Singapore Announces Cooling Measures To Keep Home Ownership Affordable For First Home Buyers

In a move to keep residential property price increases in line with economic fundamentals, the Singapore Government announced changes to the Additional Buyer’s Stamp Duty (ABSD) and Loan-to-Value (LTV) limits, which takes effect on 6 July 2018. 

Raised Additional Buyer’s Stamp Duty (ABSD)

Singapore Citizens and Singapore Permanent Residents buying their first residential property will not be affected by the changes in ABSD, which will remain at 0 per cent and 5 per cent, respectively. The ABSD will be raised by 5 percentage points for Singapore citizens and permanent residents buying a second, third or subsequent residential property.

For foreigners, the ABSD will be raised by 5 percentage points; while it will be raised by 10 percentage points for entities including companies.

For developers purchasing residential properties for housing development, there will be an additional ABSD of 5 per cent that is non-remittable.

Tightening of loan-to-value limits

Loan-to-value (LTV) limits have been reduced by 5 percentage points for all housing loans granted by financial institutions. The revised LTV limits do not apply to loans granted by the Housing Development Board.

This latest round of cooling measures were announced just the day after Ravi Menon, Managing Director of the Monetary Authority of Singapore, warned developers, buyers and banks of the "euphoria" in the property market. The Government noted that private residential prices have increased by 9.1 per cent over the past year starting from 3Q 2017, and transaction volumes have continued to grow. These are signs to the Government that the market has seen a strong recovery. Prior to that, property prices had been declining gradually for close to 4 years and prices overall fell by 12 per cent.

The Government felt that if left unchecked, the sharp increase in prices could run ahead of economic fundamentals and raise the risk of a more destabilising correction later, especially with rising interest rates and the strong pipeline of housing supply.

With the announcement still fresh in people’s minds, there could be some knee-jerk reaction from the market. Already, share prices in property stocks tumbled as uncertainties stepped in. We could also see sellers shouldering part or all of the increase in transaction costs to continue the sale. Our house view is that over time, and if fundamentals remain healthy, the market will price in the additional ABSD and higher cash down payment. There is already a trend towards smaller sized units offered by developers to keep prices within reach of buyers. Buyers would need to know their own limit on the price they are willing to pay, and thereafter consider if they are willing to accept smaller unit sizes to keep their overall investment affordable. The potential new supply from GLS and en bloc sales from 2017 to June 2018 is estimated to be around 30,000 which developers can launch over three years from 2018 to 2020. Developers should continue to monitor the market and recalibrate supply in response to the take-up rate.

Land sales will be affected. En bloc sales in particular, will slow down as developers now have to work in the extra 5% ABSD that have to be paid upfront upon purchase. In addition, they will be subject to an ABSD of 25%, up from 15% previously, if they are unable to complete the project or finish selling all the units within the prescribed period. Perhaps this measure could help to curb the escalating land prices.

How does the change affect you?

For Singaporeans and PRs living in Singapore, the change in the ABSD does not affect first time buyers and is in line with the Government’s agenda to prevent a property bubble and to ensure home ownership remains affordable. The new ABSD of 20% imposed on foreign buyers of residential properties in Singapore is a fairly common property cooling measure in major cities. For example, foreign buyers in Hong Kong have to pay 15% ad valorem stamp duty plus 15%. Vancouver imposes a 20% stamp duty on foreign buyers and properties priced at C$3.0 mil and above are subject to a property transfer tax at 5%. As such, Singapore’s latest stamp duty may dampen investor demand in the short term, but that is to the benefit of local buyers.

The question is would this encourage local investors to pay more attention on overseas property instead? While some may indeed look overseas, property investment entails more than stamp duties and buyers should also consider changes in policy including capital gains tax, resale conditions etc. Besides considering overseas properties, investors can also look to non-residential properties in Singapore as alternative investments i.e. strata office units and shophouses, which are not subject to the latest measures.