'A sledgehammer to kill a fly': Experts surprised by 'severity' of new property curbs

Fri, Jul 06, 2018


ALMOST all categories of private residential property buyers have been affected by the Singapore government's decision to raise the additional buyer's stamp duty (ABSD) and tighten the loan-to-value (LTV) limits on residential property purchases.

The ABSD rates for Singapore citizens and permanent residents purchasing their first residential property will remain at zero and 5 per cent respectively, but ABSD rates for all other individuals will be raised by five percentage points and 10 percentage points for entities. A further ABSD of 5 per cent which is non-remittable under the Remission Rules (payable on the purchase price or market value, whichever is applicable) will also be introduced for developers buying residential properties for housing development.

The proportion of a private 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 S$1 million home can borrow only S$750,000, down from S$800,000.

Here are what some property specialists are saying about the changes:

OCBC Investment Research analyst Andy Wong: A sledgehammer to kill a fly. These cooling measures were not in our base case, given that private residential prices have only started to increase by less than 10 per cent since the second quarter of 2017 trough, while the smaller rate of quarter-on-quarter increase in 2Q18 appeared to have dispelled concerns about a tighter regulatory environment. While we previously argued that the positive outlook presented a buying opportunity in the midst of the (residential) sector correction, we no longer believe this to be the case.

Tay Huey Ying, JLL's head of research and consultancy, Singapore: The measures should achieve their intended objectives of cooling demand and moderating price growth, as almost all categories of buyers have been affected. This explains the rush to snap up their dream homes the night before the measures kick in.

We expect sales to stall as soon as the measures become effective as buyers step back to evaluate the financial implications and developers reassess pricing strategies. The home market may only start to see some signs of activity in September after the lunar seventh month. Even then, we expect sales volume to stay subdued unless developers adopt competitive marketing strategies.

The collective sales market will also be dampened as developers become wary of end-demand and are hurt by the 5 per cent non-remittable ABSD on land purchase. This will have an impact on their offer prices.

All said, we feel the additional measures have been introduced too hastily coming just after 9.1 per cent growth in PPI (Producer Price Index) over four quarters. The market should have been given a chance to find its own level in response to the expected surge in launches in coming months.

The biggest gainers following this set of measures will likely be owners of strata-offices and shophouses approved for commercial use.

The government’s swift response to curb home price growth has tampered the prospects of residential properties as attractive investments. Investors looking for alternatives to park their money could divert their attention to the strata office and shophouse markets as they are not subjected to this round of purchase or sales restrictions/encumbrances.

CBRE: Property developers will be affected most from these changes on their land acquisition costs. Property developers will now have to pay 25 per cent on a land acquisition based on the land cost instead of the previous 15 per cent. Although this is remissible when the property developer manages to completely sell all the units in the development within five years. There is a new additional five per cent ABSD tax on the transaction price imposed where it will not be remissible.

These measures are introduced to increase extra prudence on the demand side while extra tariffs are imposed on the supply side to curb the exuberance in land prices which could have eventually resulted in even higher property prices in the long term.

While we are not surprised at more measures given the emergence of warnings are calibrated measures in Q4 2017, we are surprised by its severity, which suggests the government is evidently fearful of a bubble building up amid a rising interest rate environment and sizeable unsold launch pipeline.

DBS analyst Derek Tan: The combined impact of these measures raises the cost of ownership on an assumed S$1.5 million property purchase by S$75,000 (first time buyer) and S$150,000 (investor). With the increased upfront capital commitment, we expect demand from investors and foreigners to cool in the immediate term. In terms of sales momentum, we expect total volumes to fall to 9,000-10,000 units in 2018, and potentially even further if these curbs remain.

We believe that we have seen the end of the current en-bloc cycle. The revised ABSD rates (25 per cent ABSD and an additional 5 per cwent non-remittable for en-bloc sales) greatly increases the capital commitment for developers looking to land-bank further in a period of increased uncertainty in buying volumes and heightened supply entering the market in the coming two years. The immediate strategy for developers with upcoming launches will be to re-look at their pricing and launch strategy. In the longer term, if sell-through rates do not follow through, the risk of potential write-off to land values will be a concern. However, this is not a base case scenario at this moment

Suan Teck Kin, head of research; Ho Woei Chen, economist, UOB: The sharp increase in the ABSD rates is sending a strong signal on the government's reluctance to let property prices increase too quickly amid the recovery in the private residential prices over the past year. The pick-up in en-bloc activities had also seen the government increasing the development charge (DC) rates sharply over the last few rounds.

In comparison, the government had been more cautious in easing the property-related measures when the prices were correcting lower. Despite concerns about rising global trade tensions, greater growth uncertainty and higher interest rates, Singapore's property prices had taken all these factors in its stride and climbed higher from the recent trough in mid-2017. Now the latest property cooling measures could change all that, at least in the near-term. Furthermore, transaction volume is set to drop after the reported surge in buying on Thursday night to beat the ABSD deadline.