Surprise tweaks in property cooling measures seen signalling further unwinding

The housing market may well be bottoming, making buyers more sanguine about prospects of a price recovery
PHOTO: The Straits Times

The government's unexpected move to make "calibrated adjustments" to a couple of the residential property cooling measures amid a recovery in private housing sales volumes has baffled many market watchers.

Could it be that the authorities were just getting tired of grumbles by individuals and decided to respond to ground feedback? If so, how really impactful can the latest announcements be?

There is little doubt that, at the margins, they will benefit segments of homeowners.

For instance, the decision to no longer apply the total debt servicing ratio (TDSR) framework to mortgage equity withdrawal loans with loan-to-value ratios of 50 per cent or less will help those who need to monetise assets. This was probably in response to concerns from retirees.

Paring the seller's stamp duty (SSD) by shortening the holding period to three years from four years and by lowering the rate by four percentage points for each tier provides a confidence boost to individuals and families that are hoping to buy a residential property for investment.

Read also: Should property cooling measures be relaxed?

However, there is no change to the additional buyer's stamp duty (ABSD), targeted at foreign buyers as well as Singaporeans who own multiple properties. Neither is there any change to LTV limits and the 60 per cent TDSR ratio.

And they are the ones that many homeowners and potential buyers have the greatest issue with.

So perhaps not surprisingly, some see the impact of Friday's tweaks on the property market as muted.

Risks of buying property in Singapore

  • Investing in real estate can be very profitable. However, like every other profitable endeavor it comes with several risks.
  • Here are the things you need to consider while investing in real estate in Singapore.
  • 1. Fluctuating prices

    In Singapore, the market was previously saturated with people wanting to buy property due to the stable environment. Demand was higher than supply, which led to higher property prices.

  • 1. Fluctuating prices

    The high demand and low competition trend in real estate is however reversing. Many developers are releasing new projects and supply has outstripped demand. Property prices has been slowly declining.

  • 2. Tedious bureaucratic processes

    Singapore has strict bureaucratic processes for real estate projects. These processes are necessary in order to obtain approval for projects and fulfilling the pre-requisites before the property can be sold.

  • 2. Tedious bureaucratic processes

    Some developers tend to overlook these processes. 7 such projects with a total of 574 homes have recently been identified, including City Development's and IOI's South Beach project.

  • 3. Turnaround time

    There was a time when developers took about 43 months to complete a project due to the uncertainty in the real estate market. Now, you can now expect a project to be completed within five months.

  • 4. Legal risks

    Legal work is yet another factor you need to keep in mind. You need to follow the rules and regulations to stay clear of charges and penalties. Make sure you know the rules of property transfer and purchase.

  • 5. Mortgage eligibility and suitability

    HDB provides housing loans at concessionary interest rates to flat buyers. However, to prove your eligibility, you need to go through a credit assessment and mortgage loan eligibility process.

  • 5. Mortgage eligibility and suitability

    If you don't meet the criteria set by the HDB, you can always take the loan from private banks and other financial institutions.

  • 6. Illiquidity in the real estate market

    The price of real estate in Singapore is rising due to its high demand. So, illiquidity is only a minor risk. But it's always a good idea to be careful and do your research before you invest in a particular property.

The government could be trying to test the market by making these small tweaks to the cooling measures. Even if private home prices start rising from this point, it would not pose any big danger to the economy or banking system. Right now, there is no property bubble.

In fact, the tweaks may be viewed as the release of pressure via small valves - just in case the economy turns out badly this year.

Read also: Central bank backs keeping property cooling measures in place

But there are several factors that could mitigate any boost in the property market arising from the latest announcement - not least of which is the interest rate outlook. Market watchers expect the US Fed to make at least three rate hikes this year, with the first one poised for next week. Just last week, US Federal Reserve chair Janet Yellen gave a strong signal that a rate hike later this month would be "appropriate".

A rising interest rate environment would dampen property demand, thus limiting any increase in home sales arising from Friday's tweaks.

While the SSD adjustment may spark some buying enthusiasm among individuals, there is a countervailing force that will douse demand from institutional investors: the introduction of additional conveyance duties or ACD.

This is a new stamp duty imposed on residential property transactions involving significant changes in equity interest in entities that primarily hold residential properties and will close the previous differential in stamp duty treatment between such indirect property transactions and direct property deals.

Effectively, the ACD plugs a loophole that institutional and sophisticated investors have been exploiting for years to save on stamp duty payment.

Read also: Over 1,800 HDB flats sold in April, highest since property cooling measures introduced

While the ACD on the significant buyer in these indirect property purchases is identical to the buyer's stamp duty of up to 3 per cent and the 15 per cent additional buyer's stamp duty in direct property purchases, the ACD on the significant seller is more punitive at a flat 12 per cent for sale of equity interest within three years of purchase - regardless of whether the seller had held the equity interest for one year, two years or three years.

On the other hand, the SSD for direct sales of a residential property within three years of being bought on or after March 11, 2017 is on a downward sliding scale - 12 per cent if sold in the first year, 8 per cent in the second and 4 per cent in the third.

So investment demand for residential properties from the likes of funds and sophisticated investors can be expected to take a hit.

What type of property in Singapore should you buy

  • Buying property is a long term investment. When you're thinking of diving into real estate investment, it's better gather as much information on it as possible.
  • Just like in any part of the world, having a private property is a good decision as there are many benefits. For instance, the property cycle in Singapore over the last years indicates that there is a steady rise in real estate's value.
  • Alternatively, real estate investment can be a source of passive income. You can purchase a property and rent it out.
  • Hougang Capeview BTO flats

    BTO comes under the Housing and Development Board (HDB), Singapore. It's a responsive system, which allows Singaporean citizens to apply for flats at a location of their choice.

  • BTO flats at Sky Terrace@Dawson

    Once 65-70 per cent of the flats are booked, the construction work begins.

  • Tampines GreenLace BTO flats

    After the construction is completed, you will have to wait for some time before you can move in.

  • Pasir Ris One DBSS project

    Design, Build, and Sell Scheme (DBSS) is an incentive of the HDB system. DBSS is public housing scheme developed by private developers.

  • City View @ Boon Keng DBSS project

    The DBSS scheme offers more comfortable designs and better locations.

  • Executive Condominium

    Executive Condos (ECs) caters to young graduates and professionals who wants a property in between public and private housing.

  • Executive Condominium

    ECs are comparable in design and facilities to private condominiums as they are developed and sold by the private developers.

  • When it comes to investing in real estate, you should ask whether there is easy access to MRT stations, schools, and other essential facilities; the property can be easily resold; and affordability.
  • What are the costs involved in buying a property in Singapore? First, you have to check your stamp duty rate. Based on the market value of the property, you can compute for your Buyer's Stamp Duty (BSD).

While the adjustments to the SSD and the TDSR are seen as having a muted impact on the market, what is more important is the signal that property market participants will read from Friday's announcement.

Most would be inclined to think that the government is now prepared to further unwind the property cooling measures, which were implemented in stages between 2010 and 2013. This will strengthen the view that the Singapore housing market is bottoming and make buyers more sanguine about prospects of riding on a price recovery after a price slide over three years.

"I would call this is a candle light at the end of the tunnel," quipped JLL national director Ong Teck Hui.

As a clearer picture of the impact of round one emerges in the coming days and weeks, the government will decide what to do, or not do, next.


This article was first published on Mar 11, 2017.
Get The Business Times for more stories.

Purchase this article for republication.

SERVICES