BT : More gentle therapy to cool the property fever

Business Times - 20 Feb 2010

More gentle therapy to cool the property fever

Seller's stamp duty and tighter loan limits reintroduced in bid to discourage speculation

By KALPANA RASHIWALA

(Singapore)

THE government yesterday administered another measured dose to cool the resurgent property fever. While mild by themselves, the latest steps could foreshadow more severe therapy if the fever refuses to subside, said industry watchers. And this could plant seeds of uncertainty in an investor's mind.

It was announced that a seller's stamp duty (SSD) will be levied on those who buy a residential property from today and sell it within a year. This is aimed at curbing short-term speculation. Also, the Loan-to-Value (LTV) limit on housing loans will be lowered from 90 per cent to 80 per cent.

The SSD applies to all residential properties and residential lands, except for HDB flats. The date of purchase for the purpose of computing the one-year holding period shall be the option exercise date. This raises the possibility that some speculators who have been granted options to purchase residential properties recently but have yet to exercise them may allow their options to lapse - and lose typically 1.25 per cent of the purchase price - rather than face the rule change.

'True-blue speculators or flippers may fall out and return their options to developers,' said a market watcher. 'But specuvestors with the means of raising funding to make progress payments and who see prospects beyond a one-year horizon will likely continue with the purchase,' he added.

Currently, stamp duty is levied only for the purchase of property, not its sale. SSD will be applied at the same rate as the buyer's stamp duty - one per cent for the first $180,000 of the consideration, 2 per cent for the next $180,000 and 3 per cent for the balance.

The Inland Revenue Authority of Singapore released an e-tax guide, listing more details including exceptions on the payment of SSD - for instance housing developers when they sell residential properties within a year of purchase, or for an estate of a deceased person when interest in residential property is passed to the beneficiary.

The Real Estate Developers' Association of Singapore (Redas) said: 'The introduction of the SSD should not impact adversely activities in the property market. The reduced mortgage cap is also unlikely to have significant impact on genuine buyers and investors. Lending institutions have already been more prudent especially in the aftermath of the global financial crisis.'

The lower LTV ratio on housing loans applies to home buyers granted options to purchase from today and covers all housing loans given by financial institutions for private homes, executive condos, HUDC flats and HDB flats. However, loans granted by the Housing Board for HDB flats will still have a 90 per cent cap as such flats are already subject to other criteria to prevent speculation and encourage financial prudence, the government said.

Redas CEO Steven Choo says the lowering of the LTV ratio is not unexpected. 'What was unexpected was when the limit was previously raised from 80 per cent to 90 per cent in July 2005.'

Currently, less than 10 per cent of housing loans are granted an LTVs greater than 80 per cent, 'although there are signs that more housing loans are originating at higher LTV bands', a joint statement by the Ministry of National Development, Ministry of Finance and Monetary Authority of Singapore (MAS) said. Besides instilling financial prudence among property buyers, the move is aimed at sending a 'clear signal to financial institutions to maintain credit standards', the statement added.

Banks' total outstanding housing loans increased from $79.6 billion at end-2008 to $91.4 billion at end-2009, according to preliminary estimates released yesterday by MAS.

Market watchers note the latest two cooling measures bear some resemblance to tools used by the government in the historic May 1996 anti-speculation measures, which, compounded by the Asian crisis, led to a long property slump. However, the government's approach now is to administer smaller doses, rather than to prescribe a massive dose that may prove lethal to the market. Previous cooling measures were announced on Sept 14 last year.

'The government will continue to monitor the property market closely and will introduce additional measures, if required later, to promote a stable and sustainable property market,' the joint statement read.

Credo Real Estate managing director Karamjit Singh said: 'We suspect the market would have preferred the latest measures to have been part of last September's package so that all the measures came out at one go rather than in instalments, as this creates uncertainty about what further measures could be in store. That can be unsettling in the minds of investors and developers.'

Mr Singh also argues while the latest measures may seek to address speculation and overgearing, these are not the real reasons driving up prices. 'The real reason is a physical supply crunch in the lower end of the housing market - HDB as well as entry-level private.'

Last September, the government scrapped the interest absorption scheme and interest-only housing loans which had been blamed for fuelling speculation, and announced the resumption of confirmed list land sales in the first half 2010.

While those measures had some effect, developers' private home sales resurged last month. Prices of private homes also continued to increase after the sharp hike in H2 2009, the government noted. 'Mortgage lending has also increased steadily by around 12 per cent year on year through 2009,' it added.

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