JLL argues for a new property tax in place of ABSD

Singapore

WEEKS ahead of Budget 2017, real estate consultancy JLL has proposed that the additional buyer's stamp duty (ABSD) on residential purchases be removed or reduced, and replaced by an annual tax on non-owner occupied units. This "property tax" would be over and above the unit's current property tax.

But such an argument has not gained traction with other market watchers - some have a different reading of the market altogether.

Calling it a "prescription for moderate growth", JLL head of South-east Asia research Chua Yang Liang said in his report released on Tuesday that his proposed approach would be a sustainable way to revive demand, bring some activity back into the market and prevent prices from falling further.

"Replacing ABSD with a property tax will remove the temporary nature of ABSD with a longer term and sustainable measure," he added. Dr Chua is also in favour of allowing permanent residents and foreigners who live and work in Singapore to buy one property without having to pay ABSD.

Dr Chua opined that with the total debt servicing ratio (TDSR) in place, it is unlikely that this revision to ABSD will cause a run-away in prices. Rather, it will align property prices with real income growth and steer buyers to evaluate their investment against long-term holding costs.

But other analysts do not share his views.

Lee Nai Jia, senior director of research at Edmund Tie & Company, reckoned that removing ABSD will increase volatility in the short term given that there are many buyers waiting on the sidelines.

There are already signs of the market bottoming out with sale transactions trending upwards, he flagged.

Data from the Urban Redevelopment Authority last week showed a 16 per cent jump in private residential transactions to 16,378 units in 2016, with the high-end region recording the biggest year-on-year jump of 48.7 per cent.

Prices of private residential properties have fallen for 13th consecutive quarters since the third quarter of 2013, slipping by 0.5 per cent in the fourth quarter of 2016 and 3.1 per cent for the full year. The pace of decline was slower than the 1.5 per cent drop registered in the third quarter and 3.7 per cent fall in 2015.

"There is still much hot money in the market, and many investors are still looking around for suitable products," Dr Lee said.

"Second, I do not see how the increase in property tax to replace the ABSD will help buyers to evaluate their capital investment against the long term. People who invest in the long term tend to look at the political institutions, economic stability and potential growth."

International Property Advisor's key executive officer Ku Swee Yong felt that it may not be time to tweak the ABSD yet, as this may spur more residential investments.

"My prescription for a stable housing price is to follow Australia's very prudent lending practices. Banks lend money based on independent valuation of new and old residential properties, not based on the developers' launch prices," he said. "And for new properties that take two to three years to build, the valuation of the property loan depends on when the loan is drawn down... Japanese banks practise this too."

With the TDSR being a crucial macro-prudential tool to prevent over-leverage among borrowers, the ABSD has been widely seen by the industry as the measure that would be tweaked first if the government chooses to relax its policy. It has been effective in curbing the influx of overseas money, since overseas buyers pay the highest 15 per cent additional tax on top of the 3 per cent stamp duty on property purchase.

According to Dr Chua, property prices "are now at one of the most affordable levels on record" following the introduction of ABSD and TDSR in 2011 and 2013 respectively; the home price-to-income ratio has fallen over the past five years from 7.3 to 5.6 for private homes and from 4.2 to 3.5 for public housing.

Based on JLL estimates, luxury prime properties have corrected on average 18 per cent, while mass market prices have softened about 11 per cent.

Prices for some residential projects, especially those in the prime districts, have corrected between 25 per cent and 30 per cent since the height of the market in 2011.