Singapore Boosts Stamp Duty, Cuts Lending to Cool Housing Market

The Singapore government on Thursday raised taxes on residential real estate purchases and tightened lending rules in a bid to tamp down record growth in home prices and maintain housing affordability in Southeast Asia’s wealthiest nation.

The state increased the additional buyer’s stamp duty (ABSD) rates for both locals and foreigners, except for first-time local homeowners, and restricted borrowing for home purchases, in an effort to temper housing prices that have risen by nine percent since the first quarter of last year.

“If left unchecked, prices could run ahead of economic fundamentals, and raise the risk of a destabilising correction later on. Borrowers would also be vulnerable to a possible rise in interest rates in the coming years,” the Monetary Authority of Singapore, Ministry of Finance and Ministry of National Development said in a joint statement. The regulators noted that the markets for both private and subsidised housing “have been buoyant, despite the economic impact of COVID-19.”

The measures were announced just one day after data from the city-state’s Urban Redevelopment Authority (URA) showed that new home sales in November had doubled compared to the same period last year, with developers predicted to sell a total of 13,000 new homes in 2021, which would be the largest tally in the city since 2013.

Prices for homes have also been on the upswing, with a study released this week by online real estate platform 99.co showing that prices for second-hand condos rose for the 16th straight month in November to mark their longest rally since 2013.

Duty Hiked, Credit Tightened

Effective today, Singapore authorities have raised the stamp duty for citizens buying their second homes to 17 percent from 12 percent, while investors picking up their third or subsequent residential properties have seen the tax hiked by 10 percentage points to 25 percent.

For permanent residents who have been paying a flat rate of 15 percent for purchases of additional properties, the transaction tax for their second home rose to 25 percent while venturing into third and subsequent properties will now be taxed at 30 percent.

The tariffs for citizens and permanent residents buying their first homes were left untouched at 0 percent and 5 percent, respectively.

Foreigners picking up any residential property in the city-state will now be slapped with a 30 percent stamp duty, up from 20 percent previously, while corporate entities will have to pay 35 percent ABSD versus 25 percent in the past. For real estate developers, that tariff comes on top of the existing five percent tax.

The government, which has made affordable housing a cornerstone of Singapore life since the early days of the Republic, also restricted credit for real estate for homebuyers.

The total debt servicing ratio (TDSR) threshold for individuals, which refers to the percentage of a borrower’s income that can be allotted to paying off loans, was reduced to 55 percent from 60 percent, while the loan-to-value limit for financing public housing purchases, or the amount of an asset’s value which can be financed through debt, was also cut to 85 percent from 90 percent.

Dampening Demand

The volley of measures in many ways resembles a set of housing market curbs rolled out in July 2018, when authorities increased the stamp duty nearly across the board and tightened credit rules after home prices jumped 9 percent within a 12 month period.

In explaining the new measures, the regulators pointed to overheating in the city’s secondary market for HDB (subsidised) housing, where prices have climbed 15 percent since the first quarter of last year, which reversed the 10 percent decline from 2014 to 2018. The authorities also noted the high volume of residential transactions driven by the current low interest environment.

“The private residential measures are calibrated to dampen broad-based demand, especially from those purchasing property for investment rather than owner-occupation. Measures to tighten financing conditions for both public and private housing will encourage greater financial prudence,” the authorities said, while adding that steps would soon be taken to boost the supply of both public and private housing to meet growing demand, without providing further detail.

New Measures Likely to be Effective

Tricia Song, head of research for Southeast Asia at CBRE, said that, based on the results of the previous round of regulations in 2018, this latest batch of restrictions will likely be effective in stabilising the market.

“The cooling measures will help to improve affordability for first-time homebuyers, prevent affluent buyers from buying additional properties for investment for future generations, and also reduce the risk of a hard landing when interest rates rise in the near future.”

Song noted that the 2018 measures had effectively cut the volume of sales in the secondary market by nearly half.

Christine Sun, senior vice president of research and analytics at OrangeTee & Tie, predicts that the rules announced today are likely to bring home sales down for the next six months and said that the firm is now tempering its projections for the private housing market, with the brokerage now expecting a 0 to 3 percent uptick in 2022, which is down from previous estimates of a 6 to 9 percent jump.

CBRE’s Song projects that developer home sales are likely to “normalise” to 9,000 to 10,000 units next year from the expected 13,000 in 2021, and that price increases will range from 1 to 3 percent, with a similar trend predicted for the secondary market.