new measures took effect from March 11.
So does this mark the bottom of the property price decline? Read on to find out what I think.
Seller’s Stamp Duty holding period reduction – more than meets the eye
The Seller’s Stamp Duty (SSD) was payable if you sold a residential property within four years of purchase, at progressively lower rates of 16%/12%/8%/4% if you sold your property within 1/2/3/4 years of buying it.
The SSD has now been revised to be levied on holding periods of three years or less, with the amount to be paid lowered to 12%/8%/4% if you sell your property within 1/2/3 years of buying it.
Mr. Propwise’s thoughts: The 4-year SSD had led to a large fall in the number of property sales within a 4-year window of buying it. The government’s original motivation was to discourage speculators from “flipping” properties, but this also led to a significant reduction in supply in the resale market, and hence pushing demand to the new sale market. The 3-year SSD should lead to a gradual increase in supply in the resale market, which based on Economics 101 means that the downward pressure on prices in the medium term should be increased, i.e. This policy should be negative on prices. However, the impact will only be felt in the medium term as the reduction in the holding period is not retroactive but will only apply to purchases going forward. There could also be some uplift in demand as marginal buyers who were put off by an effective 4-year holding period could now be drawn back into the market given the reduction to a 3-year period.
Total Debt Servicing Ratio tweak
Previously, the across-the-board application of the Total Debt Servicing Ratio (TDSR) threshold of 60% meant that some borrowers (especially the older folk) found it difficult to refinance their properties and monetize them.
The new rules are now relaxed so that the TDSR framework no longer applies to mortgage equity withdrawal loans with LTV ratios of 50% and below.
Mr Propwise’s thoughts: This new rule gives an increased flexibility to people with fully or largely paid up properties (e.g. Retirees) to get cash out of them (i.e. Borrow against their equity) from banks. Previously, being unable to borrow against their properties, this group might have been forced to sell their properties to raise cash, thus increasing supply and pushing down prices. Overall, this policy should be marginally positive for the market, although the affected demographic is likely to be small.
Stamp duty on companies holding residential properties
There used to be a loophole on avoiding paying the property stamp duties including ABSD whereby residential properties could be sold by transferring interest in the company holding them instead of in the properties directly. This loophole is now being closed.
Going forward, residential property-holding entities (PHEs) will also be subject to the same stamp duties as direct property transactions when they transfer their equity interest.
Mr. Propwise’s thoughts: This measure does not really affect individual buyers and sellers of real estate, but is targeting developers who had previously tried to skirt around Qualifying Certificate penalties (i.e. Fines on them for not selling out their properties within a certain time period) by doing bulk transfers of their properties via a transfer of equity interest in the PHEs to related entities or other wealthy buyers. The net impact could be that developers will now be more incentivized to cut prices and sell affected properties to individual buyers instead of exploiting this previous loophole.
Overall impact – good for sentiment, but a marginal impact on supply and effective demand
I have to say it’s surprising that the government is now slightly relaxing the measures (although they call it “calibrated adjustments”) given that property prices have not come down significantly and demand for new sales is still strong.
This easing, even thought fairly insignificant, will fuel the hopes of buyers (and developers and agents) that a further relaxation of the measures is on the cards, especially of the “killer” ABSD and TDSR measures.
This improving sentiment should lead to better sales in both the new and resale markets as buyers who were previously sitting on the fence get encouraged that we’ve hit a bottom and come back into the market.
Is the property bull market back? The stocks of property developers have risen. Crowds were seen at the latest launch of Park Place Residences at Paya Lenard Quarters. But don’t forget we are also facing the prospect of multiple interest rate increases by the Fed this year and a weak economy. Let’s see how this plays out.