Monday, September 16, 2013

Property market set for 2016 supply avalanche

The Business Times - August 12, 2013
SSD scheme may work against govt's intention, say market players

[SINGAPORE] With previously locked-up homes getting ready to hit the market, it is timely to relook the sellers stamp duty (SSD), to prevent a head-on collision with the record number of private homes that are expected to make it to the market in 2016, say market observers.

According to data provided by Orange Tee, a total of 33,555 units are expected to make it to the market in 2016, compared with the 15,503 units that are available this year.

Of this, 27,181 units will originate from newly launched projects while the remaining 6,374 units will be from the stash of previously locked-up units, assuming that owners choose to hold onto their properties and not incur any SSD.

This follows enhancements to the SSD scheme in 2011, which saw the holding period raised from three to four years, and rates increased steeply up to 16 per cent.

Specifically, properties bought from Jan 14, 2011 and sold within the first year of purchase, will be hit with an SSD of 16 per cent versus 3 per cent previously. Properties sold in their second and third year respectively will be levied with a 12 per cent and 8 per cent SSD respectively (from 2 per cent and one per cent previously). A 4 per cent SSD will be levied on properties sold in the fourth year (that is, properties held for more than three years but below four years).

While the sheer quantum of units waiting in the wings looks intimidating, it is important to view them in the context of other factors including market conditions, economic prospects, interest rate movements, and the rental market, said property veteran Donald Han.

"Also, assuming that measures remain as they are, if you sell your property and decide to enter the market again, you will be hit by the Additional Buyer's Stamp Duty (ABSD), and that will have a considerable impact on decision making," pointed out Mr Han.

"The resale market is quiet at the moment, but not entirely because demand has softened. One reason that the secondary market has nose-dived is that sellers are thinking: if I sell now, I won't be able to buy at a competitive rate because of the ABSD. Plus, the rental market is strong, and they know they are sitting on healthy capital gains, so why should they sell?

"So the decision-making process (will include questions like) - can I rent out my unit? Can my yields counter any potential increase in interest rates? How many units am I holding? If I have only one other unit and I sell that, when I re-enter the market, I will be hit by the ABSD."

Ironically, while intended as a targeted measure to cool the property market, and, specifically, dissuade investors who were looking to make a quick buck, the policy has reduced the number of resale homes available in the market in the short term.

"Our research shows that out of the 19,874 estimated completions in 2015, 31.8 per cent (6,313) are not available for sale in the open market due to SSD," said Christine Li, research head of Orange Tee.

The actual number could be about 10 to 20 per cent higher because caveats data is typically lower than the actual number of units sold by developers, she added.

"When buyers do not have enough choices in the secondary market, the primary market will still be the main source of buying interest and this could potentially push up demand for private residential properties despite record completions in the pipeline," said Ms Li.

"The SSD could then work against the government's intention to have a sustained price growth for residential properties in line with economic fundamentals."

It could also potentially weigh down the rental market given that units not available for sale at the time of attaining their temporary occupation permit (TOP) might go into the rental market.

Mr Han agreed. "I think the biggest problem in 2016, or even next year, is that it might take longer to find tenants. That long waiting game might inspire some people to take profit and sell."

According to Mr Han, rental demand averaged 42,000 per year over the past few years. This was however, while the economy was fairly strong. With an economic slowdown in view, and potential oversupply, some adjustments to the rental market in the form of lower rents might be seen, he said.

It is for these reasons that it is timely to relook the SSD scheme, said Ms Li.

While retaining the 16 per cent SSD for properties sold within one year, it might be timely to replace the SSD with a capital gains tax for properties sold after a year as this will allow flexibility in disposing of units, she said.

Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C

Senior Sales Director
DTZ Property Network Pte Ltd (L3007960A)

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