Possible effects of the recent cooling measures (Part 1- ABSD)

Recently, the Government has introduced the latest round of property cooling measures.

In this round of property cooling measures, adjustments to the Additional Buyer’s Stamp Duty (ABSD) rates and Loan-to-Value (LTV) limits on residential property purchases are made. The Additional Buyer’s Stamp Duty amount went up, while the Loan-to-Value (LTV) limits went down.

Residential property buyers will now have to pay more taxes, I want to explore the effects of the ABSD increase on the property market in this article. In the next article we will explore the possible effects of LTV on the property buyers.

Property Market Situation in Singapore

Private property residential prices has been gradually declining for close to 4 years. However from 3rd Quarter of 2017, private property residential prices have increased by about 9.1%. Transaction volume has also increased very strongly.

In the past year, developers have been offering high bids for en bloc residential properties, and thereby creating cash rich buyers. This can further increase the demand for new homes.

The government is concerned that if the prices were to keep increasing, and if left unchecked, could run ahead of economic fundamentals. This will raise the risk of a destabilising correction later. Furthermore, there is a currently a large supply of residential units coming on stream and mortgage interest rates are rising.

Raising ABSD Rates

The Government has made the following changes to ABSD rates:

1. Raise ABSD by 5%-points for individuals;
2. Raise ABSD by 10%-points for entities;
3. Introduce an additional ABSD of 5% that is non-remittable under the Remission Rules (payable on the purchase price or market value, as applicable) for developers purchasing residential properties for housing development. 
   

# As entities, developers will also be subject to the ABSD rate of 25% for entities. Developers may apply for remission of this 25% ABSD, subject to conditions (including completing and selling all units within the prescribed periods of 3 years or 5 years for non-licensed and licensed developers respectively).

Details are provided under the Stamp Duties (Non-licensed Housing Developers) (Remission of ABSD) Rules and the Stamp Duties (Housing Developers) (Remission of ABSD) Rules.

^ Developers refer to entities which engage in the business of construction and sale of housing units.

* This new 5% ABSD for developers is in addition to the 25% ABSD for all entities. This 5% ABSD will not be remitted, and is to be paid upfront upon purchase of residential property. 

Effects of the ABSD increase on first time buyers (for Singaporean and Permanent Resident)

As first time buyer, you will be buying your first property. Thus, the ABSD increase will not affect you. This applies to Singaporean and Singapore Permanent Resident.

For Singapore Permanent Resident, the ABSD for the purchase of the first property remains unchanged at 5%. Therefore the new cooling measures does not affect first time buyers and if property prices were to decrease because of the cooling measures, first time buyer will benefit from it.

Effects for second-time or more property buyers?

For second time or more property buyers, you will have to pay more ABSD when you purchase the property. Refer to the ABSD table above. So are you really paying more?

Let us explore some assumptions here:

If Property prices remains the same or continue to increase after the cooling measures:

If property prices remains the same or continue to increase, second time or more property buyers, you will definitely be paying more for your property as a whole

If Property prices falls:

If property prices falls, then you may pay less for your property as a whole. For instance if the property prices falls more that 5% due to the cooling measures, you will actually be paying less in total for your property.

UPDATE:

My next article on revised LTV in the latest property market cooling measurements is ready. Read it here.

On a side note, if you are a first time buyer, I have shared my thoughts here on using cash or CPF for your first property.

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