On 11 January 2013, the Singapore Government announced another round of property market cooling measures, ranging from increasing the applicable rates for Additional Buyer’s Stamp Duty (ABSD) and lowering the Loan-to- Value (LTV) limits for second and subsequent housing loans, to new curbs on housing developers’ design and sale of Executive Condominiums. Combined factors including excess liquidity, ultra-low interest rates and strong socio economic fundamentals have caused the continuous growth in property prices since 2008, especially in the popular residential sector.
After six rounds of cooling measures which at best slowed down the pace of increase in residential property prices, the Government is resorting to what I term as “ice therapy” to bring down the rising temperature of the residential property market. Undoubtedly, these measures are the toughest to-date, calculated to affect a residential property buyer by increasing his or her cash outlay, stamp duty liability and access to current cheap bank loans. In a clear signal that the Government is also watching the other sectors closely to avert a spill-over effect from the residential sector, the Seller’s Stamp Duty (SSD), already in place for residential properties, has now been introduced to curb speculations in the industrial sector to avert resultant rising prices and rentals which would add to already high business costs.
Ice Therapy 1: Further ABSD Measures - Increase in ABSD Rates & Imposition of ABSD on New Group of Purchasers
ABSD was first introduced on 8 December 2011 by the Government to residential purchases in Singapore to curb demand. This is payable in addition to the usual Buyer’s Stamp Duty (BSD) payable on all purchase of properties. Prior to 12 January 2013, ABSD affects certain group of home buyers, summarised generally as follows:-
- Foreigners and Non-individuals (including developers) pay ABSD at 10% for any purchase of residential property;
- Singapore Permanent Residents (PRs) pay ABSD at 3% for their second and subsequent residential properties; and
- Singapore Citizens pay ABSD at 3% for their third and subsequent residential properties.
From 12 January 2013, the ABSD rates will be increased across the board for all the groups of homes buyers mentioned above. Further, ABSD is now imposed on PRs buying their first residential property at 5% rate and on Singapore Citizens buying their second residential property at 7% rate. ABSD is also chargeable on PRs purchasing Housing Development Board (HDB) flats.
In my view, this is a very strong measure to discourage investment. The only ones “spared” are the first time Singaporean home buyers. The Government could have excluded the high end and luxury segments from these additional ABSD taxes by having lower ABSD rates for properties priced above S$4 million which are out of the reach of most ordinary Singaporeans. But the Government did not. This is a clear signal that it wants the market to actually correct downwards rather than just a slow down in price growth.
The 4th Edition of IRAS’s e-Tax Guide on ABSD (e-Tax Guide) was significantly revised and a Revised Edition of e-Tax Guide was issued on 11 January 2013 to take into account the changes to the ABSD rates and applicability. The salient changes are highlighted as follows:-
Changes in ABSD Rates
Changes in ABSD rates take place with effect from 12 January 2013. The following categories of buyers of residential properties have to pay ABSD at the respective rate stated as follows:-
- Foreigners and entities pay 15% on purchase or acquisition of any residential property;
- PRs pay ABSD of 5% on purchase or acquisition of their first residential property. PRs who already own one or more residential properties pay ABSD of 10% on purchase or acquisition of another residential property;
- Singapore Citizens who already own one residential property pay
ABSD of 7% on the purchase of their second residential property. Singapore Citizens who already own two or more residential properties pay ABSD of 10% on the purchase of another residential property.
In this Revised Edition, the term “entity” is used in place of “non-individual”. The term “entity” is defined to mean a person who is not an individual and includes an unincorporated association, a trustee, a trustee-manager and the partners of a partnership holding the residential property as partnership property. There is no doubt that a company falls within the meaning of “entity”.
These new ABSD rates will apply to Contracts or Agreements dated on or after 12 January 2013. However, the transitional rules allow the application of the “old” ABSD rules/rates subject to approval for remission by IRAS, where an Option has been granted on or before 11 January 2013 and exercised thereafter on or before 1 February 2013 without any extension of the option period.
Application of ABSD to Residential Properties (Wholly or Partly Residential)
Paragraph 3.2 of the Revised Edition states the categorisation of Residential Properties. In the 4th Edition, the categories of Residential Properties are (a) Existing Buildings and Buildings under Construction and (b) Vacant Land.
The Revised Edition states (A) Building Units (including those under construction) and (B) Vacant land or entire building on land with Master Plan zonings as shown in Table 1 on page 6 of the Revised Edition.
For Building Units, the determinant factor here is its “permitted use” instead of “approved use”. Further, permitted use is specifically defined in this Revised Edition. Most significantly, it is a use permitted by a Written Permission given under section 14(4) of the Planning Act other than that given for a period of 10 years or less, ie, exclude temporary change of use. For (B) Vacant land or entire building on land, the zoning of the land is looked at to determine if it should be considered as residential property for ABSD, as represented in Table 1. The principle here seems to be this: If the zoning allows for possibly 100% residential usage, then the land is 100% residential. From Table 1, where the zoning is “White (where residential development is permitted)” then ABSD is applicable on 100% of land/building value as opposed to 4th Edition stating that ABSD liability on residential component only.
Further, where the zoning is Residential/Institution, ABSD is payable on 100% of land/building value as opposed to the 4th Edition stating that ABSD liability “if residential properties are built” and no ABSD liability if “institutional properties are built”.
To category F for non-residential, has been added B1-White, B2-White and BP-White; all of which do not attract ABSD, and this seems right.
It is humbly submitted that it is not fair to charge ABSD on White sites or on sites zoned “Residential/Institution” if no residential component is actually planned to be built. It is also unfortunate that IRAS did not take this opportunity to introduce the concept of using Gross Floor Area (GFA) to determine the value of the residential component for the sites with zonings “Commercial and Residential” and “Residential with Commercial at 1st storey”. It is noteworthy that the GFA concept was used in the latest e-Tax Guide for Sellers Stamp Duty for industrial land.
Purchase of Additional Partial Interest in the Same Property
Paragraph 7 of the Revised Edition is re-written to make it clear that where an owner already owns a partial interest in a property, the ABSD rate applicable for acquisition of additional interest in the same property will depend on the number of properties already owned at time of the purchase.
Computation of BSD and ABSD
It is made clear in paragraph 9 of the Revised Edition that for a mixed use property with residential component, ABSD is computed on actual price paid or market value (whichever is higher) attributed to the residential component only. It is also newly emphasized that for the purchase of a partial interest in a residential property, ABSD is computed on the actual price paid or market value (whichever is higher) of the partial interest only.
Purchase of HDB Flats and Executive Condominium units that are subject to HDB Regulations on Ownership
Before 12 January 2013, ABSD is remitted for any purchase of new HDB flats, resale HDB flats and new Executive Condominium (EC) units. From 12 January 2013 onwards, ABSD will only be remitted for purchase of HDB flat or new EC by a Singapore citizen household (one where there is at least one Singaporean owner). ABSD of 5% will be payable for purchase of HDB flats by Singapore PRs. This is covered by Paragraph 10.1 of the Revised Guide and illustrated by FAQ Q14 and Q15.
ABSD Refund on Purchase of Second Residential Property
This is a new remission to be given to purchase of second residential property by a married couple involving at least one Singapore citizen spouse. The married couple may apply for the ABSD refund subject to the following conditions:-
- ABSD has been paid on the second residential property;
- The first property is sold within 6 months from the date of purchase of the second property (if it is a completed property) or Temporary Occupation Permit (TOP)/Certificate of Statutory Completion (CSC) (whichever is earlier) of the second property (if it is an uncompleted property);
- The married couple has not purchased a third or subsequent property from the date of purchase of the second property to the date of sale of the first property.
This is covered by Paragraph 10.2 of the Revised Edition and illustrated in FAQ Q3 and Q7. It is important to note that this right to apply for refund is only given to Singaporean married couple (at least one Singaporean spouse). Further it does not apply for other family relations, such as parent and child, as illustrated by FAQ Q8.
Tables 1, 2 and 3 to Annex A to the Revised Edition illustrates the different permutations of ABSD liability for a married couple. Table 4 makes it clear that there will be no remission of ABSD for married couples who are Singapore PR and Foreigner on or after 12 January 2013 since the privilege of exemption from ABSD is given only to a Singaporean buying his or her only residential property with his or her spouse who may be a Singapore PR or a Foreigner.
This is an important change to recognise the need for a married couple to hold onto their first property for staying in before they buy and get the second property ready to move into. In my view, it is fair for such married couples to get a refund of the ABSD, although some couple may find it financially challenging to pay the 7% ABSD upfront.
Development Sites with Five or More Residential Units
Remission of ABSD is allowed to housing developers who develop the residential property for sale and follow through with it. Such housing developer is given upfront remission of ABSD subject to the developer giving a written undertaking on various things, including to complete and sell all the residential units in the development within five years of the date of Contract to purchase the residential site, and to produce proof of piling and foundation works and any demolition works within two years of the date of Contract.
It is now made patently clear that in the case of land purchased through collective sale under the Land Titles (Strata) Act on or after 1 July 2012, the period of 5 years (or 2 years as case may be) will commence from the date of the collective sale order granted under the said Act. This special reference to date of the collective sale order does not appear under the remission for development sites with 4 or less residential units. Annex B of the Revised Edition provides the revised Letter of Undertaking to be signed by developer.
Frequently Asked Questions
The FAQs has been revised substantially in line with the drastic changes in ABSD rates and its application. In particular, FAQ Q39 makes it clear that ABSD and BSD should be paid together because only one stamp certificate will be issued for the document.
Ice Therapy 2: Housing Loan Measures – Lowering LTV Limits and Raising Minimum Cash Down Payment
Lowered LTV Limits
On or before 11 January 2013, the LTV limits for individuals who have one or more outstanding housing loans and are taking their second or subsequent housing loans are 60% based on the purchase price or market value (whichever is the lower), or 40% if the loan tenure exceeds 30 years or the loan quantum extends beyond the borrower’s age of 65 years. For nonindividuals (like a company), the LTV limit is 40%.
From 12 January 2013, the following will take effect:-
- For individuals taking their second housing loan, the LTV limits will now be lowered to 50%, or 30% if loan tenure is more than 30 years or loan period extends past borrower’s age of 65 years;
- For individuals taking their third or subsequent housing loans, the LTV limits will now be lowered to 40%, or 20% if loan tenure is more than 30 years or loan period extends past borrower’s age of 65 years;
- For non-individuals like companies, the LTV limit is lowered to 20%.
The LTV limit for individual borrowers who have no outstanding housing loans remains unchanged at 80%, or 60% if the loan tenure if loan tenure is more than 30 years or loan period extends past borrower’s age of 65 years.
These new and lowered LTV limits shall apply to housing loans granted for the purchase of residential property if the date of the Option to Purchase or the date of the Sale & Purchase Agreement (if there is no Option to Purchase) is on or after 12 January 2013. In other words, a home buyer who obtained an Option to Purchase before 12 January 2013 can now still apply for a housing loan to finance his or her purchase with the “old” LTV limit.
Minimum Cash Down Payment
On or before 11 January 2013, the minimum cash down payment required from individual borrowers who have one or more outstanding housing loans and are securing their second or subsequent housing loans is 10% of the valuation limit, which is the lower of purchase price or open market value.
From 12 January 2013, the minimum cash down payment required from such aforesaid individual borrowers will now be increased to 25% of the valuation limit.
For individual borrowers who have no outstanding housing loans and are applying for a housing loan to finance their purchase, the minimum cash down payment remains unchanged at 5%, or 10% if the loan tenure is more than 30 years or loan period extends past borrower’s age of 65 years.
The remaining cash difference between the valuation limit and the housing loan, after the minimum cash down payment, may be paid using either cash or CPF monies of the home buyer subject to CPF Board’s prevailing rules on withdrawal of CPF monies for purchase of residential properties.
An important exception to the lower LTV limit and higher minimum cash down payment happens when a borrower obtains a housing loan for the purchase of a property which is an EC unit purchased directly from a property developer or a HDB flat. Such a buyer or borrower must undertake to HDB to sell his existing property within 6 months of the TOP/CSC of the EC unit or taking possession of the HDB flat.
In my view, this will bring cheer to EC developers and buyers, who will not need to worry about having sufficient time to sell off their existing HDB flat and are able to access housing loan to finance their EC unit purchase as if they have no outstanding housing loan. It is humbly submitted that MAS should consider extending this exception to all married couples buying any residential property who intend to sell an existing property to move into the new property after completion or TOP as case may be.
Ice Therapy 3: Measures Specific to Public Housing
The Government introduced the following measures for HDB flats to help moderate demand for HDB flats and to encourage greater financial prudence:-
- MAS will cap the Mortgage Servicing Ratio (MSR) for housing loans granted by financial institutions at 30% of a borrower’s gross monthly income;
- MAS will cap MSR for loans granted by HDB at 35%
- PRs who own a HDB flat will be disallowed from sub-letting their own flat
- PRs who own a HDB flat must sell their flat within 6 months of purchase a private residential property in Singapore
- Announced an additional measure taking effect on 1 July 2013 to tighten the terms for grant of HDB loans and the use of CPF for purchase of HDB flats with remaining leases of less than 60 years.
Ice Therapy 4: Measures for EC Developments
The Government introduced development guidelines specific to EC Developments to ensure that the affordability of EC units for the middle income families. With effect from 12 January 2013, the following measures shall apply:-
- Maximum strata title floor area of new EC units will be limited to 160 square metres;
- Sales of new dual-key EC units will be limited to multi-generational families only;
- Developers of future EC sites will only be allowed to launch the EC units for sale 15 months from the date of award of the sites or after the completion of foundation works, whichever is the earlier;
- Private enclosed spaces (PES) and private roof terraces will be treated as gross floor area (GFA) approved or allowed for the site. The GFA of such spaces in non-landed residential developments, including ECs, will be counted as part of the “10% bonus” GFA allowed and subject to payment of development charges.
The last mentioned measure is of wide spread interest among all developers since it affects all non-landed residential developments and not just EC developments. Housing developers have now lost a way of enhancing their efficiency for the approved GFA for the site and will have to re-think their designs with their architects. It will not be surprising to find more future developments with communal roof terraces with swimming pools and gardens.
In my view, this measure is overly drastic. The same objective can be achieved by simply restricting the open roof terrace and private enclosed space to not more than 25% of total strata title area of each unit.
The revised guidelines will take effect from 12 January 2013 for all relevant applications involving new erections of developments that have PES or private roof terrace. Only formal development applications (excluding Outline Planning Permission) submitted prior to 12 January 2013 which have already been granted Provisional Permission or which will result in a Provisional Permission will continue to be evaluated under the “old” guidelines.
Ice Therapy 5: SSD for Sale of Industrial Properties
The Government can see speculative activities building up in the industrial property sector after earlier rounds of cooling measures have forced speculators to look at other property sectors for opportunities.
As such, the Government is extending the application of SSD to the industrial properties and land bought and sold within 3 years from purchase:-
- SSD rate of 15% if property is sold within first year of purchase;
- SSD rate of 10% if the property is sold within second year of purchase; and
- SSD rate of 5% if the property is sold within third year of purchase.
An analysis of the e-Tax Guide for SSD will be done on another occasion. But in meantime, it is useful to note that SSD may be remitted upon application by a developer for its sale of industrial properties developed by them. In my view, the introduction of a new SSD for industrial properties signals that the Government may act against the other property sectors if speculative activities move in those directions.
This round of ice therapy measures is likely to bring down the rising temperature in the residential property market. Buyers and developers will need time to digest the effects of the new measures. Increased construction costs and high land costs are likely to prevent any drastic drop in prices. But housing developers will probably have to offer more discounts and other incentives to entice buyers to commit, and to set the momentum going.