Thursday, December 8, 2011

Developers fear impact of targeted stamp duty

Business Times: Thu, Dec 08
(SINGAPORE) The government yesterday announced significant steps that could bring private home prices back within the reach of Singaporeans. Developers, however, have called these steps, which are expected to hit sales and prices, untimely.

Starting today, foreigners and corporate entities buying private homes in Singapore will have to pay an extra 10 per cent by way of an additional buyer's stamp duty. This duty will also apply to permanent residents (PRs) buying their second or subsequent homes and Singaporeans buying their third residential property or more - though only to the tune of 3 per cent. Overseas properties are excluded from the count of properties owned.

The move is aimed at reining in private property prices, which some felt were slipping beyond the reach of many Singaporeans. Real Estate Developers Association of Singapore (Redas) said, however, that the measures are untimely given that the local economy is expected to slow down next year. 'Redas is disappointed in the lack of consultation on the latest measures. They came as a surprise as the current market outlook is uncertain. The good take-up rate in the primary market is driven by the increased number of new launches and unique selling points of certain projects. It is not indicative of a return to a speculative market.'

The government also boosted the supply of land for executive condos in H1 2012 as part of its land sales programme.

Though the additional buyer's stamp duty (ABSD) kicks in today, remission will be given for options granted on or before Dec 7 and exercised within three weeks (that is, on or before Dec 28) or the option validity period, whichever is earlier.

Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam said: 'We have always had open markets and must keep them that way. However, the reality is that investment flows into our property market are now larger than before, and unlikely to recede as long as interest rates remain low. The additional buyer's stamp duty should help cool investment demand, and avoid the prospect of a major, destabilising correction further down the road.'

A joint release from the Ministry of Finance and the Ministry of National Development yesterday evening said: 'A higher ABSD rate for foreign buyers in particular is necessary, in view of the large pool of external liquidity and strong buying interest from abroad, and the relatively small size of the Singapore market.'

It added: 'Excessive investment demand will . . . make the property cycle more volatile, and thus increase the risks to our economy and banking system.'

Foreign purchases accounted for 19 per cent of all private residential property purchases in H2 2011, up from 7 per cent in H1 2009, it noted.

Credo Real Estate's analysis showed that foreigners' presence is much stronger in the prime and mid-prime districts, where they accounted for nearly a quarter of caveats lodged in Q3 2011 - up from 16 per cent in 2010 and 13 per cent in 2009.

For the suburban mass- market segment (Outside Central Region), the proportion has also been rising, from 5 per cent in 2009 to 7 per cent in 2010 and nearly 15 per cent in Q3 2011.

'The suburban mass market is probably of greater concern as buyers of first private homes would feel threatened by increasing number of foreign purchasers,' said Credo executive director Ong Teck Hui.

DTZ's Southeast Asia chief operating officer Ong Choon Fah said the ABSD is not a blunt policy tool. 'They have made distinctions between foreigners and PRs and whether they are buying for owner occupation or investment. This is very carefully calibrated to strike a balance between the price that Singapore has to pay for being an open economy and ensuring property prices remain within the reach of Singaporeans.'

She reckons developers will take a wait-and-see attitude, evaluate their options and watch how buyers react.

'Prices should fall but activity has to drop significantly first before developers re-price their projects. The likelihood is that some may first take soft measures to mitigate the situation - such as absorbing the additional buyer's stamp duty or giving furnishing vouchers - before resorting to a price cut.'

Knight Frank chairman Tan Tiong Cheng too acknowledged that prices will soften. 'With so much supply coming into the market, developers will either have to revise their prices to move units, or absorb the additional buyer's stamp duty.' The latter will be tantamount to a price cut as far as a developer is concerned, note analysts.

'This set of measures will definitely help to cool prices. The concern has been that foreign buying is pushing up prices,' said Mr Tan. With the 10 per cent ABSD on foreign buyers, the long-awaited recovery in demand in the luxury sector will take even longer, he added.

Standard Chartered Bank said in a research note last night: 'We expect the policy to induce a 20 per cent decline in sales volume in Q1 2012. . . We continue to expect residential prices to fall 20-30 per cent next year.'

Source: Business Times © Singapore Press Holdings Ltd

Team Marshe
Martin Koh/ Sherry Tang
9383-3992/ 9844-4400

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