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Redas chief: BSD tweak unlikely to derail housing recovery

But he says revised buyer's stamp duty could translate into higher prices for new projects down the road

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Redas president Augustine Tan said positive sentiments are likely to continue in this early recovery in the property market, and 2017's sales momentum could carry through the next few years, with stronger-than-expected economic growth outlook.

Singapore

SHOULD buyers be expecting higher home prices with the recent hike to the top marginal rate for buyer's stamp duty (BSD)?

The answer may be "yes", going by comments from Augustine Tan, president of the Real Estate Developers' Association of Singapore (Redas).

He said on Friday: "In the purchase of sites from the Government Land Sales (GLS) programme or private collective sites, the substantial premiums paid by developers for residential sites, together with the one per cent hike in the buyer's stamp duty may translate into higher prices for new projects in the future."

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But though the new revised buyer's stamp duty "may add some friction to transaction volumes as buyers remain price-sensitive, it is unlikely to derail the recovery", he told some 620 guests at Redas' annual Spring Festival lunch.

In this early stage of recovery in the property market, he reckoned that positive buying sentiments are likely to continue.

The sales momentum of last year is expected to carry through to the next few years, on the back of stronger-than-expected economic growth outlook, he said.

As part of Budget 2018 announced on Monday, the government raised the BSD rate on the portion of residential property value in excess of S$1 million. The existing 1 to 3 per cent BSD rates still apply to the portion of residential property valued at S$1 million and below.

This affects all residential properties bought on or after Tuesday, including en bloc property deals and residential land deals.

The change has come amid a nascent recovery in the property market, where private home prices are just starting to recover from a slump that began in late 2013.

Two quarters of price recovery in the later half of 2017 brought private home prices up 1.1 per cent for the whole of last year, after having fallen by 3.1 per cent in 2016 and 3.7 per cent in 2015. Developers clocked a 33 per cent jump in private home sales in 2017 to 10,566 units.

But the government has framed the move to revise BSD as one aimed at making Singapore's tax system more progressive.

Dentons Rodyk & Davidson senior partner Lee Liat Yeang said the new BSD regime, which also applies to premiums payable to the state for lease upgrade and intensified use of land, "should add meaningfully to the government tax revenue in light of an improved property market".

It should not significantly impact buying sentiments of genuine home buyers and property developers who need to replenish their depleting land bank, he added.

Still, some developers are rushing to get provisional planning permission for development sites before March 1, when revisions to development charge rates kick in. This is to avoid an increase in capital outlay for the developments, Mr Lee said.

Knight Frank consultancy and research head Alice Tan noted that with home-buyers also bearing a higher tax burden on residential purchases above S$1 million, it becomes crucial for developers to "set practicable prices to manage the price expectations of home-buyers as they balance current stamp duty costs and prospects of future capital appreciation".

The proportion of private residential transactions (including those for executive condominiums) above S$1 million rose to 64 per cent in 2017, from 56 per cent in 2015 and 2016, based on caveats lodged.

But generally, consultants expect the incremental tax burden for the majority of home-buyers to remain manageable.

Also speaking at the Redas lunch, Second Minister for National Development Desmond Lee agreed that there is "renewed confidence in today's property market".

But he stressed that markets move in cycles and the number of private homes available for sale is expected to more than double in the next few years.

Of the pipeline supply of 36,029 private residential units (under construction or with planning permissions), 18,891 remained unsold as at the end of last year.

Redas' Mr Tan estimated that another 34,495 units could be available for sale this year and the next from land-sale sites that have yet to be granted planning approvals and those that can be generated from the confirmed and reserve lists of the first-half 2018 GLS programme.

Meanwhile, there are still 120 sites at various stages of preparing for collective sales.

"Assuming the estimated 5,125 displaced owners from collective sales do not downgrade to public housing and analysts' forecast of 13,000 sale transactions for 2018, the overall unsold inventory and new supply represents four years of demand," he said.

Apart from supply-demand dynamics, other longer-term factors that could affect the property market include global economic outlook and demographic shifts.

Mr Tan noted that the Singapore economy's susceptibility to external demand warrants close tabs on the structural challenges in the global environment and investment behaviours.

The expected slower growth from late 2019 on the back of rising global interest rates and a business-cycle slowdown, as flagged recently by Monetary Authority of Singapore managing director Ravi Menon, will affect real-estate business sustainability and Singapore's real estate growth, Mr Tan said.

The increased use of technology as well as an ageing population also means developers will have to look at new building concepts and buyer-centric typologies that meet these changing needs, he added. "With land scarcity in Singapore, there may be a need for more mixed-use developments with higher density."