Higher ABSD deters homebuyers in 2019

By EdgeProp Singapore / EdgeProp and Knight Frank | February 8, 2019 3:14 PM SGT
Findings from the EdgeProp-Knight Frank Homebuyers’ Sentiment Survey conducted in 4Q2018 revealed that higher Additional Buyer’s Stamp Duty (ABSD) rates from last year’s property cooling measures are the main hurdle facing homebuyers in 2019.
Effective July 6, 2018, Singaporeans buying a second residential property must pay an additional 12% ABSD on the property value, up from the previous 7%. Permanent residents (PRs) buying a second home now pay 15% compared to the previous 10%. Meanwhile, foreign buyers without permanent residency status must fork out 20%, instead of 15%.
This latest round of property cooling measures, announced just a day before they took effect, came as a surprise, arriving just as property developers have replenished their land banks throughout 2017 and into the first half of 2018 in anticipation of blockbuster sales. The cooling measures, intended to curb the exuberance in the housing market, introduced higher ABSD rates and tighter loan-to-value (LTV) limits.
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Cooling a red-hot residential market
Property prices started to rise in 3Q2017 after falling for four consecutive years, increasing sharply by
9.1% y-o-y the same year. Demand for private residential property also saw a strong recovery, as transaction volumes continued to rise.
It was also around this time that developers heightened a growing collective sale fever. Based on URA data, the year 2017 saw 29 en bloc transactions totalling $7.31 billion, compared to $1.2 billion in 2016 and $380 million in 2015.
The fever continued unabated into 1H2018, which saw 31 en bloc deals totalling nearly $8.85 billion.
The collective sale of Park House hit a record-high price of $2,910 psf per plot ratio in June 2018. (Image source: CBRE)
Notably, the collective sale of Park House in June 2018 hit a record-high price of $2,910 psf per plot ratio (ppr) when it was sold by Hong Kong-listed Shun Tak Holdings at $375.5 million. It smashed the record set by the former Hampton Court for $155 million ($2,526 psf ppr) in January 2013, where the buyer was Hong Kong-listed British conglomerate Swire Group’s Swire Properties.
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Increased buying demand, coupled with the flurry of en bloc activities, resulted in a spike in property prices, which quickly prompted the government intervention to cool the red-hot residential market.
Post-ABSD housing affordability
The cooling measures have affected housing affordability because the LTV limit has been slashed to 75% from 80%.
According to Lee Nai Jia, senior director and head of research at Knight Frank, first-time buyers were most heavily affected by the latest cooling measures.
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“With the new measures, even if they do not have to pay ABSD, financing could be clipped for these first-time buyers due to a tighter LTV ratio,” said Lee.
The frenzied buying that occurred in the evening before the cooling measures took effect caused a surge in new home sales in 3Q2018. Developers had brought forward three launches to allow buyers to lock in deals before changes to the ABSD and LTV kicked in, resulting in over 1,000 units sold in a single evening.
The following quarter saw a decline of 37.8% in new home sales. However, this decline could be due to the frenzied pre-ABSD buying and seasonal effects. Sales tend to be slower in the fourth quarter each year due to school holidays and festivities.
Fewer looking to buy homes this year
Of the 803 respondents to the EdgeProp-Knight Frank Homebuyers’ Sentiment Survey, only 43.1% said they were looking to purchase a residential property in Singapore in the next 12 months. The survey was jointly conducted by EdgeProp Singapore and Knight Frank Singapore in 4Q2018.
EdgeProp-Knight Frank Homebuyers’ Sentiment Survey
In the previous survey conducted in 2017, 55.6% of 611 respondents said they were on the lookout for a residential property. Meanwhile in 2016, 51.2% of the 500 respondents said they were on the lookout for a residential property here.
Based on responses to the survey, 42.6% said that higher ABSD rates were the main reason for not buying property in 2019. This was followed by the sentiment that property prices were expected to decline further (25.1%), while 24% said they did not have enough savings to make a downpayment.
It is worth noting that 16.7% of the respondents said they do not own any properties, while 60.5% indicated owning one property, 16.9% indicated two properties, and the remainder, three or more properties.
EdgeProp-Knight Frank Homebuyers’ Sentiment Survey
How will new launches fare in 2019?
For 2019, Knight Frank’s Lee said the survey results revealed a strong underlying housing demand in the market. “However, buyers [nowadays] are more discerning and likely to adopt a wait-and-see approach. That said, buyers are likely to enter the market if prices stay at their existing level,” he added.
According to Lee, new launches in 2019 will see sales of between 15% and 20% of total units per project. Already, this was observed for RV Altitude and Fyve Derbyshire, which were both launched in January. The survey suggested that buyers may wait on the sidelines as they expect prices to decline further, he said.
The 140-unit RV Altitude and 71-unit Fyve Derbyshire sold 14% and 18% of their total units during their launch weekends, with prices ranging from $2,729 psf to $3,100 psf and $2,200 psf to $2,700 psf respectively.
Before the cooling measures on July 6, 2018, some developers were able to achieve sales of up to 60% within the first weekend of launch. After the cooling measures, from July to December 2018, the average sales rate achieved was 28% for the same period.
The decline in sales probably reflects the heightened caution among buyers under current market conditions. However, buyers may return if prices continue to stay at current levels as they may have gotten used to paying the stamp duties.