Different cooling measures were implemented by the government in Singapore so that they can control the increasing cost of residential properties. However, not everyone is happy with the effects of these cooling measures.
Some cooling measures give burden to property developers and investors while some benefits the buyers. The government has to observe the pros and cons of the cooling measures before thinking of what actions they should do.
Property developers are pressured of selling their units within five years otherwise, they will have to pay for ABSD. But with the presence of ABSD, it is easier for people to buy properties. Cooling measures were effective in lowering the cost of the properties which is a good thing for buyers but not to the sellers.
If some are in favor of removing the cooling measures, there are also some who wanted to retain these rules.
Changes in Property Cooling Measures But No Changes in ABSD
The government had decided to ease some cooling measures like the seller’s stamp duty and the total debt servicing ratio framework. The rules have started on March 11. Unfortunately, there were no changes made for Additional Buyer’s Stamp Duty as well as to Loan-to-Valuation limits.
If before, the SSD is payable by the seller within 4 years of purchase, right now it is cut to three years. The rates were also reduced that will range from 4 percent to 12 percent.
On the other hand, for TDSR, total loan obligations should not exceed 60 percent of an individual’s monthly gross income. With these property measures, providing sustainable residential property to households is possible.
Property developers are required to sell all the units of the property within 5 years because if they failed, they need to pay the ABSD which is equivalent to 10 percent of the total price of the property.
This was first introduced in Singapore in 2011 and was revised on January 12, 2013. The government has decided to implement this as a part of the cooling measures to slow down the development of the property market.
The rate that you have to pay will depend on your nationality as well as to the status of your private property. In order for you to pay the ABSD you will need to prepare all the documents within 14 days of signing an agreement, date of transfer, or exercising the Option to Purchase.
On the other hand, qualifying certificate scheme affects the foreign property developers. If the directors and shareholders of the company are non-Singaporeans then they are considered as foreign developers.
This scheme requires the developer to develop and complete the site within 5 years. They also have to sell all the units within two years. If they cannot comply with these rules, then they will have to pay for an extension charge that will depend on the number of units that are not sold.
Aside from ABSD, Singapore also implements the following cooling measures.
- Sellers’ Stamp Duty (SSD)
SSD or Sellers’ Stamp Duty is an amount payable to all residential properties and residential lands that were purchased on or after February 20, 2010, and were sold within the holding period. The rate of SSD can be determined according to the type of the property, the date of purchase, and date of sale. In order to compute the SSD, you will need to apply the SSD rate on the price of the property.
There are various exemptions in paying the SSD such as the following:
- Licensed housing developers that are under the Housing Developers Act are not required to pay the SSD.
- Public authorities who are selling their residential properties.
- Residential property owners who have obtained their property from the government under the Land Acquisitions Act.
- Owners that sell their properties because of involuntary winding up or bankruptcy.
- HBD flat sellers who have bought the property on or after August 30, 2010.
- HBD flat sellers who have returned the flats because of repossession.
There were several changes made to the rules for SSD to properties that were bought on or after March 11, 2017.
- The holding period for the seller to pay SSD was cut from four years to three years.
- The rates were also lowered by four percent for every tier.
- Loan to Value or LTV Ratio
LTV ratio is the ratio of a loan to the cost of the property that has been purchased. This is a term used by lenders and banks. If the LTV ratio is higher, then the loan will become riskier for the lender. This will give you an idea on how much money you can possibly borrow from the bank. The limits for LTV were made tighter by the government in 2013 that is now 80 percent of the value of the property but subject to TDSR. It will also depend on whether it is your first, second or succeeding mortgage as well as to the term of your loan.
- Total Debt Servicing Ratio (TDSR)
The Total Debt Servicing Ratio can prevent home buyers with the amount of money that they can borrow. It is the duty of financial institutions to assure that borrowers can be able to repay their debts monthly and should not also exceed 60 percent of their total monthly income.
The only change for TDSR will be no longer be applied to mortgage equity withdrawal loans which is good news, that have a loan to value ratio of 50 percent and below.
Additional Conveyance Duty: New Stamp Duty
A new bill has passed in the parliament that involves the transfer of equity interest instead of purchasing the property directly from the seller. This action by the government aims to align the stamp duty charge to residential properties. According to Lawrence Wong, the Second Minister of Finance, this will not affect the buying and selling of shares.
Purchasing a share from the firm that owns the property will require you to pay a share duty tax of 0.2 percent instead of 3 percent. PHEs owners will pay equivalent stamp duties if the shares were transferred when they directly sell or buy the property.
An Additional Conveyance Duty (ACD) was introduced by the government for buyers with a flat of 15 percent levy on the value of the residential property and 1 to 3 percent levy to reflect the stamp duty of the buyer.
However, for the seller, the ACD is a flat of 15 percent on the value of the property. The reason why the bill was introduced and passed is that several high-profile property transactions involved the transfer of shares.
The Effects of Tweaking Property Cooling Measures Stock Surge
When the government had decided to ease some cooling measures, property counters have experienced a surge. The stocks of the real estate companies in Singapore have reached its peak according to Bloomberg. CapitaLand is the top active counter. Other companies that have experienced an increased include CDL, Wing Tai, UOL Group, and Bukit Sembawang Estates.
Cooling measures were introduced in Singapore because of the increasing prices of homes. United Overseas Bank Senior Economist said that more easing will follow. Changes with the property cooling measures in Singapore provided a positive impact to the residential market.
Besides, the government can still assure providing people with affordable housing because there were no changes with the ABSD and QC.
The rates of the Additional Buyer Stamp’s Duty from 2011 are as follows that were increased in 2013.
- Singaporean citizens are not required to pay ABSD for the first property that they have purchased. However, for the second purchase, a 7 percent of ABSD will be applied while the succeeding properties attract 10 percent. In 2011, no ABSD was applied for the first and second properties however for the third onwards buyers should pay 3 percent ABSD.
- People who permanently live in Singapore will have to pay 5 percent of ABSD for the first property and 10 percent for the subsequent properties. When ABSD was introduced in 2011, no ABSD is required for the first property while 3 percent for the second property.
- For foreign buyers, they will have to pay 15 percent ABSD on all properties while 10 percent in 2011.
The implementation of ABSD is indeed a difficult situation for property developers. Even companies that usually invest in residential properties need to think many times because of the rates of ABSD that they have to pay. In order for developers to prevent paying ABSD with an interest, they should sell all their units within 5 years after the completion of the project.
Because of the pressure that property developers go through especially if there are still lots of units unsold, they have to lower down the price of the units instead of paying higher ABSD. ABSD is a burden to developers thus causing them to try other markets. These are the reasons why developers are waiting every year that ABSD will be removed.
The presence of ABSD is not only a big problem for property developers but also to investors. They would also want to remove ABSD to prevent paying much in the end. ABSD has a negative impact on investors. Listed below is the point of view of investors in removing ABSD.
- When it comes to ABSD, foreign investors pay the highest rate which is 15 percent. As a result, foreign buyers tend to decrease in numbers causing troubles to property developers. This will make it hard for developers to sell all the units within the given period of time. If ABSD will be removed, then foreign investors will get interested in the Singapore property market.
- Total Debt Servicing Ratio can take care of Singaporeans who wanted to invest in several properties.
- Singapore is known to be an investor-friendly country. However, because of ABSD and other cooling measures, the numbers of foreign investors has decreased. This is why ABSD should be removed.
- Because of ABSD, the supply of residential properties is high while the demand is low. In order to improve this condition, removing ABSD can be considered one of the best solutions.
- The government has already achieved their goal of reducing the price of residential properties so it is just right for them to remove ABSD.
- Singaporeans became interested in investing their money to other countries because of ABSD. This can provide Singaporeans various risks as well as the country.
- There are more important things that the government has to give enough attention aside from ABSD. Besides, it is no longer necessary to implement this measure because of the lowering prices of properties.
Despite the fact that ABSD is not good for property developers and investors, there are still various reasons why the government would want to retain it. Besides, this is a method that they have implemented in order to prevent the rising cost of residential properties. Here are some reasons why the government doesn’t want to remove ABSD.
- The decreased when it comes to property prices is still minimal compared to other countries.
- The effect of ABSD in the prices of residential properties is more of a correction and will not cause a big damage to the property market. Besides, the government will not allow property prices totally crash down.
- The concern of the government is to provide affordable housing to Singaporeans and not with investors or property developers.
- ABSD also benefits the country when it comes to the amount of tax that they collect every year. In 2013, the amount of tax collected from ABSD is $1.502 billion while in 2014, they have collected $920.1 million.
- With the implementation of ABSD, the government can prevent dealing with complaints of Singaporeans because of expensive housing.
The Benefits of ABSD to Home Buyers
If the Additional Buyer Stamp’s Duty has negative effects on investors and property developers, home buyers on the other hand, are benefited by this cooling measure. Listed below are some of the benefits that home buyers get from ABSD.
- Singaporean buyers are not required to pay the ABSD for the first property.
- ABSD is implemented in order to provide affordable housing to Singaporeans.
- Property developers focus on selling the properties to Singaporeans instead of looking for foreign buyers. Besides, foreign investors need to think twice whether to purchase the property or not because of ABSD.
- Developers are the ones who suffer from the burden of paying ABSD and not the buyers.
What If ABSD Is Removed?
Before you look forward to the removal of ABSD, it is best that you should understand first what will possibly happen if the government will not implement this measure.
It is important that you have to weigh the pros and cons of removing ABSD to know what is best for the country and to people as well.
Once ABSD is removed, there would be lots of Rich Singaporeans who will purchase properties in bulk. Even foreign buyers and PRs will invest to residential properties causing the demand to increase.
As a result, the prices of properties will also get higher and higher because there will be lesser supply thus making hard for average people to afford to buy a property.
Worrying about how to pay ABSD will not resolve the problem. It would be better that you search for ways on how you can possibly avoid paying ABSD. Yes, it is possible for individuals and developers to get away from ABSD. One way is to try decoupling. So how does decoupling works and what are the rules that you should follow?
Decoupling means transferred of ownership of one’s property to another. For Example husband to wife. Once transfer, will leave the person eligible to buy a 2nd property without paying any ABSD charges. This has been common practice in the past and many HDB owners has been enjoying doing so. Government soon found out and implemented new strict rules on April 2016.
Listed below are the rules that you should follow for decoupling of properties.
- Decoupling for HBD flats is not allowed for married couple. (New Rule)
- Decoupling in private residential property is not also applicable if one of the parties is facing a bankruptcy.
- Decoupling is only allow for Divorce, terminally ill, Death of Owner, renunciation of Singaporean citizenship
- If the seller has transferred the ownership within 4 years then he is required to pay the SSD.
Avoiding ABSD Through Purchasing Of Company Shares
Aside from decoupling, individuals can also prevent paying ABSD by purchasing shares from a holding firm instead of buying the property directly from the seller. Through this method, major developers have already offload condo units in bulk.
Purchasing a residential property requires a buyer’s stamp duty of 3 percent. This can possibly increase up to 15 percent depending on the citizenship of the buyer. However, if the residential property will be acquired through purchasing of shares, then the tax that the buyer will have to pay will only be 0.2 percent of the net asset value of the firm. According to Lee Liat Yang, the senior partner of Dentons Rodyk & Davidson, that this method is making the market anxious because they have no idea on when this rule will change.
Leung Yew Kwong, the principal tax consultant of KPMG Singapore gives emphasis on how complex the possible legislative changes are. Analysts also said that this can also affect the demand of in the property market.
Developers that still have substantial unsold units will be the ones who will be affected by the measures according to Edmund Tie and Co head of Southeast Asia research, Dr. Lee Nai Jia. Developers should consider the cost of their options, transferring of shares, discounts included, as well as ABSD charges. This will cause buyers to take advantage of the loophole.
Here are some situations wherein this method was applied to avoid ABSD.
- Wee Cho Yaw, a veteran banker has purchased the unsold units of The Nassim for $411.6 million by purchasing 100% stake from Nassim Hill Realty.
- Wing Tai Holdings sold their share to City Developments that later on off-loaded the property to Singaporean investors.
The above 2 loopholes mention has been patched by Government. The Decoupling method and purchasing shares method has been countered by adding new rules and new stamp duty ACD.
Looks like Developers, investors and buyers will have to find new ways or new loopholes in avoiding ABSD.
Lots of people especially those who are greatly affected by ABSD are patiently waiting for its removal. However, it is still early for the government to remove ABSD.
If developers and investors will benefit from the removal of ABSD, new home buyers on the other hand who only want a place for them to live in will surely face a big problem on how they can possibly afford to buy a property.
The removal of ABSD can only make rich people become richer while poor people become poorer.
If you will look at the purpose of the government on why they have introduced cooling measures, which is to provide affordable housing to people, you will surely have an idea why they will retain ABSD.
It is still hard for the government to tell when they will remove ABSD. They are still waiting for the perfect time to tweak the cooling measures such as having a very low market or if an economic recession occurs. During this time, it will no longer be possible that there will be an increased in prices of properties.