Sunday, 12 March 2017

Govt eases some property cooling measures, cutting sellers' stamp duty and slightly relaxing TDSR rules from 11 March 2017

Property stocks pick up as some curbs are eased
Seller's stamp duty tweaked; easier for some to borrow money against their property
By Wong Siew Ying, The Straits Times, 11 Mar 2017

In a surprise move, the Government has eased some residential property curbs for the first time since imposing a raft of measures from 2009 - sparking a modest rally among real estate stocks.

The "calibrated adjustments" to the seller's stamp duty (SSD) and total debt servicing ratio (TDSR) unveiled yesterday came amid fairly solid demand for homes and after three years of falling home prices.

While the main curbs keeping the market in check - such as the additional buyer's stamp duty (ABSD) and the loan to value (LTV) limit - remained intact, industry players and home buyers saw the latest moves as positive.

The SSD, which has been paid on homes sold within four years of being purchased, will now apply for only three years. The SSD rate will also be cut by four percentage points.

Home owners selling within one year will pay 12 per cent instead of 16 per cent, moving down to 4 per cent instead of 8 per cent for sales by the third year.

These SSD changes apply to homes purchased from today (11 March 2017).

Financial consultant Sanjay Ashok Wadhwani said: "I don't think the SSD changes will affect me so much. As a buyer, the ABSD and LTV would have a bigger impact, but those were not changed."

Others, like Dr Lee Nai Jia, head of South-east Asia research at Edmund Tie and Company, said the impact would be muted, though more units may be sold this year.

The Government also relaxed a rule under the TDSR - designed to prevent borrowers from over-extending themselves - on loans where owners borrow against their residential property.

If a home owner's total outstanding loans are 50 per cent or below of his property's value, the TDSR will no longer apply.

"This allows for greater flexibility by borrowers to monetise their properties, preventing the need for a distressed sale in the event of economic hardship," Credit Suisse said in a report yesterday.

The Real Estate Developers' Association of Singapore noted: "The adjustments will provide some relief and help to address the needs of some borrowers."

While the announcement brings cheer to many segments of the property market, analysts said the tweaks are unlikely to have a big impact and are not a bid to spur the sluggish housing market on the Government's part.

"Adjusting the SSD has the least impact on the property market. It does not change the availability of credit or liquidity, nor the cost of acquisition," said Mr Nicholas Mak, head of research and consultancy at SLP International.

The SSD and TDSR were among a raft of cooling measures imposed since 2009 to cool a then red-hot market. But the retention of the ABSD and other loan curbs is seen as necessary to maintain a more sustainable property market.

"While the growth in outstanding housing loans has moderated, it is prudent for households to further build up their financial buffers to protect against future interest rate increases or any losses in income," the Government said, in upholding other measures.

Even though most of the cooling measures stay firmly in place, the optimism from the adjustments in SSD and TDSR sent the benchmark FTSE ST Real Estate Index surging yesterday, up 1.35 per cent to close at a level not seen since July 2015.

Stamp duty tweak may give market a fillip
But analysts expect impact of lower rates property sellers have to pay to be muted
By Lee Xin En, The Straits Times, 11 Mar 2017

Some property analysts expect a modest boost in home sales here after the change in the seller's stamp duty (SSD) rules that take effect today. However, realtor Kelvin Thong narrowly missed out on benefiting from the changes. He exercised his option to purchase a penthouse in West Coast yesterday.

That means he is still subject to the rules which stipulate that if he sells his property within a year, he would have to pay a 16 per cent SSD. If he sells it within two years, it would be 12 per cent, while within three years, it would be 8 per cent and within four years, it would be 4 per cent.

For properties purchased from today, the rates are lower and apply only to sales within three years. That means someone who buys a property today pays only 12 per cent SSD if the property is sold within a year, 8 per cent if sold within two years and 4 per cent within three years.

Mr Thong is not too disappointed as he intends to live in his home over the long term, but "would have liked the flexibility to upgrade or sell earlier without paying the stamp duty", he said.

However, he said he was now more motivated to hunt for a good second property to invest in.

"The 4 percentage point cut in SSD is quite significant. If I manage to get a property at 30 per cent below market price, I would be able to make an 18 per cent profit even after paying the 12 per cent stamp duty if I hold it for less than a year."

People like Mr Thong may boost new home sales, but analysts think the impact will be muted.

Dr Lee Nai Jia, head of South-east Asia research at Edmund Tie and Company, said he would add an additional 3 per cent to his initial forecast of 8,000 private new home sales this year.

The move gives "positive vibes to the market". "It gives the signal that the market is bottoming, which will attract more buyers," he added.

ERA key executive officer Eugene Lim does not expect property prices to rise. "There is still abundant supply in the residential property market and the additional buyer's stamp duty rates and loan to value limits remain unchanged."

Analysts feel that the SSD tweak is targeted at those who may be finding it difficult to service their loan amid the slowing economy.

Ms Christine Li, director of research at Cushman & Wakefield, said that the SSD tweak is timely.

She noted that SSD's intent was to prevent property speculation, but the additional buyer's stamp duty and total debt servicing framework are now much stronger deterrents against speculators compared with the SSD, she said.

"On the flip side, SSD can potentially hit home owners whose circumstances may change due to unforeseen events really hard," she said, as they may have to sell their properties at a loss due to sluggish demand, and have to fork out SSD.

Citing Inland Revenue Authority of Singapore data, Ms Li said that SSD was applied to 550 deals in 2015, up from 519 in 2014. Most were not profitable, particularly among those with holding periods of less than three years, she said.

Borrowing money against property easier now for retirees
By Lee Xin En, The Straits Times, 11 Mar 2017

The Government is relaxing loan limit rules for anyone wanting to borrow money using their residential property as collateral.

It is tweaking the total debt servicing ratio (TDSR) framework which stipulates that all of a borrower's debt repayments - including mortgage, credit cards and car loans - should not top 60 per cent of monthly income.

The move is set to help retirees, along with others wanting to cash out using the value of their home.

To date, the TDSR has applied to drawing down loans against the value of a home - known as mortgage equity withdrawal loans.

Under the change, the TDSR will no longer apply to such loans where the ratio of the loans, including any existing loans, to the property's value is 50 per cent or less. For example, a person with a $1 million home and a $100,000 outstanding housing loan can borrow up to $400,000 - that is, up to half the $1 million value of the property.

Under the old rules, he would also need to have ensured that his total debt servicing did not exceed 60 per cent of his monthly income, but this is no longer applicable. However, if the person in this example wants to borrow more than $400,000, he would not be exempt from TDSR.

The Government said in a press statement yesterday that "some borrowers have given feedback that the TDSR framework has limited their flexibility to monetise their properties in their retirement years".

"The Monetary Authority of Singapore will therefore relax the rules to meet such needs," it added.

Mr David Baey, head of mortgages at, said that the number of such loans has been very small to date, at about one to two of every 100 loans he negotiates.

Such borrowers tend to use the loans to start businesses, send their children overseas for studies, or to make other investments such as stocks, he added.

Mr Desmond Sim, head of CBRE Research for Singapore and Southeast Asia, said the change would "likely promote property purchases only by asset-rich individuals", which are a small portion of property owners.

A DBS spokesman said the move gives home owners, especially the semi-retired or business owners, an added option to generate cash flow.

"A mortgage equity withdrawal loan is still a mid- to long-term financial commitment which requires monthly loan repayments. Home owners need to fully understand their needs and think how they will be using this increased cash flow," he added.

New stamp duty for property-holding entities from 11 March 2017
By Wong Siew Ying, The Straits Times, 11 Mar 2017

The Government has taken swift legislative action to bring the stamp duty rate in the transfer of equity stakes in property-holding entities in line with the rate applying to regular property deals.

A new stamp duty - called additional conveyance duties (ACD) - will be levied on the purchase and sale of residential real estate in property-holding entities with effect from today.

The new tax is aimed at entities - including firms, trusts and partnerships - that hold at least 50 per cent of its total tangible assets in residential properties here.

In a rare move, the Stamp Duty Amendment Bill was read and passed in Parliament in one day owing to the market-sensitive nature of the announcement.

"The motivation for this Bill is not to raise revenue... but the motivation for doing this is to remove the existing differential in the stamp duty rates," said Second Finance Minister Lawrence Wong in Parliament yesterday.

Previously, a direct purchase of residential property attracted buyer's stamp duty of 3 per cent, and depending on the buyer's citizenship, up to 15 per cent additional buyer's stamp duty (ABSD).

However, acquiring equity interest of a holding firm which owns the property incurred a share duty tax of just 0.2 per cent of the firm's net asset value, prior to ACD.

Similarly, the seller's stamp duty applying to the sale of residential property within a stipulated holding period, also did not apply to selling stakes of a holding firm.

To better align the rates, the Government will impose the ACD on buyers and sellers who are significant owners. For buyers, on top of the 0.2 per cent share duty tax, they must pay ACD comprising 1 to 3 per cent on the value of underlying residential properties and a flat 15 per cent on the value of those assets.

Sellers, who are significant owners, disposing of their equity stake within three years of acquisition will have to pay a flat 12 per cent levy. The ACD does not affect ordinary share transactions in listed companies by retail investors.

The disparity in stamp duty rate was often seen by consultants as a loophole, allowing some developers to use innovative ways to escape hefty qualifying certificate extension charges on unsold homes.

"We will see fewer deals involving share sales of property-holding companies. The ACD will push up transaction cost of such deals and will weigh on the buyer's return on investment," noted International Property Advisor key executive officer Ku Swee Yong.

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