Saturday, 7 July 2018

New property cooling measures announced on 5 July 2018: Higher ABSD rates, tighter loan limits

Higher stamp duties, tighter loan limits for home purchases
Private property curbs surprise market; steep price recovery prompts Govt to act
By Rachel Au-Yong, Housing Correspondent, The Straits Times, 6 Jul 2018

Concerns about the swift rise in private home prices have prompted the authorities to further tighten cooling measures last night, in a surprise move that will lead to property buyers paying higher stamp duties.

From today (6 July 2018), Singaporeans and permanent residents have to pay 5 percentage points more for their second and successive properties. For example, a second home that costs $1 million will incur an extra $50,000 in stamp duties.

But for foreigners, this Additional Buyer's Stamp Duty (ABSD) applies even on their first property.

Residential property buyers will also be allowed to borrow less.

The proportion of a property's value that a buyer can borrow, known as the loan-to-value (LTV) limit, has been slashed by five percentage points. For instance, a buyer taking his first loan on a $1 million home can borrow only $750,000, down from $800,000.

These measures do not apply to residents taking Housing Board loans.

Developers appear to be hit hardest. For those developers purchasing residential properties for housing development, they will be subject to an ABSD of 25 per cent, up from 15 per cent, although this will not be applied if they fulfil several conditions, including completing and selling all their units within a prescribed period.

However, they must pay upfront an extra 5 per cent of the property price, and this will not be waived. This will have an impact on properties sold en bloc, for example.

The moves, announced at 7pm, are aimed at dampening demand.

On Monday, the Government's second-quarter flash estimates showed private home prices rising by 3.4 per cent, bringing the total increase to 9.1 per cent over four quarters since the middle of last year.

This uptrend came after 15 straight quarters of decline, which pushed private home prices down 11.6 per cent by the middle of last year.

The steep price recovery led Minister for National Development Lawrence Wong to say last night that the Government is "concerned that prices are running ahead of economic fundamentals".

The combination of rising interest rates and a large supply of new units expected to go on sale in the next two to three years could lead to buyers over-extending themselves financially.

"We want to avoid a severe correction later, which can have more destabilising consequences. Hence, we are acting now to maintain a stable and sustainable property market," Mr Wong added.

The recovery had also led observers to predict a new peak in private home prices by the end of this year, as Monetary Authority of Singapore managing director Ravi Menon warned about "euphoria" in the property market on Wednesday.

Observers were divided on how effective the measures would be.

Property analyst Nicholas Mak of ZACD Group believes the new measures are premature, saying it might hasten an oversupply of units in the market as cautious investors put off their purchases.

In a bid to beat the higher taxes, property agents sent out messages and crowds flocked to showflats such as Riverfront Residences in Hougang and Parc Colonial in Woodleigh last night to sign sales agreements for new homes.

VestAsia Group chairman Steven Choo, however, said the measures were likely to prevent a rush of foreign funds and "en bloc cash" from snapping up units at escalating prices.

"Markets are psychological: When things are going up, people want to sell and buy, and it feeds into each other. The Government has moved decisively to moderate that," he said.

Developers rap private property cooling measures
REDAS says there's no basis for new cooling measures
It calls moves 'tough', saying market started to pick up only last year
By Rachel Au-Yong, Housing Correspondent, The Straits Times, 7 Jul 2018

There is "no rationale" for the new private property cooling measures, the Real Estate Developers' Association of Singapore (REDAS) said yesterday, leading a chorus of questions from analysts and research houses over the move.

In a statement, REDAS labelled the steps to raise the Additional Buyer's Stamp Duty (ABSD) and tighten loan limits for individuals by 5 percentage points each as "tough". These kicked in yesterday.

It argued that the property market is "in the early stages of recovery, and that the recovery is in line with economic fundamentals".

In explaining the moves on Thursday, Minister for National Development Lawrence Wong said the Government was "very concerned that prices are running ahead of economic fundamentals".

But REDAS said the market has been gloomy since 2013 and started to pick up only last year, after the economy expanded 3.5 per cent by the end of last year and 4.4 per cent in the first quarter of this year.

The organisation also noted that the transaction volume is within market expectation, adding that the old ABSD and total debt servicing ratios in place since 2013 continue to restrict buyers.

"Buyers are still price-sensitive," it said, adding that the property market "should be allowed time to find its own course and reach a sustained equilibrium".

Neither did it think there was any point in imposing "additional harsh measures" on developers.

Besides raising ABSD for entities by 10 percentage points to 25 per cent - a sum that can be waived if developers fulfil several conditions, including completing and selling all their units in a prescribed timeframe - the Government has imposed an extra 5 per cent ABSD that cannot be waived. This has raised the costs of purchasing land, such as at collective-sale sites.

Existing measures, such as financial considerations and "unfriendly business policies" such as the old ABSD and penalties, were sufficient, it said. "The new ABSD on developers will impose additional pressure on land acquisition as they compress their development, sales and land replenishment cycle time," it added.

REDAS was not alone in criticising the timing of the measures.

Cushman & Wakefield senior director of research Christine Li said they were "the most draconian since the late 90s", with the costs of acquiring land in Singapore now among the highest in the world.

ZACD Group executive director Nicholas Mak said the authorities should have observed the take-up rate of new launches for at least another year, instead of "deflating the developers' car tyres just before a race". "The market has not run its course yet - you still have another 28,000 to 30,000 units coming on in the next few years, but they may have choked off demand. It ends up being a self-fulfilling prophecy of oversupply," he said.

Not everyone was put off by the new measures, however.

First-time home buyers such as market research assistant Ang Hui Xian, 29, said lower borrowing limits may force her and her fiance to adjust their budget for a resale condominium apartment in the east as they now have to fork out more cash for the down payment.

But putting the brakes on demand for these homes could work in her favour, as the couple might have an additional bargaining chip when negotiating the price.

"We might have to pay more cash upfront, but end up paying less overall," she said.

En bloc fever set to be tamed, big sites at greatest risk: analysts
Mega sites eyeing collective sale could face uphill task
By Grace Leong, The Straits Times, 7 Jul 2018

The new cooling measures announced on Thursday night may well have doused the current bout of collective sale fever, with analysts expecting mega sites such as Braddell View, Mandarin Gardens and Laguna Park to face an uphill task in luring developers who have just been hit with heftier land acquisition costs.

Even before the measures were announced, Colliers International data showed that 21 collective sale tenders, valued at $5.6 billion, closed in May and last month without being sold, as developers took a breather to assess the large number of redevelopment sites available, evaluate potential risks and take stock of their development pipeline.

Besides raising the Additional Buyer's Stamp Duty (ABSD) for entities by 10 percentage points to 25 per cent - which can be waived if developers fulfil several conditions including completing and selling all their units within five years of acquiring the site - the Government has imposed an extra 5 per cent ABSD that cannot be waived.

Mr Desmond Sim, CBRE head of research for Singapore and South-east Asia, said: "While we are not surprised by more measures given the emergence of warnings and calibrated measures since the fourth quarter last year, we are surprised by their severity, which suggests the Government is evidently fearful of a bubble building amid a rising interest rate environment and sizeable unsold launch pipeline."

However, there is no turning back for some mega sites like Pine Grove, which has garnered 76 per cent of signatures so far, said Huttons Asia's head of investment sales Terence Lian, who is marketing it. "But we do expect more resistance from developers. Once we have the mandate to launch the tender, we will go ahead with the reserve price of $1.72 billion, and leave market forces to deal with it.

"The site has good attributes, but sellers' expectations have to be managed," he said.

Typically, owners receive a 50 per cent to 60 per cent premium from selling their property collectively. They may now have to accept a lower premium if they want to get the deal across the line, said Colliers managing director Tang Wei Leng.

"Developers are expected to be more selective, but redevelopment sites in mature estates or areas where there have been few new launches could still be appealing," she added.

Market watchers are also eyeing the closing of tenders in September of two Government Land Sales (GLS) sites - a plot in Jalan Jurong Kechil that can yield about 280 homes, and the executive condominium site in Canberra Link - for the strength of developers' bids and the number of bidders.

Heftier acquisition costs will put a major dampener on developers' appetite. This is especially so for high-unit-yielding sites where selling within the five-year period is more challenging. "Developers are likely to take a cautious stance in their bidding for both en bloc sites and GLS sites before the dust settles," said Cushman & Wakefield's senior director of research Christine Li.

If offers come in lower than the reserve price for the tenders that have closed, those selling en bloc have, within 10 weeks of the tender closing, to get a fresh 80 per cent to accept the lower offer, said OrangeTee executive director Alex Oh.

"We will likely see more of this happening," he added.

Home buying sentiment will also be watched in the next few months. New launches will be a critical litmus test of whether there is any adverse effect on buying sentiment.

"If these projects can still move, there is confidence in the market. If the new launches don't do well, there is little confidence for developers to continue to buy land," said Mr Oh.

But Qingjian Realty (South Pacific) Group, which is launching its JadeScape this year at the site of former Shunfu Ville, remains unfazed.

Its deputy general manager, Ms Yen Chong, noted that "an over exuberant market is not sustainable". But she added: "We are not overly concerned about the measures' impact on our upcoming launch."

CapitaLand, UOL Group and GuocoLand declined to comment.

Buyers snap up over 1,000 units at three projects in one night
The Straits Times, 7 Jul 2018

More than 1,000 units were sold at three projects in just a few hours on Thursday night in a remarkable buying frenzy triggered by the imminent imposition of tough new cooling measures.

Buyers rushed to condominium showflats in a desperate bid to sign up for a new home and avoid what - for some - would be significantly higher acquisition costs.

Developers had brought forward the three launches to allow buyers to lock in deals before changes to the Additional Buyer's Stamp Duty and Loan-to-Value Limits, which were announced at about 7pm on Thursday, clicked in at midnight.

The sales rush created huge queues, led to packed carparks, ran agents off their feet - and inevitably left some potential buyers high and dry after they were unable to complete the process in time.

By midnight, about 510 units at the 1,472-unit Riverfront Residences in Hougang were sold at an average $1,200 per sq ft (psf) - a level said to be just marginally above its break-even price.

The project sits on the former Rio Casa HUDC site, which was acquired in May last year by a consortium led by Oxley Holdings for $706 psf per plot ratio.

Park Colonial in Woodleigh shifted 310 of its 805 units at an average $1,730 psf - above an estimated break-even price of $1,600 psf. The project is jointly developed by Chip Eng Seng's property arm CEL Development, Heeton Holdings and KSH Holdings.

Chinese developers Logan Property and Nanshan Group moved 200 of 1,259 units for Stirling Residences in Queenstown at about $1,800 psf on average.

The flurry of last-minute sales reflects strong liquidity and pent-up demand, which some experts say may support the Government's view that there is "euphoria" in the property market.

Riverfront Residences' original launch date was this weekend, while Park Colonial and Stirling Residences had planned to start selling next weekend.

Some buyers at the showflats ended up being turned away as they would not have been able to complete the option to purchase in time.

While the three new projects captured the most attention on a night few agents will forget, existing projects elsewhere offered discounts on Thursday. These included Grandeur Park Residences, Affinity at Serangoon, The Garden Residences, The Tapestry, Marina One, Martin Modern and Wallich Residence.

Some agents said GuocoLand sold seven units at Martin Modern at $2,650 to $2,850 psf and three homes at Wallich Residence at $3,050 to $4,000 psf, both offering 5 per cent discounts.

Wallich Residence is in Tanjong Pagar, while Martin Modern is near River Valley.

The many developers yet to release projects might have to revise their launch and pricing strategy. Sales are widely expected to fall significantly in the initial months ahead as the market takes stock of potential implications of the new cooling measures.

Colliers International has revised its sales estimate for the year to 8,500 to 9,000 units, 15 per cent to 20 per cent lower than the 10,566 units sold by developers last year.

Two major reasons behind move to rein in market 'euphoria'
By Rachel Au-Yong, Housing Correspondent, The Straits Times, 7 Jul 2018

Analysts cited two major reasons for the Government imposing cooling measures on the private property market, a move that took many by surprise on Thursday night.

One is to curb the collective sale craze and the other is to stop buyers, developers and banks from overextending themselves.

They said the swiftness with which the authorities moved may have been driven by worry that they could lose control of the supply situation following the recent spate of collective sales.

In the first half of this year, there were 35 such transactions exceeding $10 billion, while for the whole of last year, there were 27 deals totalling $8.13 billion.

In addition, prices of private property have risen 9.1 per cent in the last four quarters.

Before that, prices had declined for 15 straight quarters, falling 11.6 per cent by the middle of last year.

To rein in the "euphoria" in the market, developers now have to pay a higher Additional Buyer's Stamp Duty (ABSD) of 25 per cent, up from 15 per cent, when they buy residential properties for housing development.

This tax is waived only if they meet several conditions, including completing and selling all their units within a prescribed period.

On top of the 25 per cent, they must pay an additional ABSD of 5 per cent, which will not be waived.

The two measures make the costs of acquiring new property in Singapore much higher than in many parts of the world, said Cushman & Wakefield senior director of research Christine Li.

Savills Singapore research and consultancy senior director Alan Cheong noted that from 2000 to last year, about 75 per cent to 80 per cent of new homes came from plots sold through the Government's land sales.

But for this year and next year, about 75 per cent of new homes are expected to be built on sites that had gone en bloc.

"Unlike land sales, a collective sale site is a function of yesterday's plot ratio, not future demographics," said Mr Cheong, adding that this could lead to an oversupply of homes.

The haste in introducing the new measures is also meant to ensure prudence and "nip things in the bud before the euphoria gets too entrenched and it becomes harder to fix it", said OCBC chief economist Selena Ling.

She added: "The Government might also be concerned that escalating prices for homes and land are undoing all the effects of the previous cooling measures in just one year, even before any of the measures have been eased."

As interest rates rise, the anxiety that more people will default on their loans has intensified too, and the situation could be exacerbated by global political and economic uncertainties.

For example, the three-month Sibor, or Singapore interbank offered rate, was 1.63 per cent yesterday, up from 0.92 per cent exactly a year ago, Ms Ling noted.

But critics of the latest measures worry that the intervention may choke off demand at a time when developers anticipate an appetite for their flats.

"Whether you like it or not, these developers have already planned for a certain number of units to be launched at a certain price this year. Depressing the demand will only ensure an oversupply," said executive director Nicholas Mak of property consultancy ZACD Group.

"As for the new ABSD - land is essential to any developer for their business, so this means the extra costs will be passed on to the consumer. How can you consider that a cooling measure?" he added.

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