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Take That! – Huge Uppercut Delivered To Property Price Monster
After so many rounds of drastic measures served on the property beast, prices are still strong and re-accelerating upwards. The property cooling measures announced on 11 January 2013 is the latest and hardest swing the government has delivered on the property price monster.
Everyone is going to sit back now and observe whether the monster will quickly shake off the dizziness, recover from it’s wobbly legs, and continue to tear up property records all over again. With every measure that has been implemented to cool the market, experts had predicted a correction in prices. But it has not happened at all. If property experts are graded by their predictions, they will fail miserably.
The latest set of policies are the most comprehensive by far which covers almost all segments of the market. If we attempt to group all the targeted segment of buyers for these new policies, it has to be the investors group looking to put their excess cash into properties. First time Singaporean home buyers are spared.
Singapore citizens will now have to fork out 7% additional buyer’s stamp duties (ABSD) on purchasing their second properties. Permanent Residents will incur a 5% ABSD from their first properties. Loan quantums have also been further restricted as the new rules take a swipe at those taking on maximum leverage to exploit the current low interest rate environment.
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Measures Applicable to all Residential Property
The following measures will take effect on 12 January 2013:
a) Additional Buyer’s Stamp Duty (ABSD) rates will be:
i) Raised between five and seven percentage points across the board.
ii) Imposed on Permanent Residents (PRs) purchasing their first
residential property and on Singaporeans purchasing their second
b) Loan-to-Value limits on housing loans granted by financial institutions1 will be tightened for individuals who already have at least one outstanding
loan, as well as to non-individuals such as companies.
c) Besides tighter Loan-to-Value limits, the minimum cash down payment for individuals applying for a second or subsequent housing loan will also be raised from 10% to 25%.
Some people may deem these measures as harsh. But unless your personal income is directly dependent on property transactions taking place, or you are a full time property investor, you will more likely welcome the policies. Property prices are getting out of hand as rightly stated by Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam when he said prices are “running ahead of fundamentals”.
But the government has to also take into account of the recoil from every shot they fire at the property price monster. With every new measure, more and more people are stampeding forward to buy more properties before another new set of measures are introduced. It is a gold rush.
Take for example La Fiesta in Seng Kang which was scheduled to be launched on 15 January 2013. When news broke out about the new comprehensive cooling measures around 7pm, instead of predicting a price correction in the near future and hold off buying, buyers rushed to the scene when the developer decided to open the gates immediately. There was still a few more hours left before the new policies take effect from 12 January 2013.
When the latest flash estimates of property data was released by URA in early January, the property price monster was starting to get up yet again. This set of policies is one hell of an uppercut delivered. Even when you consider that there is a huge supply of properties coming up in the next few years.
The broader perspective is that interest rates are low around the world. And since there is a money printing competition going in other parts of the planet, investment finds will eventually end up on our shores. No prizes for guessing what assets most of these monies will end up on. This could be the angle that the government is shielding from. Thus, the ABSD for foreigners at 15% and loan to value restrictions for non-individuals.
The Government is introducing Seller’s Stamp Duty (SSD) on industrial property to discourage short-term speculative activity which could distort the underlying prices of industrial properties and raise costs for businesses.
The following SSD rates will be imposed on industrial properties and land bought and sold within three years of the date of purchase:
a) SSD at 15% if the property is sold in the first year of purchase, i.e. the property is held for one year or less from the date of purchase.
b) SSD at 10% if the property is sold in the second year of purchase, i.e. the property is held for more than one year and up to two years from the date of purchase.
c) SSD at 5% if the property is sold in the third year of purchase, i.e. the property is held for more than two years and up to three years from the date of purchase.
These SSDs will apply for industrial properties and land bought on or after 12 January 2013.
Be assured that there will definitely be a slow down or correction of property prices after this. How long it will last however, remains to be seen. The Singapore property market may even freeze up like a kangaroo in the headlights. But we have already seen the resolute property price monster rise again and again no matter how many body blows we dish out. Let’s just see if it will take the cue and go into hibernation.