In an unexpected move, the Singapore government has taken further measures to cool the resurgent property market. These measures are:-
- introducing a seller's stamp duty ("SSD") on all residential properties and residential lands that are bought on or before 20 February 2010 and sold within one year from the date of purchase;and
- to 80% for all housing loans provided by financial institutions (which include banks, finance companies and trust companies) regulated by the Monetary Authority of Singapore ("MAS").
The joint press release by the Ministry of National Development, Ministry of Finance and MAS on 19 February 2010 announcing the above measures took the property market by surprise. This comes just six months after the set of measures introduced in September 2009, which had the similar intention of tempering the exuberance of the market. The government explained that the September 2009 measures of scrapping the interest absorption scheme and interest-only housing loans and announcing the resumption of confirmed list land sales in the first half of 2010 cooled sentiments only temporarily, with recent signs that the market is heating up again.
Seller's stamp duty ("SSD")
The government states that the objective of the SSD is to curb short term speculative behaviour in the residential property market which "could distort underlying prices". Short term speculators are those who tend to "flip" their property less than a year after buying it for quick profit. This tool is reminiscent of the anti-speculative measure taken by the government in 1996 where sellers had to pay stamp duty if they dispose residential property within three years of acquiring it. This measure was subsequently removed in 1997.
The Inland Revenue Authority of Singapore ("IRAS") has released an e-tax guide, elaborating on the details relating to the SSD:-
(1) When SSD applies: SSD is payable by sellers of residential properties which are purchased on or after 20 February 2010 and sold within one year from the date of purchase. This is in addition to the stamp duty the seller had earlier paid on his purchase. SSD is not applicable to HDB flats as they are already subject to a minimum occupation period of at least one year.
(2) Definition of Residential Property: "Residential Property" is defined under the IRAS e-tax guide as:
- any house, building or other premises or any part thereof which is permitted to be used pursuant to the Planning Act (Cap. 232) or any other written law as a dwelling-house or which is lawfully so used; and
- any land zoned in the Master Plan for solely residential purposes or for mixed purposes, one of which shall be residential.
(3) Material Dates: For purposes of computation of the holding period for SSD, the date of purchase is the date when the buyer ("Buyer A") exercises the option to purchase the property or signs the sale and purchase agreement, whichever is earlier. The date of resale of the property is the date when the subsequent buyer ("Buyer B") exercises the option to purchase the property from the seller (i.e. Buyer A), or signs the sale and purchase agreement, whichever is earlier.
(4) Manners of transfer where SSD is applicable:-
- direct sale or purchase;
- by way of collective sale or purchase;
- by way of mortgagee sale;
- by way of gift, release, settlement or trust where the beneficial interest in the property passes to the beneficiary;
- by way of distribution upon voluntary winding up of the company;
- by way of letter of authority;
- by way of exchange; and
- by way of inheritance or under right of survivorship in joint tenancy if the property is disposed of within one year of the property being acquired by the deceased on or after 20 February 2010.
(5) Partial residential interest: Where the transfer relates only to a partial interest in the residential property, SSD is payable on the consideration or the market value of the partial interest, whichever is higher. Joint tenants are deemed to have equal interest for this purpose.
(6) Computation and Payment of SSD: SSD will be applied at the same rate as the purchaser's stamp duty which is currently 1% for the first S$180,000 of the consideration, 2% for the next S$180,000 of the consideration and 3% for the balance. Like the purchaser's stamp duty, SSD must also be paid within 14 days of the exercise of option or signing the sale and purchase agreement. If the execution is done overseas, upon receipt of the agreement in Singapore, the SSD must be paid within 30 days.
(7) Exemptions: Briefly, SSD is exempted or remitted on the following:-
- a contract or transfer executed by a housing developer;
- a contract or transfer executed by any public authority,
- a disposal or transfer by reason of land acquisition or repossession by the government/HDB;
- property passing on death of owner to persons beneficially entitled to the residential property by virtue of the will or the laws of intestacy subject to paragraph (4)(h) above;
- disposal upon bankruptcy or involuntary winding up of the owner,
- disposal by a foreigner as required under the Residential Property Act; and
- disposals or transfers made in which specific remission or relief for buyer's stamp duty has been granted to the transferee.
(8) Penalty: If the seller fails to pay SSD when and where required, IRAS will recover the deficient duty. Under the Stamp Duties Act, a penalty of up to 4 times the amount of deficient duty may be imposed.
(9) Payment Procedures: The same module and form (as the case may be, depending on whether the payment is made by way of e-stamping or manually) as for paying purchaser's stamp duty is used, with the additional step of inserting the word "(SSD)" after the name of the vendor/transferor/assignee in Section C.
Lowering loan-to-value ("LTV") limit to 80% for housing loans
The objective of lowering the LTV limit from 90% to 80% for housing loans is to prevent speculation, to instill greater financial prudence among property purchasers, and to ensure that financial institutions maintain credit standards. This measure will have the effect of flushing out marginalised purchasers as they will now have to fork out at least 20% of the purchase price. The government stated that while less than 10% of housing loans granted are at LTVs greater than 80%, there are "signs that more housing loans are originating at higher LTV bands." Mortgage lending has also increased in the past year.
(1) Applicable housing loans: The 80% LTV limit will apply to all housing loans granted by financial institutions for private residential properties, executive condominiums, HUDC flats and HDB flats. Loans granted by HDB for HDB flats will not be affected by this new limit as HDB flats are already subject to other anti-speculative measures.
(2) MAS notice: MAS Notice 632 (Amendment) 2010 (the "Notice") reflects this latest measure. Pursuant to the Notice, a financial institution shall not grant a loan to a purchaser of residential property which exceeds the relevant amount.
The relevant amount means the lower of:-
(a) 80% x V; or
(b) (95% x V) less the amount withdrawn from the borrower's CPF account for payment towards the purchase price of the property and for payment of stamp or legal fees,
where V is the adjusted purchase price or current market valuation of the property, whichever is lower.
The above does not apply to any refinancing facility, any facility granted by a bank to its employee for the purpose of purchasing residential property for occupation by the employee and/or bridging loans.
(3) Material date: The 80% LTV limit will apply to transactions where the date on which the option was granted falls on or after 20 February 2010, or if there is no option, where the date of the sale and purchase agreement falls on or after 20 February 2010. This differs from the material date for levying the SSD where the date on which the option is exercised is the commencement date for the computation of the one year period.
Additional supply of residential sites in the pipeline
The government will also ensure that there is adequate supply of housing to meet demand. Already, the sites made available in the confirmed and reserved list of the government land sales ("GLS") programme in the first half of 2010 is the highest supply quantum in the history of the GLS programme. If necessary, the government will inject more supply in the second half 2010 GLS programme.
The government has emphasised that these "calibrated measures", taken to prevent a speculative bubble from forming, will not affect genuine buyers with financial means to hold property. It added that the approach is to administer small doses of cooling measures early, rather than have to act drastically when a bubble is formed. It will continue to monitor the market closely and will introduce additional measures if required later. Senior Minister of State for National Development, Grace Fu, clarified that, besides price, a comprehensive range of other indicators is also taken into account including the volume of sub-sales and the number of "flips" in the market.
Market watchers believe that some speculators who have been granted options to purchase residential properties recently but have yet to exercise them may allow their options to lapse and have 1.25% of the purchase price forfeited, rather than be subject to SSD later. While sentiment remains cautious as purchasers pause to re-evaluate the situation, comments in the media by property experts are generally positive with expectations that these measures affect only a small proportion of buyers and that demand for private homes will remain strong. In particular, the Real Estate Developers' Association of Singapore stated that these measures should not adversely impact activities in the property market or significantly impact genuine buyers and investors. However, it remains to be seen whether the measures will effectively stabilise the market or whether the government will consider it necessary to administer even tougher steps to cool the property fever.