Singapore Hikes Stamp Duty by Up to 50% After 9% Jump in Home Prices

Singapore increased the Additional Buyer’s Stamp Duty (ABSD) and lowered Loan-to-Value (LTV)  limits on Thursday, slamming the brakes on its housing market after statistics released earlier in the week showed home prices having jumped nine percent in the past 12 months.

The adjustments, the ninth round of cooling measures introduced since 2009, are seen having a dramatic impact on transactions and have soured investor sentiment on developer stocks. Equity prices reacted immediately to the announcement, with City Developments dropping 15.61 percent in trading Friday and CapitaLand 5.97 percent.

“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,” said Tay Huey Ying, Head of Research and Consultancy, JLL, Singapore.

Announcements outlining the stamp duty and the LTV changes were released 5 June by the Ministry of Finance and the Monetary Authority of Singapore.

Rate Increases for Most Transactions

Measures are being introduced almost across the board, with just a few categories spared. The ABSD remains unchanged at 0 percent for first-time home buyers. For permanent residents buying their first homes, the duty remains 5 percent.

But most other transactions are covered, and the levels of increase are significant. Local second home buyers will pay 12 percent, up from 7 percent, while third home buyers will pay 15 percent, up from 10 percent. Permanent resident second home buyers will pay 15 percent, up from 10 percent. The rate for foreign buyers has increased to 15 percent from 10 percent. Entities face the largest jump, 25-30 percent from the current 15 percent.

Loan-to-value ratio decreases are also significant and broad. The ratio will go to 75 percent from 80 percent for first-time buyers, to 45 percent from 50 percent for second home buyers, and to 35 percent from 40 percent for third home buyers. HDB housing is exempt.

The adjustments surprised the market, as the Property Price Index (PPI) just started to recover last year from from 14 consecutive quarters of decline while a jump in supply is anticipated.

“We feel the additional measures have been introduced too hastily coming just after 9.1 percent growth in PPI 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,” adds Tay.

According to CBRE, the strong action indicates the high level of concern on the part of the government and a seriousness of purpose. It added that the intervention is ultimately a positive as it will help to ensure that the market remains stable and sustainable.

Government Gave Advance Warning

Singapore residential prices have been rising at rates not seen since the boom that followed the 2008 global financial crisis. After the Urban Redevelopment Authority (URA) released a flash report on Tuesday indicating a strong second quarter, expectations were that the PPI might reach an all-time high by the end of 2018.

In comments released early last week Tricia Song of Colliers International said that the property consultancy had hiked its forecast for 2018 home price growth to 12 percent from eight percent, based on the new market data.

But a day before the government’s stamp duty announcement and a day after the URA release, signs began to emerge that the authorities were concerned. At the Monetary Authority of Singapore (MAS) annual report media briefing on Wednesday, Ravi Menon, Managing Director for the MAS, cautioned against euphoria in the market.

He warned home buyers to be cautious as interest rates are rising and to keep an eye on supply. They should avoid leverage at this time in case prices fall sharply, he advised.

“Basically we’re sounding caution to everyone to be sober, balance and exercise good judgement,” the Business Times quoted him as saying.