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Targeted approach likely to have muted market impact

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Cushman & Wakefield research director Christine Li said: "We expect the overall impact to the residential market to be rather muted, as the easing is just a minor tweak to help certain groups who are adversely affected by the cooling measures."

Singapore

WITH the government seen taking a targeted approach to adjusting the seller's stamp duty (SSD) and the total debt servicing ratio (TDSR) framework, market players believe the impact on the property prices and transactions will be muted.

But it is highly debatable as to whether the move signals the start to a gradual unwinding of property cooling measures, with most observers perceiving the government's stance as largely unchanged.

As things stand, it is not only retaining the current additional buyer's stamp duty rates (ABSD) and loan-to-value limits, but also imposing new taxes on transfer of shares in residential-property-holding entities to mimic the ABSD on direct residential transactions.

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"Rather than signal an outright relaxation on property cooling measures, the government's latest announcement reflects how the government is responsive to market feedback and can take small steps to "test the waters"," said Sandra Han, deputy head of real estate at RHTLaw Taylor Wessing LLP.

Concurring, Cushman & Wakefield research director Christine Li said: "We expect the overall impact to the residential market to be rather muted, as the easing is just a minor tweak to help certain groups who are adversely affected by the cooling measures."

Under the revised SSD scheme, the holding period for residential properties - after which the SSD will not apply - is reduced to three years from the date of purchase instead of four years. The SSD rates for each tier are also cut by four percentage points.

But since the reduced SSD rates apply only to properties purchased from March 11, this is unlikely to have a major impact on transaction volumes in the near term nor would speculative activities set in, property consultants say.

"Over the years, SSD has perhaps deviated from its original intent and lost its relevance given that other measures such as ABSD and TDSR have been put in place to deter speculation," Ms Li said.

"On the flipside, SSD can potentially hit one group of home owners really hard - those whose circumstances change due to unforeseen events such as deaths, divorces and job losses."

Property consultants note that the move to waive the TDSR framework on mortgage equity withdrawal loans not exceeding half of the value of the mortgaged property is also expected to affect only a small group of owners. Such equity loans can typically be obtained by borrowers against their existing property, for which they have been paying down the mortgage. Such changes will help homeowners to monetise their properties in their retirement years, said PropNex CEO Ismail Gafoor.

The TDSR framework - which caps all borrowings of an individual at 60 per cent of gross monthly income - still largely applies in most situations.

Nonetheless, the latest moves may be perceived as the start of unwinding of cooling measures, said JLL national director for research and consultancy Ong Teck Hui. This could lead to more buyers coming back to the market as they perceive the market is bottoming and hopeful of a recovery, he said.

Many market players are more worried about the amendments to the Stamp Duty Act, particularly for unforeseen consequences on business transactions.

The government is imposing new taxes, known as Additional Conveyance Duties (ACD), on transfer of shares on property holding entities (PHEs) that primarily own residential properties in Singapore. The ACD on the buyer that becomes a significant owner mimics the buyer's stamp duty of up to 3 per cent plus a 15 per cent ABSD; the ACD at a flat 12 per cent on the seller with significant ownership during the three-year holding period is higher than the reduced SSD on direct sale of residential unit. Still, a prevailing 0.2 per cent stamp duty for transfer of shares will continue to apply.

This is seen as one of the ways to expand tax revenue sources, quipped SLP International executive director Nicholas Mak. Apparent outcomes from this could be higher transaction costs to property funds and developers. It could also push developers who are hard-pressed by looming deadlines to sell out their projects under the conditions of qualifying certificates or ABSD remission clawback to offer units directly at steeper discounts.

Of greater concern is some unintended consequences that have not been envisaged. This move is "yet another wound for the real estate funds management industry" but fund managers are hardly speculators of residential properties, said International Property Advisor key executive officer Ku Swee Yong. The ACD on share transfers may also affect estate planning, he said.

Another tricky situation may be when companies undertake joint venture (JV) agreements for property development, according to Dentons Rodyk & Davidson senior partner Lee Liat Yeang. When a company acquires the land first via a property holding entity before bringing in a JV partner, it is unclear if the sale of a 50 per cent stake in that entity to the JV partner will incur ACD.

PwC real estate and hospitality tax leader Teo Wee Hwee felt that government should provide clarity on these issues. In principle though, a new JV partner should be able to obtain the same ABSD remission that applies to a property developer, he said. "The new rules should not be seen stifling economic activities in real estate."

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