The Government first introduced a Seller’s Stamp Duty (SSD) in
February 2010 on all residential properties to cool the housing market
that was rebounding on the back of the economic recovery from the global
financial crisis in 2009.
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The SSD was subsequently revised twice
— in August 2010 and January 2011 — to serve as additional deterrence
against short-term speculation. Sellers are slapped with a stamp duty of
16 percent of the property price if the home is sold within a year of
purchase. The SSD reduces to 12 percent, 8 percent and 4 percent if the
property is sold within the second, third and fourth year of purchase
respectively.
The move helped to curb speculation and drove down
sub-sales but the market impact of the SSD was rather short-lived.
Demand for new private homes picked up pace and a few more rounds of
cooling measures were introduced amid record high property prices. So is
the SSD still relevant today, given that it has had little effect on
reining in property prices?
In fact, the SSD may actually delay
the physical housing supply over the next two to three years and, if not
dealt with properly, could act as a double-edged sword for the private
homes market.
In order to understand how the SSD changes the
supply in future, it is assumed that owners of recent purchases would
choose to wait out the four-year period in order to avoid paying any
SSD. In reality, there may be some owners who might cash out their
properties earlier and pay the relevant duties.
According to our
findings, a total of 16,173 units have received or are expected to
receive their temporary occupation permit (TOP) this year, but 950 units
are not available for sale in the open market. This is because they
were bought within four years from January 2011 and are still affected
by the SSD.
As a result, the actual number of newly-completed units available in the market will be 15,223 units. (Refer to chart)
The
same trend will continue in 2014 and 2015: There will be 2,308 and
6,313 net units locked up by the SSD, reducing the original pipeline
supply by 12 percent and 32 percent respectively. Interestingly, the
supply situation will reverse in 2016, as more locked-up units will be
made available in the market after the four-year hold-out period.
A
total of 33,555 units are expected to hit the market in 2016 alone,
tripling the 10-year average number of private home completions. Of
this, 27,181 units will come from newly-completed projects, while the
remaining 6,374 will be from the stock of previously locked-up units.
The actual number could be about 10 percent to 20 percent higher because
caveat data is typically lower than the actual number of units sold by
developers.
Hence, the imposition of the SSD seems to stifle
actual supply in the market in the short term, which could result in
even lower transaction volumes in the next two years. The rental market
could also be weighed down, as all the newly-completed units which were
bought within four years are likely to be leased out instead.
When
buyers have insufficient choices in the secondary market, the primary
market will naturally become their focus. This could potentially push up
demand for private residential properties, despite having record
completions in the pipeline.
The SSD could, therefore, work
against the Government’s intention to have sustained price growth for
housing that is in line with the economic fundamentals.
Perhaps
it is time to tweak the SSD and allow owners to sell their units within
four years. This will of course come with certain conditions, so as to
prevent investors from flipping their units too quickly. The move will
also help to stabilise the rental market in the medium term.
Perhaps
for properties bought and sold within one year, the SSD can remain at
16 percent, but for those sold after one year; a capital gains tax can
replace the SSD to give sellers some flexibility.
By Christine Li
The writer is the head of research and consultancy at property firm OrangeTee.