On trigger-shy developers and tax probes
Private home prices continued rising in the first quarter. Yet, developers are trigger-shy about buying housing sites.
This year’s maiden state land tender for a 99-year leasehold private housing site at Lentor Gardens in the Yio Chu Kang area drew just one bid. GuocoLand and Hong Leong Holdings’ Intrepid Investments submitted a joint bid of S$486.8 million, or nearly S$985 per square foot per plot ratio (psf ppr).
DBS Group Research sees GuocoLand emerging as the “King of Lentor”. The listed group is also involved in developing Lentor Modern and Lentor Hills Residences.
Maybe the lack of bids for the Lentor Gardens site is due to the large supply in that area. The site was the fifth site to be released in Lentor Hills Estate since July 2021.
Two more sites are slated for release: a reserve-list site also along Lentor Gardens, and a confirmed-list plot along Lentor Central. In all, the seven sites could potentially yield some 3,500 new private homes.
Are housing developers showing aversion to buying land due to worries over the outlook for demand and prices possibly correcting?
As it stands, rising interest rates and slowing economic growth are affecting home sales in markets such as the United Kingdom and New Zealand.
The caution shown by developers in acquiring land here has also been felt in the collective sales market. Fewer en bloc deals are being done amid a gulf in expectations, with a price gap of up to 15 per cent showing between what developers will pay and what owners are asking.
Still, the housing market here has been resilient. The number of million-dollar Housing and Development Board (HDB) flat transactions in March rose 62.5 per cent from the month before, with 39 such deals taking place. These transactions constituted 1.7 per cent of HDB resale transactions in March.
Meanwhile, 340 out of 638 homes or 53 per cent of the units at Tembusu Grand, which is being developed by City Developments and MCL Land, were sold during its launch weekend. Located in the Katong area, the project achieved an average selling price of S$2,465 psf.
About 90 per cent of the buyers were Singaporeans, while the remaining 10 per cent comprised permanent residents and foreigners.
Buying one’s first home is exciting yet scary. I did not time the market when buying my first home. I bought a home with my spouse upon getting married more than two decades ago.
Christine Sun, senior vice-president of OrangeTee & Tie Research & Analytics, has some useful tips for first-time home buyers in today’s market.
Property buyers almost always hope for capital appreciation. This applies to shipbuilder Yangzijiang Shipping in its purchase of Robinson Point - a commercial building in Singapore’s Central Business District.
Many non-property groups have prospered from owning property here. Still, I argue in The Level Ground that it may not be optimal for non-property groups to buy real estate here today, given where yields sit.
Non-property groups should instead keep a laser-like focus on their core businesses. Moreover, a listed company need not own a building to boost its profile.
While values of commercial properties are generally holding up in Singapore, there are worries over the risks posed by almost US$1.5 trillion of commercial real estate debt in the United States (US) that comes due for repayment before the end of 2025.
Perhaps, a mix of rising interest rates, a slowing US economy and the continuation of hybrid work arrangements may mean the value of the property portfolio of local-listed Manulife US Reit will be marked down further. Caution is thus advised for any party who wants to buy the trust’s platform.
On the other hand, the worst could be over for debt-laden Chinese developers. Goldman Sachs Asset Management sees opportunities for strong returns in Chinese property firms’ high-yield dollar notes as business prospects have improved.
I know of people who have built wealth by owning multiple homes here. Owning another home, besides the one that one lives in, can be a good way to earn passive recurrent income to help fund retirement needs. One may also reap capital gains.
Unfortunately, building a portfolio of homes here is tricky. A Singapore citizen pays 17 per cent Additional Buyer’s Stamp Duty (ABSD) when buying a second home and 25 per cent ABSD when buying a third and subsequent home.
Perhaps, a first-time buyer may exercise the sales option on a home as the sole buyer, so no ABSD is payable, but soon after, sell a 1 per cent share to a relative, who owns an existing home.
The arrangement enables an existing private homeowner to have a related party front the purchase of an additional home. The expectation is that the second owner will then pay only 1 per cent of the ABSD chargeable on the purchase of an additional property.
However, those pushing the envelope in their structuring of home purchases should be careful.
Last week, the Inland Revenue Authority of Singapore said it is investigating property transactions under an audit to uncover cases of avoidance of stamp duty tax. The tax agency is looking into various forms of property holding arrangements, including scenarios where buyers purchase properties under a contrived or artificial arrangement in order to reduce or avoid the ABSD, or any other form of stamp duties they have to pay.
Speaking of taxes, the deadline for individuals who need to file a tax return here is fast approaching.
Paying taxes is a pain. Still, the solace one gets is that taxes collected are hopefully put to good use to fund spending in areas such as defence, education and healthcare.
