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SINGAPORE BUDGET 2017

Lifting of property cooling measures seen unlikely

Industry watchers expect the government to let market forces play out before intervening

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Those hoping for any lifting of property cooling measures may be in for a non-event if the projection of market experts rings true.

Singapore

THOSE hoping for any lifting of property cooling measures may be in for a non-event if the projection of market experts rings true. This is because most industry watchers expect the government to let market forces play out before intervening.

Also, tax consultants are not expecting major revisions to other property taxes, though some hope that the government will see it fit to re-introduce tax remission for vacant properties given the tough rental market and review property tax on vacant private land. This echoes some of the recommendations made by the Real Estate Developers' Association of Singapore.

"Given the rising vacancy rates and the less-than-promising market outlook, perhaps the government can consider reinstating vacancy refunds for a period of time, say for five years," said Lim Gek Khim, an Ernst & Young tax partner. "This would provide some relief to owners of unoccupied property during challenging times."

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Since Jan 1, 2014, property owners can no longer claim the so-called "vacancy refunds" on property taxes for unoccupied properties (both residential and non-residential). The change coincided with the introduction of a new and more progressive property tax schedule on residential properties that year.

Citing headwinds in the rental market with the increase in newly completed properties, Dentons Rodyk & Davidson senior partner Lee Liat Yeang noted that re-introducing the tax remission for vacant properties will help to mitigate the hardships of cash-strapped property owners.

"The government should also consider more tax incentives to developers who develop and build housing using prefabricated prefinished volumetric construction (PPVC) methods and/or who invest money to incorporate more energy saving facilities in the development."

Most industry watchers are betting on the odds that the government will stand pat on maintaining property cooling measures in their current form, amid early signs of a recovery in the private residential market characterised by an improvement in transactions and moderating price declines in 2016.

Through selective discounts, deferred payment schemes or bulk sale to third-party or parent company, developers have also been able to move sales in projects affected by the qualifying certificate (QC) conditions and the additional buyer's stamp duty (ABSD).

"For these reasons, it is expected that the government will let market forces play out before further intervening in the property market," said Sandra Han, deputy head of real estate practice at RHTLaw Taylor Wessing.

The QC conditions, which affect foreign and listed developers, require them to finish building their projects within five years of acquiring the site and sell all the units within two years of completion; otherwise, they incur extension charges for unsold units. Since late 2011, developers also have to sell out a project within five years to qualify for ABSD remission.

Credit Suisse estimates QC charges and ABSD remission clawback for developers this year to be S$800 million in total. Still, removing ABSD entirely at this point is undesirable from the government's standpoint, Ms Han said.

"It will only lead to greater volatility in the property market, sensing the pent-up demand from long-term property investors. It would not be surprising if the upcoming Budget leaves nothing on the table for property investors to look forward to," she added.

But Mr Lee felt that if the government chooses to keep the ABSD, it should consider reducing the rates for Singaporeans. "The loan-to-value ratio should be relaxed for the second and subsequent housing loans since excessive borrowing will not be possible with the total debt servicing ratio in place."

KPMG Singapore head of real estate Tay Hong Beng reckoned that if there is to be anything at all on cooling measures in the Budget, it will likely be a gradual lifting of measures that is done in phases.

He said: "A phased approach will help manage potential pricing spikes due to a sudden increase in demand and facilitate a smooth transition for the property market."

READ MORE: A balancing act of near and long-term demands

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