Singapore Marketflash: Recalibrating Residential Property Measures
Singapore, 10 March 2017 - According to a joint announcement today by the Ministry of National Development, Ministry of Finance and Monetary Authority of Singapore, the Government determined that the current set of property cooling measures remain necessary to promote a sustainable market and financial prudence among households. However, several adjustments were made, reflecting that the Government is attuned to feedback from the ground:
- Additional Buyer’s Stamp Duty (ABSD) and Loan to Value (LTV) Limits – No Change
The barrier to entry for property purchases remains high for investors and foreigners.
- Seller’s Stamp Duties (SSD) revision:
- Impose SSD on holding periods of up to three years, down from the current four years; and
- Lower the SSD rate by four percentage points for each tier.
This is not expected to have a major impact on transaction volumes in the near term, as it applies to residential property purchased on and after March 11. However, this offers buyers a respite as they would not have to wait up to four years to sell their property without incurring SSD. With this revision, buyers have a little more flexibility in their investment/disposal strategies.
- Total Debt Servicing Ratio (TDSR) framework will no longer be applied to mortgage equity withdrawal loans with LTV ratios of 50% and below.
This gives people greater flexibility to borrow money against the value of their homes. However, the amount they wish to borrow must be 50% or less than the total value of their property/properties pledged as collateral. As such, in terms of whether this would translate into real estate demand, it would likely only promote property purchases by asset-rich individuals. CBRE Research feels that this will affect a small portion of property owners.
- Stamp Duties on transfer of equity interest in entities whose primary tangible assets are residential properties in Singapore. Entities subjected to these stamp duties either beneficially owns at least 50% equity interest in a Type 1 property holding entity (PHE), or the total value of the residential property it owns comprises at least 50% of total tangible assets
a) Introduction of the Additional Conveyance Duty for Buyer (ACDB) at 1-3% on the value of underlying residential properties, as well as a flat 15% on the value of these properties. (Similar to Buyer’s Stamp Duty and ABSD).
This will be in addition to the 0.2% stamp duty for the acquisition of shares. This anti-avoidance provision is a move to plug loopholes and level the playing field. This means that taxes on the new transfer of properties via a special purpose vehicle is now brought in line with taxes for physical property transactions.
b) Additional Conveyance Duty for Seller (ACDS) will be set at a flat rate of 12% for sale of equity interest within three years of purchase, irrespective of the holding period for the equity interest which is disposed.
This is higher than the revised SSD where the stamp duties are levied at 12%, 8%, 4% depending on whether the seller has held the property for one, two or three years respectively. This further addresses the difference in stamp duty rates between direct and indirect property transactions.
Overall, the introduction of ACD could have a dampening effect on bulk sales of residential units via company shares. This makes it more challenging for foreign/listed developers who face potential penalties on unsold stock. Moving forward, developers will have to weigh their options more carefully. CBRE Research expects more pressure on pricing, especially on developments nearing the deadline in respect of the penalties. While major deals involving 50% or more equity interest may be challenged by this revision, it does not exclude the conclusion of smaller deals (<50% equity stake).