Singapore property: Understanding the changed regulations
Earlier in March, a few property regulations were relaxed on the back of the slowing economy and sagging demand, as well as calls by analysts and insiders of the industry.
That said, very few changes were made and most of the old regulations remain in place.
Among the changes made were a shortened imposition of the Seller’s Stamp Duty (SSD) from a 4 year holding period to a 3 year holding period, as well as lower SSD rates from 4% to 16% previously to 4% to 12% currently. The regulations on the Total Debt Servicing Ratio were modified, and a new stamp duty called the Additional Conveyance Duties was introduced.
SSD stands for Seller’s Stamp Duty. An owner of a property is required to hand over a certain percentage of the property price to the government depending on how long they retained ownership of the property – or the holding period of the property – before selling it off. The measure is intended to prevent the formation of a property bubble through speculation, or property flipping.
TDSR stands for Total Debt Servicing Ratio. This indicates the percentage of a potential property buyer’s gross monthly income that can be spent on all paying back debts of all types, including mortgage, credit card, car loans and any other type of loan that they may have taken. The TDSR is capped at 60 percent, so banks and other lenders must ensure that the borrower does not end up paying more than 60 percent of his monthly income on clearing his debt.
ABSD, or Additional Buyer’s Stamp Duty, is another form of duty imposed on Singapore Citizens, Permanent Residents and foreigners alike. However, the rate at which they are charged varies. Singapore citizens have to pay 7 percent for buying a second property and 10 percent of the property price for his 3rd or subsequent property. For PRs, the rate starts from 5 percent for the purchase of the first unit and for foreign citizens, the rate stands at 15 percent for any number of units purchased.
Additional Conveyance Duties are imposed on “significant owners” of Property Holding Entities (PHE) that shift shares to other owners. PHEs are those entities, including companies and trusts, that own 50 percent of its total assets in residential property or more.
Few major changes implemented through ‘calibrated adjustments’
As the Ministry of Finance explains, ABSD and Loan to Value (LTV) ratios remain unchanged from before. The relaxations on the Seller’s Stamp Duty arose from the significant drop in sales transactions within the four year holding period.
TDSR also remains unchanged, but the TDSR framework will no longer be applied to mortgage equity withdrawal loans with loan to value (LTV) ratios of 50% and below. The change in the TDSR framework works out for property owners in their retirement years who would like to gain some cash from their property through a mortgage equity withdrawal loan.
A mortgage equity withdrawal loan allows property owners high in asset but short on cash would be able to cash in on the opportunity and monetize their asset in exchange for cash.
Little effect on developers and the market
Most industry insiders believe this would have little effect on the market because the government has changed few of its rules or regulations, with the notable exception of the gradual loosening of the SSD.
While the government may have its reasons for preventing the buildup of a property bubble, these new changes will not bring about any major change to the market, and with the outlook for the wider economy remaining somewhat gloomy, the news is not exactly a welcome relief.
Developers and real estate agents might have to wait for the economy to pick up speed before their fortunes shine again.