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Surprise tweaks in property cooling measures seen signalling further unwinding

The Business Times | Kalpana Rashiwala | Monday, Mar 13, 2017

The housing market may well be bottoming, making buyers more sanguine about prospects of a price recovery

Photo: The Straits Times

The government's unexpected move to make "calibrated adjustments" to a couple of the residential property cooling measures amid a recovery in private housing sales volumes has baffled many market watchers.

Could it be that the authorities were just getting tired of grumbles by individuals and decided to respond to ground feedback? If so, how really impactful can the latest announcements be?

There is little doubt that, at the margins, they will benefit segments of homeowners.

For instance, the decision to no longer apply the total debt servicing ratio (TDSR) framework to mortgage equity withdrawal loans with loan-to-value ratios of 50 per cent or less will help those who need to monetise assets. This was probably in response to concerns from retirees.

Paring the seller's stamp duty (SSD) by shortening the holding period to three years from four years and by lowering the rate by four percentage points for each tier provides a confidence boost to individuals and families that are hoping to buy a residential property for investment.

Read also: Should property cooling measures be relaxed?

However, there is no change to the additional buyer's stamp duty (ABSD), targeted at foreign buyers as well as Singaporeans who own multiple properties. Neither is there any change to LTV limits and the 60 per cent TDSR ratio.

And they are the ones that many homeowners and potential buyers have the greatest issue with.

So perhaps not surprisingly, some see the impact of Friday's tweaks on the property market as muted.

The government could be trying to test the market by making these small tweaks to the cooling measures. Even if private home prices start rising from this point, it would not pose any big danger to the economy or banking system. Right now, there is no property bubble.

In fact, the tweaks may be viewed as the release of pressure via small valves - just in case the economy turns out badly this year.

Read also: Central bank backs keeping property cooling measures in place

But there are several factors that could mitigate any boost in the property market arising from the latest announcement - not least of which is the interest rate outlook. Market watchers expect the US Fed to make at least three rate hikes this year, with the first one poised for next week. Just last week, US Federal Reserve chair Janet Yellen gave a strong signal that a rate hike later this month would be "appropriate".

A rising interest rate environment would dampen property demand, thus limiting any increase in home sales arising from Friday's tweaks.

While the SSD adjustment may spark some buying enthusiasm among individuals, there is a countervailing force that will douse demand from institutional investors: the introduction of additional conveyance duties or ACD.

This is a new stamp duty imposed on residential property transactions involving significant changes in equity interest in entities that primarily hold residential properties and will close the previous differential in stamp duty treatment between such indirect property transactions and direct property deals.

Effectively, the ACD plugs a loophole that institutional and sophisticated investors have been exploiting for years to save on stamp duty payment.

Read also: Over 1,800 HDB flats sold in April, highest since property cooling measures introduced

While the ACD on the significant buyer in these indirect property purchases is identical to the buyer's stamp duty of up to 3 per cent and the 15 per cent additional buyer's stamp duty in direct property purchases, the ACD on the significant seller is more punitive at a flat 12 per cent for sale of equity interest within three years of purchase - regardless of whether the seller had held the equity interest for one year, two years or three years.

On the other hand, the SSD for direct sales of a residential property within three years of being bought on or after March 11, 2017 is on a downward sliding scale - 12 per cent if sold in the first year, 8 per cent in the second and 4 per cent in the third.

So investment demand for residential properties from the likes of funds and sophisticated investors can be expected to take a hit.

While the adjustments to the SSD and the TDSR are seen as having a muted impact on the market, what is more important is the signal that property market participants will read from Friday's announcement.

Most would be inclined to think that the government is now prepared to further unwind the property cooling measures, which were implemented in stages between 2010 and 2013. This will strengthen the view that the Singapore housing market is bottoming and make buyers more sanguine about prospects of riding on a price recovery after a price slide over three years.

"I would call this is a candle light at the end of the tunnel," quipped JLL national director Ong Teck Hui.

As a clearer picture of the impact of round one emerges in the coming days and weeks, the government will decide what to do, or not do, next.

This article was first published on Mar 11, 2017.
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