Property measures: Sellers have to hold on to private homes for longer, stamp duty rises

Key Concepts

Seller's Stamp Duty (SSD), property flipping, cooling measures, subsales, holding period, speculation, demand and supply distortion, preventive and preemptive measures, market overheating, genuine buyers, investment vs. owner occupancy.

Changes to Seller's Stamp Duty (SSD)

• New Rule: Private home owners must hold onto their property for a minimum of four years to avoid paying Seller's Stamp Duty (SSD). This is an increase from the previous three-year holding period.
• Effective Date: The changes apply to properties purchased from today.
• Increased SSD Rates: The SSD rates have increased by 4 percentage points across the board. Selling within the first year now incurs a 16% SSD rate.

Rationale Behind the Changes

• Preventing Sharp Price Increases: The changes aim to prevent sharp price increases and spread out demand over a longer period.
• Avoiding Market Overheating: Authorities want to avoid a "spiral" effect in the market driven by buyer sentiment and sudden surges in demand.
• Curbing Short-Term Speculation: The measures are designed to curb short-term flipping of private homes, which can distort demand and supply indicators.
• Addressing Increased Subsales: There has been a significant rise in subsales, particularly of units that have not been completed, since the pandemic. Last year, more than 2,000 people sold their private homes after holding them for between three and four years, an increase of more than five times from 2020.
• Global Uncertainty: Macroeconomic uncertainties, including trade wars, tariffs, and the war in Ukraine, contribute to the need for caution.
• High Property Prices: Despite a slowdown in price growth in the last two quarters, property prices remain high. From 2017 to the second quarter of 2024, prices have cumulatively increased by about 40%, a level of growth last seen between 2009 and 2013.

Impact on the Market

• Limited Impact on Overall Market: Property agents do not foresee a significant impact on the overall private market, as many buyers are looking to purchase property with a medium to longer-term view.
• Developers' Pricing Strategies: Developers are already pricing their properties sensitively due to competition from numerous upcoming launches.
• Support for Stable Market: The Real Estate Developers Association of Singapore (REDAS) supports a stable and sustainable property market where prices grow in line with long-term economic and income growth.
• Pacing Out Demand: The changes are expected to help pace out demand over a longer period, preventing sudden surges that can drive up prices.

Expert Perspectives

• Professor Singh Tienfu (NUS Business School):
  • The SSD adjustment is viewed from two perspectives: the global environment and the local front.
  • The extension of the holding period and the increase in SSD rates will impact speculators by increasing holding costs.
  • The SSD is not intended to prevent genuine owner-occupiers from buying for long-term investment purposes.
  • Speculative activity can lead to overpricing in the market, which is a concern given that markets in China and Hong Kong have not recovered.
• Desman Sim (Relion Group):
  • The current tweak is not the first time the SSD rules have been adjusted.
  • The measure is both preventive and preemptive, addressing the higher volume of subsales post-COVID.
  • Subsales, especially those before completion, distort demand and supply indicators by creating the illusion of higher sales for speculation rather than investment or owner occupancy.
  • The measure targets the divestment part (exit) and is not nationalistic, as it applies to all sellers regardless of nationality.
  • Statistics show that foreigners account for less than 2% of subsales.
  • The changes are like a "curfew" being tightened again after being pushed.

Who are the Speculators?

• Predominantly Singaporeans and PRs: Statistics show that the majority of those engaging in speculative purchases and short-term flipping are Singaporeans and Permanent Residents (PRs).
• Foreigners Account for Small Percentage: Foreigners account for less than 2% of subsales.

Potential Future Developments

• Holding Period Could Rise: The holding period could potentially rise to five years or more in the future.
• Alignment with Project Completion: The four-year holding period aligns well with the typical four-to-five-year completion time for new projects, encouraging people to hold until completion to avoid full mortgage installments.

Conclusion

The changes to the Seller's Stamp Duty (SSD) in Singapore are aimed at curbing short-term speculation in the private residential property market, preventing sharp price increases, and ensuring a stable and sustainable market. The measures target speculators, primarily Singaporeans and PRs, who engage in flipping properties for quick gains, distorting demand and supply. While the immediate impact on the overall market is expected to be limited, the authorities remain vigilant and may consider further adjustments, such as extending the holding period, to maintain market stability in the face of global economic uncertainties. The focus is on promoting genuine long-term investment and owner-occupancy rather than speculative activities.