News Flash: Govt eases property cooling measures: sellers’ stamp duty holding period now 3 years, rates cut; TDSR relaxed for retirees needing cash.
*Seller Stamp Duty (SSD)*
Impose SSD on holding periods of up to 3 years, down from the current 4 years;
The new Seller Stamp Duty (SSD) rates only applies to property purchase *on or after 11 March 2017*
– Selling it 1st year after purchase 12%
– Selling it 2nd year after purchase 8%
– Selling it 3rd year after purchase 4%
*Total Debt Servicing Ratio (TDSR)*
TDSR 60% framework is no longrr applied to mortgage equity withdrawal loans with LTV ratios of 50% and below.
1) SSD reduce from 4 year to 3 years from purchase. First tier revised to 12%, 8%,4%
2) Term loan with LTV below 50%, no TDSR required
Who benefits from the rules changes?
There are two main groups who benefit from the new rules.
Short-term property investors
The first group are short-term property investors, otherwise known as house flippers/property speculators, who like to buy and sell single units. These investors can now “flip” a house by selling it over the short term (on the fourth year and beyond). For example:
A house flipper could buy a new, under-development condo using a FHR loan (banks like DBS and UOB have loans that are as cheap as 0.6 percent per annum for under-development properties). Once the property is completed in four years, they can sell it without incurring the Seller Stamp Duty. As such, they pay low interest for the first few years, and then cash out on the fourth.
Even using other types of home loans, these investors stand to benefit. This is because most home loans have very low interest rates (teaser rates) for the first three years. By the time the interest rate is set to rise, the investor can offload the property.
As such, new developments that are between 3 – 3.5 years to TOP, such as Grandeur Park Residences, Parc Riviera, Park Place Residences and The Clement Canopy might stand to gain. There is usually a small jump in capital appreciation and a spike in liquidity when TOP happens, so investors would be enticed to buy a unit now and time it to sell in 3 years when the Seller Stamp Duty/TOP is completed.
The second group to benefit are retirees, those who mostly paid up housing, but little or no income.
For example, a retiree might own a property that is worth $2 million, but have have zero income. This group of people wouldn’t previously have been able to get mortgage equity loans, as they cannot meet the TDSR with low or no income.
Who doesn’t benefit from the rule changes?
HDB flat owners/buyers
For most HDB flat owners or buyers, these rule changes will not matter much to them. You cannot use mortgage equity withdrawal loans for HDB flats, only private property. Likewise, the easing of the Seller Stamp Duty is not relevant to most flat buyers; HDB flat buyers cannot sell their flat before the Minimum Occupancy Period (MOP) of five years anyway.
In addition, Singaporeans who have been servicing their mortgage using their CPF Ordinary Account (CPF OA) will not benefit much. This is because the amount you can borrow against your house is reduced by the CPF monies you have used (if your entire mortgage was paid using your CPF monies, you would not be able to borrow anything).
Long term and foreign property investors
Those who want to buy and collect rent over 10 or 15 years, or long-term investors, will also benefit less. Easing the Seller Stamp Duty restrictions has no bearing on them, as they don’t intend to sell over such a short period anyway. However, they do stand to benefit from mortgage equity loans, if they need to get cash out of their property later. Foreign investors too might not benefit as much, as the Additional Buyers’ Stamp Duty (ASBD) rates are still applicable to them. Although they still do stand to earn from the SSD changes if they sell earlier (eg. Selling after 1 year: 15 percent ABSD – 16 percent SSD = 1 percent loss vs 15 percent ABSD – 12 percent SSD = 3 percent gain), it is still only a marginal profit.
What about the general effects on the market?
House flippers do tend to cause prices to rise, if there are a lot of them (because they buy and resell properties at a higher price, within a short period). This could push up private property prices across the board, in a broad sense.
However, these slight tweaks are not likely to cause prices to jump right away. The main causes of a sluggish property market are still the ABSD, and the TDSR restriction for home buyers. These have not yet been eased.